Catch 22 or Kafkaesque Nightmare

High-tech SMEs in the Indian “brick and mortar space

The other day, a small, high-tech Indian firm informed us of the Kafkaesque obstacles it was facing in winning an order from a Public Sector Undertaking (PSU) for a path-breaking technology – because…

  1. Procurement rules in our country insist that an SME selling a new high-tech product for the first time, which by definition can have no competitors, cannot take the single vendor route as a technology pioneer, but has to go through the conventional route of multi-vendor procurement (L1 tenders).
  2. It must also have proof of having supplied it to another PSU.
  3. It has to be at least five years old, but no start-up can be that old.
  4. If it is not tenderable – it has to go through a very elaborate, opaque vetting process which can drag on for years with zero accountability for delays.
  5. In the end, PSU and Government officials express inability to take a decision in view of the prevailing vigilance culture.

But there can never be a first time, because it has to produce proof of a first sale which cannot take place unless it produces proof of a sale before the first sale. Sound absurd? It is.

 This is a huge opportunity loss for India. SMEs the world over are the most efficient vehicles for successful induction of R & D into the eco-system and are the basis of mass manufacturing revolutions. Look at Germany. The system needs to be changed so that this energy can be tapped.

Talk about Catch-22 situations!

As a result, our company had to run around for years trying to get the technology vetted, and was finally told that the deal breaker remained its inability to produce proof of prior sale to another public sector company despite this being its first attempted sale!!?! This technology was indigenously derived from pure science and was more environmentally safe, efficient and cost effective than any comparable solution worldwide. Any Indian should have been proud of it.

The International Maritime Organization also chose to dismiss an even more high-tech product from this company without giving a proper reason for the same.  Needless to say, no one had time to help this company and push its case with either body. Contrast this with how other countries push their products!

Reductio ad Absurdum!

We are not even talking about the harassment this company suffered in obtaining land and other necessary permits and connections (water, electricity, not the political kind). Because our patenting system is incredibly, tortuously slow, they still don’t have a patent. All this needs to be urgently addressed if our companies have to succeed in the “brick and mortar space”.

Not surprisingly, the company found that no proprietary technology product from a high-tech Indian start-up manufacturing firm had EVER been sold to a PSU!! A company director told them that with existing rules and the prevalent vigilance culture it was practically impossible to do so! We would like to be corrected.

Thus, Indian procurement policies have no provisions for innovative technologies generated by high-tech start-ups, SMEs and even large firms, which end up throttling innovation. But DPP 2013 provides for single vendor foreign purchases if the technology is strategic. It is as if GOI never imagined an Indian company could produce world class technology!

If this absurd state of affairs is true then how can we ever hope to encourage manufacturing innovation?

There is a need for a mindset change here and also changes in the rules.

We tried to come up with recommendations for manufacturing technology start-ups, and we would welcome comments on any improvements and suggestions:

  • Reform economy-wide Procurement/ CVC Guidelines to encourage procurement from start-up/ innovative firms with new, pioneering technologies.
  • Establish single window clearance with new vetting, technology friendly procedures, fixed time frames, accountability and penalties for delays.
  • Permit single vendors for such products, not insisting on prior supply to another public sector unit. Recognise that if it is an innovative product, there will be no competitors.
  • If tech evaluation proves the technology is viable waive five year old requirement for company.
  • Improve the Patent process: it takes too long for an Indian patent to be granted.
  • Provide for sharing of information between PSUs so that testing does not have to be repeated over and over.
  • Our Report of 1st meeting on common infrastructure for SMEs in tech parks to prevent harassment on account of land and water connections etc stand.
  • Government should also inculcate a patriotic mindset which equates the success of Indian manufacturing with national progress. Then automatically the bureaucrat will choose to promote Indian rather than automatically go for an inferior foreign product.

At the same time Indian industry must be competitive, which is difficult as a PSU pointed out – a competitor MNC’s R & D budget dwarfs their entire revenue stream, which is where a PPP should come in. Also shockingly our LOCs support foreign companies which have set up assembly operations in India in the name of manufacturing!

This (change in political and bureaucrat mindset) is slowly happening but not fast enough, there are many dedicated and sincere Officers who are working to promote Indian industry but we need many more.


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