{"id":336480,"date":"2025-05-12T21:23:38","date_gmt":"2025-05-12T15:53:38","guid":{"rendered":"https:\/\/forumias.com\/blog\/?p=336480"},"modified":"2025-05-15T21:08:58","modified_gmt":"2025-05-15T15:38:58","slug":"india-must-fix-trade-finance-to-boost-export-growth","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/india-must-fix-trade-finance-to-boost-export-growth\/","title":{"rendered":"India must fix trade finance to boost export growth"},"content":{"rendered":"

Source<\/strong>: The post India must fix trade finance to boost export growth has been created, based on the article \u201cFixing India<\/strong>\u2019<\/strong>s trade finance bottleneck<\/strong>\u201d published in \u201cBusinessline<\/strong>\u201d on 12 May 2025. India must fix trade finance to boost export growth.<\/strong><\/p>\n

\"India<\/p>\n

UPSC Syllabus Topic:<\/strong> GS Paper3-Economy-growth, development and employment.<\/p>\n

Context: India aims to reach $2 trillion in exports by 2030<\/strong>, backed by merchandise exports of $437 billion in FY 2023\u201324<\/strong> and new trade agreements. But a fragile trade finance system<\/strong>, especially for MSMEs, could stall this ambition.<\/p>\n

Fragility of India<\/strong>\u2019<\/strong>s Trade Finance System<\/strong><\/h2>\n
    \n
  1. Widening Credit Gap:<\/strong> Export credit supports only 28.5%<\/strong> of the $284 billion<\/strong> needed for shipments. From 2021 to 2023, priority sector lending <\/strong>for export credit fell 41%<\/strong>, from \u20b919,861 crore to \u20b911,721 crore \u2014 showing structural neglect.<\/li>\n
  2. Declining Credit Availability:<\/strong> Between March 2023 and March 2024, outstanding export credit fell from \u20b92.27 lakh crore to <\/strong>\u20b92.17 lakh crore<\/strong>. Exporters face rising input costs, higher freight rates, and delayed global payments.<\/li>\n
  3. MSMEs Locked Out of Finance:<\/strong> MSMEs contribute nearly 40%<\/strong> to goods exports but face limited access to affordable credit<\/strong>. They lack safeguards like dedicated lending norms<\/strong>, and banks demand high collateral.<\/li>\n
  4. Policy Support Missing:<\/strong> The Interest Equalisation Scheme<\/strong> expired in 2023, removing a key subsidy. Many exporters are unaware of tools<\/strong> like post-shipment finance<\/strong> or receivables discounting<\/strong>, highlighting poor financial literacy.<\/li>\n<\/ol>\n

    Regulatory Roadblocks and Rigid Lending Norms<\/strong><\/h2>\n
      \n
    1. Inflexible Risk Norms:<\/strong> The RBI does not recognise private trade credit insurance<\/strong> for capital relief. Only ECGC-backed cover<\/strong> qualifies, making risk-sharing tools unattractive for banks.<\/li>\n
    2. Factoring System Underdeveloped<\/strong>:<\/strong> India\u2019s exporters need factoring for liquidity and buyer risk transfer<\/strong>, especially in open account trade. But factoring remains underused<\/strong>, often limited to large firms and backed by collateral.<\/li>\n
    3. Stark Global Comparison: <\/strong>India\u2019s factoring volume was only \u20ac17.38 billion<\/strong> in 2023 \u2014 less than 0.5%<\/strong> of global turnover. Europe accounted for 67%<\/strong>, and China alone reported \u20ac634.6 billion<\/strong>, showing India\u2019s lag.<\/li>\n
    4. Over dependence on Collateral:<\/strong> Fintech lenders also demand traditional security<\/strong>, excluding asset-light MSMEs<\/strong> who trade on trust and require flexible finance options.<\/li>\n<\/ol>\n

      Limited Progress in Digitising Trade Finance<\/strong><\/h2>\n
        \n
      1. Slow TReDS Adoption:<\/strong> TReDS aims to support invoice-based MSME financing, but low awareness<\/strong>, poor documentation<\/strong>, and buyer reluctance<\/strong> have slowed its uptake.<\/li>\n
      2. Fragmented Digital Ecosystem:<\/strong> Despite tools like e-invoicing<\/strong>, e-way bills<\/strong>, and customs digitisation<\/strong>, there is no integrated platform<\/strong> linking banking, logistics, and trade data.<\/li>\n
      3. Legal Disconnect from Global Norms:<\/strong> India has delayed adopting UNCITRAL<\/strong>\u2019<\/strong>s MLETR<\/strong>, which gives legal status to electronic trade documents. This is due to outdated laws<\/strong> and fragmented regulatory control<\/strong>.<\/li>\n<\/ol>\n

        Strategic Reforms for a Robust Trade Finance Ecosystem<\/strong><\/h2>\n
          \n
        1. Regulatory Modernisation<\/strong>:<\/strong> Allow private trade credit insurance<\/strong> for capital relief. Relax capital norms to enable more flexible lending<\/strong>.<\/li>\n
        2. Platform Integration and Legal Reform:<\/strong> Integrate digital trade platforms<\/strong>. Align domestic law with MLETR<\/strong> to support paperless commerce<\/strong>.<\/li>\n
        3. Boost TReDS Participation<\/strong>:<\/strong> Mandate wider usage<\/strong> of TReDS. Encourage both buyers and MSMEs to participate.<\/li>\n
        4. Support MSMEs and Build Literacy: <\/strong>Create tools to educate exporters<\/strong>. Provide risk mitigation frameworks<\/strong> and improve access to finance.<\/li>\n<\/ol>\n

          Question for practice:<\/strong><\/p>\n

          Examine<\/strong> how the weaknesses in India\u2019s trade finance system could hinder the country\u2019s goal of achieving $2 trillion in exports by 2030.<\/p>\n","protected":false},"excerpt":{"rendered":"

          Source: The post India must fix trade finance to boost export growth has been created, based on the article \u201cFixing India\u2019s trade finance bottleneck\u201d published in \u201cBusinessline\u201d on 12 May 2025. India must fix trade finance to boost export growth. UPSC Syllabus Topic: GS Paper3-Economy-growth, development and employment. Context: India aims to reach $2 trillion… Continue reading India must fix trade finance to boost export growth<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":336885,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230],"tags":[12121,216,8184],"class_list":["post-336480","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-9-pm-daily-articles","tag-businessline","tag-gs-paper-3","tag-indian-economy","entry"],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2025\/05\/India-must-fix-trade-finance-to-boost-export-growth.png?fit=1280%2C850&ssl=1","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/336480","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=336480"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/336480\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media\/336885"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=336480"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=336480"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=336480"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}