Boosting Exports from MSMEs in India

What’s in Today’s Article?

• Why in News?
• MSMEs in India
• Exports from MSMEs in India
• NITI Aayog Recommendations to Boost MSME Exports from India

Why in News?

Recently, the Niti Aayog has released a report on boosting exports from Micro, Small and Medium Enterprises (MSMEs).

According to the report, the government must make it easier for smaller firms to export their goods through e-commerce platforms, establish a single national trade portal for all approvals and compliances, etc.

MSMEs in India

• MSMEs are often called the powerhouse of the Indian economy as they contribute significantly to employment generation, exports, and overall economic growth.
• They reportedly account for more than 11 crore jobs and contribute around 27.0% of India’s GDP.
• The sector consists of around 6.4 crore MSMEs, with 1.5 crore of them registered on the Udyam portal and employs around 23.0% of the Indian labour force, making it the 2nd-largest employer in India after agriculture.
• They account for 38.4% of the total manufacturing output and contribute 45.03% of the country’s total exports.

Exports from MSMEs in India

• Exports represent an enormous and under-utilised opportunity for the MSME sector. Sectors where Indian MSMEs can participate and compete in export markets include –
  • Handicrafts, handloom textiles, ayurveda and herbal supplements, leather goods, imitation jewellery and wooden products.
• Globally, these sectors constitute substantial markets exceeding USD 340 billion, whereas their domestic market is considerably smaller.
• Over time, small firms have encountered difficulties in tapping into export markets due to the inherent obstacles posed by economies of scale.
• It proves more challenging for small enterprises to –
  • Enter foreign markets,
  • Adhere to compliance requirements,
  • Achieve cost-effective production, and
  • Efficiently manage logistics for clients.

NITI Aayog Recommendations to Boost MSME Exports from India

• Create One Stop Information Channel for Exporters:
  • India has several portals that help exporters access information, most of which offer incomplete or outdated information.
  • Therefore, creating a one stop information data intelligence portal using Al based interface will be essential to impart information to MSMEs.
• Create National Trade Network (NTN) as Comprehensive Trade Portal:
  • Currently an exporter needs to navigate multiple portals to get necessary approvals. This includes the documentation for licences, etc.
  • This difficulty can be eliminated by creating an end-to-end NTN which will provide seamless experience to exporters including answering queries and resolution of any gaps in paperwork.
• Promote E-commerce Exports:
  • While China exported $200 billion worth of goods through e-commerce in 2022, India exported only $2 billion.
  • A key reason for this gap is the cumbersome compliance process associated with exports, especially when it comes to payment reconciliation, which is particularly challenging for new or small exporters.
  • To boost e-commerce exports, it is essential to create distinction between Exporter on Record (EOR) and Seller on Record (SOR), exempt import duties on rejects/ returns, etc.
• Promote Ease of Merchandise Exports:
  • While the government has placed high emphasis on improving Ease of Doing Business, it should be extended to export processes, particularly targeted at MSME exporters.
  • For example, MSMEs can be offered relaxation from certain compliance requirements for a period and forgiven on errors as they begin to learn requirements of export markets.
• Improve Access to Export Finance: Access to finance is regularly seen as a key bottleneck for MSMEs. Towards this end, promotion of Export Credit Guarantee can help improve working capital availability for MSMEs.
• Ensure Accurate Measurement:
  • Currently, a dependable single data source for MSME exports is lacking.
  • Establishing a reliable depiction of MSME exports involves integrating DGFT trade data with GST and income tax data.
  • This fusion of datasets, utilising PAN numbers as the common identifier, will provide an accurate portrayal of MSME exports.

Q1) What is the Scheme of Fund for Regeneration of Traditional Industries (SFURTI)?

SFURTI is an initiative by the Ministry of MSME to promote Cluster development. Khadi and Village Industries Commission (KVIC) is the nodal Agency for promotion of Cluster development for Khadi.

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Q2) What is the Emergency Credit Line Guarantee Scheme (ECLGS)?

The primary objective of the ECLGS is to provide much-needed relief to the MSME sector by incentivising Member Lending Institutions to provide additional funding, thereby enabling MSMEs to meet the operational liabilities and restart the businesses.