Empowering MSMEs for export success

Source: The post is based on the article “Empowering MSMEs for export success” published in Business standard on 19th September 2023.

Syllabus: GS3- Economy- industrial policy and their effects on industrial growth.

News: The article discusses the potential of India’s MSMEs in global trade, highlighting their challenges in scaling and exporting. It suggests reforms, like leveraging e-commerce and simplifying regulations, to help MSMEs capture a larger share of the global market and boost India’s exports.

What is India’s MSME potential in global trade?

Significant Contributor: MSMEs account for 27% of India’s GDP and provide 110 million jobs.

Untapped Global Market: Despite their domestic contribution, they tap into just a small fraction of the global market. For instance, India’s toy market is valued at $1 billion, whereas the global market stands at $300 billion.

E-commerce Opportunity: The rise of e-commerce platforms can help MSMEs access global customers. However, India’s current e-commerce exports are only $2 billion, in contrast to China’s 8% of total exports via e-commerce.

Export Potential: If reforms are implemented, MSMEs could contribute over $100 billion towards India’s targeted exports of $1 trillion by 2030.

What are the major challenges faced by MSMEs in India?

Size Limitation: 85% of MSMEs, described as “dwarfs”, have existed for over 10 years but still employ fewer than 100 employees, indicating limited dynamism.

Struggle in Global Market Access: India’s share in global merchandise exports is around 2%, with MSMEs contributing just 6% of Indian exports. Only about 1% of MSMEs are exporters, suggesting a challenge in capturing the global market.

Small Scale Impediments: For a typical small business, navigating logistical, financial, and compliance complexities of exporting is difficult.

Regulatory Challenges: Existing financial regulations put undue compliance burdens on MSMEs. For instance, a carpet stored in a US warehouse faces pricing limitations—it can’t be discounted below 75% of the declared value if demand is low, or priced higher than 125% if demand is high. This reduces the flexibility MSMEs have in responding to market demands.

Lack of Simplified Export Processes: MSMEs need to interact with multiple government interfaces for compliance processes, making exports cumbersome. There’s no consolidated source of information for them. Even though a portal has been proposed to post the G20 meeting to gather information, integrating all compliance processes into this portal remains a pressing need.

What should be done?

Separation of Roles: Present regulations should be revised to let “exporter” and “product owner” be separate. This change can simplify collaborations between small enterprises and aggregators, allowing the latter to manage most compliance aspects.

Revise Financial Rules for Exports: Financial regulations, formed in an era focused on controlling every dollar of foreign exchange, should be updated. These outdated rules impose a burden on MSMEs. An example is the limitation on dynamic pricing for goods like carpets stored abroad.

Introduce a “Green Channel”: To speed up Customs clearance for e-commerce exports, a “green channel” should be established. This has been successful in China since 2014.

Unified Trade Portal: Launch a comprehensive trade portal that amalgamates all export-related information and processes. Currently, MSMEs lack a reliable source of export info and encounter multiple government touch points.