Small businesses bagged nearly 50% of central govt orders in FY26. Here's what the data hides.

This performance far exceeds the statutory requirement for the government to source at least 25% of its orders from MSEs.

Industry stakeholders and experts suggested the rising volumes reflected growing MSME inclusion within the national economy. However, they also cautioned that these headline figures may mask underlying gaps: most contracts remain concentrated among larger MSEs and are often limited to low-tech, low-value services. There is a growing consensus that for the initiative to truly succeed, procurement must shift toward high-tech manufacturing to help smaller firms move up the value chain.

The surge in procurement follows the government's revised MSME definition introduced at the start of FY26, which expanded the criteria to include more businesses. As the number of eligible sellers grew, the industry expected a corresponding rise in government orders, a trend Mint previously highlighted in September 2025 at the fiscal year's midway point.

Noting that not all newly formalized MSMEs are equipped to supply the government, Vinod Kumar, president of the India SME Forum, stated that securing orders from central public sector enterprises (CPSEs)—government-owned corporations such as ONGC or NTPC—requires consistent capacity building and onboarding support.

While central government contracts make up a small share of MSE order books, they usually involve large, recurring orders, which makes them crucial for small businesses looking to scale up. India’s 80 million MSMEs contribute to 31.1% of the country’s total economic output (GDP) and 48.58% of exports, according to the Economic Survey FY26.

Anil Bhardwaj, secretary general of the Federation of Indian SMEs (FISME), an industry lobby group, said, “The public procurement mandate of 25% was not just built to ensure supply from MSMEs to the government. It was also the first step towards the growth of these businesses. It should also build MSME capacities to manufacture more products that can be supplied. Procurement should not be confined to low-tech services such as cleaning, transportation, or IT-related maintenance services, but should facilitate technological development of MSMEs as well. There is little to show on these fronts.”

Padmanand V., partner at Grant Thornton Bharat, echoed these concerns, saying much of the procurement from small firms comprises low-value and low-technology inputs. “There is a need to help enterprises move up the value-chain through dedicated intervention,” he said.

He also noted that most government tenders were bagged by the larger MSEs, which is a concern since more than 99% of India’s small businesses are micro enterprises with a turnover less than ₹10 crore.

Reforms such as GST integration, formalisation, and digital payments have made MSMEs more visible, compliant and procurement-ready, said Kumar of India SME Forum. “The Government e-Marketplace (GeM) has significantly lowered entry barriers, standardised processes, and enabled pan-India participation, especially for smaller enterprises. This rise (in procurement) reflects a system-wide shift towards MSME inclusion,” he added.

Padmanand V. of Grant Thornton Bharat said FY26 procurement figures reflect an “aggressive formalisation” of informal businesses. He said government schemes such as the Raising and Accelerating MSME Performance (RAMP) programme, supported by the World Bank, had assisted formalisation.

Vinod Kumar, whose lobby group represents about 100,000 MSMEs, also pointed to the global economic uncertainty caused by US tariffs and the Iran war. He said central government agencies and public sector undertakings may be looking to source more of their requirements from reliable domestic MSEs rather than foreign goods and service providers, as many businesses worldwide are grappling with uncertainty and trade-related supply-chain disruptions.

The GeM portal reflected a similar trend, with orders from micro and small enterprises making up 45.24% of the 7.5 million orders worth ₹5.02 trillion in FY26, according to the portal’s statistics. All government bodies, central and state, use the GeM portal to place orders from MSEs.

To be clear, the GeM portal is an online marketplace for MSME vendors selling to all government entities in India, while the MSME Sambandh portal tracks the online and offline sales by micro and small businesses to the central government only.