Technology will boost the role of MSMEs in India’s export success

Source: The post is based on the article “Technology will boost the role of MSMEs in India’s export success” published in Mint on 27^th July 2023.

Syllabus: GS 3 – Indian Economy – Industrial Policy

Relevance: measures needed to boost MSMEs

News: Several discussions about technology took place during Prime Minister’s recent visit to the United States.

What were the discussions made?

The discussions focused on promoting mutually beneficial collaboration, resulting in new investment projects and strengthening current partnerships in digital trade and e-commerce.

One of the outcomes of the discussion was that Amazon announced a goal of $20 billion in total e-commerce exports from India by 2025 and $125 billion by 2030.

This is in line with India’s G20 aim of connecting MSMEs to global value chains through e-commerce platforms.

What is the significance of MSMEs in the economy?

The MSME sector plays a crucial role in India’s economy, contributing around 33% to the GDP and 50% to exports. It is expected to generate at least 60% of India’s overall goods and services export goal of $2 trillion by 2030.

Therefore, to support the participation of MSMEs in international trade, various initiatives have been implemented through the Union Budget 2023-24 and Foreign Trade Policy (FTP) 2023.

However, India needs more MSMEs to be part of the global value chains (GVCs) of large companies like Amazon and Walmart-Flipkart to gain a larger share of the $5 trillion global B2C e-commerce.

Must Read: MSMEs: Significance, Challenges and Solutions – Explained

What measures have been taken by the government to boost cross-border trade?

India has introduced various initiatives to enhance cross-border trade, including integrating e-commerce into the FTP, discussing e-commerce in trade agreements, creating a dedicated portal for MSME exporters, and identifying export hubs.

India is also focusing on including provisions for collaboration in its digital trade agreements to overcome obstacles faced by MSME exporters. Domestic market processes are being streamlined through technology to speed up customs and agency approvals.

However, two critical measures that need immediate attention: 1) removing value limits on exports to facilitate high-value product shipments, like handicrafts, and 2) establishing a strong process for handling return consignments to avoid import duties.

How has India’s exports performed?

Despite global uncertainties like the Russia-Ukraine war, India’s exports experienced double-digit growth last year. Hence, MSMEs using e-commerce for international sales will play a crucial role in achieving the FTP’s target of $2 trillion in exports by 2030.

Atmanirbhar Bharat Abhiyan also aims to increase the share of MSMEs in exports from 50% to 60% within five years.

According to a study on express delivery services (EDS) in India, the sector has experienced strong growth. However, India’s share in the global EDS market and merchandise trade is currently only 2%. 

Hence, to improve competitiveness, the study recommends adopting global best practices like removing value limits on exports, easing restrictions on perishable imports like pharmaceutical products, etc.

What can be the way ahead?

Studies show that around 80% of global trade and participation in global value chains are through SMEs. 

Therefore, MSMEs in India can significantly contribute to the country’s economic growth by utilizing e-commerce platforms and digital inclusion initiatives to expand their customer base and increase revenues.

Attracting investment in e-commerce will also create jobs and establish digital and logistical infrastructure.