Indian MSMEs are the giants of our economy contributing immensely towards country’s growth. Indian Government aims to raise MSMEs exports to a prodigiuos $1 trillion by 2027.
In past decades, the global export situation has seen a rapid consolidation of national economies in cross border trade. The passive aggressive integration at the global level has led to an intensive growth in trade between borders. At present, the world exports accounts for around 1/4th of global production. For India, the export scenario marked a concrete shift after 1991 economic reforms.
As India opened its economy to the world, the focus was now on boosting export performance rather than substituting imports. For India, an exceptional export performance means more than just a positive balance of payment sheet and high forex reserves. In India, export performance directly affects its economic development, inclusive growth, and fair distribution of wealth among its citizens. This is where MSMEs come into picture, they are essentially the connecting links between equitable development and India’s export performance. So, here is a comprehensive strategy for augmenting India’s export numbers in the MSME space.
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MSMEs and their contribution to major exports of India
India’s growth engine, the MSME sector contributes a gigantic 40% to the country’s total exports. Yet, a major part of MSME’s potential remains untapped. But, the Indian Government recognizes the scope of small scale industries and plans to augment the contribution of MSMEs to 60% in the export sector. In addition, the Government aims to raise the MSME’s export contribution to $1 trillion by 2027. Additionally, this gigantic boost will also lead to creation of around 5 crore job opportunities and a jump in MSME’s contribution to GDP from 30% to 50%.
However, recent trends in MSME export numbers have not been in line with the mammoth goals. In 2021, the Indian MSME sector saw a 7% decline in exports. Can pandemic be considered as the sole reason behind these numbers? The answer is No. Although the pandemic has to do a lot with the weak performance, yet there are some other glaring issues with MSMEs responsible for plateau growth of MSMEs in India.
What is holding MSMEs back from promoting their exports?
At present, Indian MSMEs are not as deeply entrenched in the global supply chain as they should be to become the export giant. Following factors tend to hamper the exports growth of MSMEs:
- Lack of knowledge on in-demand goods and services in international markets and trends in supply chains.
- Less knowledge about export promotion schemes launched by the Indian Government
- Unfamiliarity with intellectual property rights, free trade agreements, global treaties and frameworks
- Lack of awareness on laws and regulations of importing and exporting nations
- Delayed or no access to finance due to an underpenetrated banking network
- Lack of knowledge about export promotion plans and MSME loan schemes
- Inability to meet required quality standards due to lack of quality management systems
- High logistics cost, complex and long documentation procedures
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Strategy to boost MSME’s share in Indian exports
According to a study conducted by CRISIL, export-oriented MSMEs performed better in terms of sales and profit margins. The MSME sector is the holy-grail ingredient to uplift major exports of India. A constructive strategy to ensure that India meets its target of bringing 60% of exports from MSMEs would include following steps:
1. Incorporation of MSMEs exports in global supply chains
To ensure that MSMEs are in-line with the global trends, proper marketing support is the pre-requisite. To link the growth of small scale industries with foreign markets, product mapping is a viable option. Product mapping and competitive analysis will be expedient for exploiting markets where MSMEs already have an upper hand. For emerging product categories like organic foods, buyer-seller meetings analyze the future potential is an excellent choice.
For micro industries in India, instructional workshops on trade scenarios and foreign trade agreements are a great fitting. Besides, handbooks and manuals in vernacular languages can be a complementary addition.
2. Quality improvement and assessment systems for boosting MSMEs exports
A comprehensive MSME policy should be thrust on improving the standardization and packaging quality of MSMEs. Seminars imparting export intelligence including national and international standards related to packaging, branding, marketing, and barcoding will play a crucial role in enhancing the competitiveness of Indian MSMEs in global markets.
To further boost the share of MSMEs in major exports of India, we need uniform Quality Management Standards (QMS) in place. QMS coupled with Quality Management Assessment tools will ensure a consistent quality assessment procedure throughout the country.
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3. Financial literacy to harness the potential
The lack of knowledge about the financial domains of international markets largely hampers the growth of MSMEs in India. Thus, the aim of India’s MSME policy should be to ensure overseas payment realization and knowledge of MSME loan schemes and tax exemptions among micro industries in India.
On the domestic level, providing timely and adequate export finance in liberal terms to the MSME sector should be the top priority. Also, recently launched Emergency Credit Guarantee Schemes can be extended. Emergency credit guarantee schemes are a great solution for MSMEs needing quick finance. Besides, a venture capital fund to foster innovation in export-oriented units can be a catalyst in enhancing the growth of MSMEs in India. Reduced credit costs and solutions to overcome currency barriers will ensure that MSMEs have enough funds for the procurement of raw materials, capital goods, and manpower.
4. Building a manufacturing base to match the market demand
To improve the share of MSMEs in major exports of India, India will have to become a global manufacturing powerhouse. Therefore, the manufacturing infrastructure urgently requires setting up of more inland container depots near MSME clusters and warehouses. Besides, the high costs associated with freight charges and container handling should be brought down considerably. Further, to boost exports and ensure growth of MSMEs in India, transportation facilities including waterways, roadways, railways, and airways should be augmented to the maxima. Along with transportation mediums, MSMEs also need functional telecommunication and internet channels.
5. Skill Development and Training
Regular training programmes on value addition and export incentives should be at the centre of policies governing small scale industries. Such skill-building programmes and seminars by trained export consultants will also help to aggregate cross-border shipments. Moreover, there is a need to involve Export Promotion Councils and organizations working for MSMEs in the export strategy. Besides, more training institutes need to be set up for design & training institutes, especially for in-demand goods.
6. Explore e-commerce opportunities to the fullest
At present, the involvement of Indian MSMEs in cross-border e-commerce business is meagre. The e-commerce portals form a major chunk of India’s shopping scenario, yet not many MSMEs have emerged to sell their products on these portals. To enhance cross border trade through B2C, translation skills and international delivery management will act as cornerstones.
Further, ICT promotion and internet infusion is the kingpin for MSMEs along with technical & Managerial Consultancy Services. Our small scale industries need more initiatives like IndiaXports. IndiaXports, a platform that provides information on export potential of tariff lines, recent trends in global exports, and export processes was launched in 2021 by Indian Government. The goal of enhancing MSMEs share in exports to 60% is achievable only if a holistic plan is put to action. Indian MSME sector can work wonders in making India an export surplus nation if all the stakeholders collaborate to bring desired results.
By,
Prasad P. Patkar