Industry Odisha Bureau, Aug 18: With an aim to ease cash concerns for the Micro, Small, and Medium Enterprises (MSMEs), the Government of India (GoI) is reportedly exploring to replace the Performance Bank Guarantees (PBGs) for the MSMEs winning government contracts above certain thresholds.
As per media reports, “The GoI is exploring to replace the PBGs for MSMEs winning government contracts in order to improve liquidity with alternatives like insurance surety bonds and credit guarantee schemes already in place.”
Media reports added, “Such a move by the GoI assumes significance as MSMEs accounted for 50% of the Central Government’s Rs 2.30 trillion procurement of goods and services in fiscal year 2025-26 (FY26). As per rules, MSMEs that get a government order valued at over Rs 1,00,000 must furnish a performance bank guarantee worth 3–10% of the project value. Under the General Financial Rules (GFRs) 2017, as amended in 2024, performance security for procurement of goods, consultancy, and non‑consultancy services is 3–5% of contract value (works contracts remain 3–10%). This can be provided via ‘Bank Guarantees (including e‑BGs)’, ‘Insurance Surety Bonds’, ‘Fixed Deposits’, ‘Account Payee Demand Drafts’, and other acceptable forms. For MSMEs, PBGs often lock up 3–10% of project value in bank deposits, which can be a major cash flow burden”.
The Ministry of MSME and Department for Promotion of Industry and Internal Trade (DPIIT) are however, reportedly “studying to remove PBG requirements for MSMEs in public contracts, replacing them with credit guarantee schemes where the government backs lenders, shifting risk away from MSMEs.”
Notably, “This follows the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026 aimed at modernising the legal framework, and the change is motivated by MSMEs’ large share in government procurement, i.e. 50% of Rs 2.30 trillion in FY26, and the need to unlock working capital.”
