Boosting Exports From MSMEs

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

MSMEs in India

Between FY 2019 and FY 2021, India witnessed a steep rise in the establishment of new MSMEs units.
Around 40 lakh new Micro, Small, and Medium Enterprises (MSMEs) were established.
Over the last 8 years, the share of MSME units engaged in manufacturing has grown by ~7%. Currently, around 38% of the total 54 lakh MSME units” are engaged in manufacturing.

Opportunity for MSME Exports

Exports in low skilled manufacturing products offer a unique window of opportunity for MSMEs While the previous section emphasizes the importance of exporting to unlock MS5ME potential, this section delves into aligning MSME exports with the country's manufacturing characteristics and leveraging its strengths in customization and labor-intensive production methods.
Both exports of manufacturing and services are skill intensive. India’s specialization has become more skilled intensive in exports of auto and auto parts, electronics, machinery, pharmaceuticals in contrast to opposite belief. Moreover, it is noted that India has not fully exploited the Lewis curve for low-skill manufacturing compared with more skill intensive exports.
India lags behind to tap on existing market potential in contrast with Vietnam, Bangladesh and China, which continue to lad exports in this category.
Given the characteristics of Indian manufacturing with respect to resources and scale, they are bettersuited for producing low-skilled products that require a high degree of customization (scale of production becomes a moot point) and are more suitable for labor-intensive production methods.
The suitability of the identified product categories for exports is further reinforced by data on top earners from e-commerce exports in India. Around 100,000 Indian exporters are utilizing e-commerce platforms to sell their products, generating a cumulative export revenue of over USD 5 billion.

The lack of economies of scale poses a significant challenge for Micro, Small, and Medium Enterprises (MSMEs} pursuing exports. This challenge underlines most of the obstacles faced by MSMEs in their export endeavors.
Exporting necessitates substantial investments in infrastructure, marketing, logistics, and compliance with international standards and regulations. However, due ta their smaller size and limited production capacity, MSMEs often struggle to attain the cost efficiencies and competitiveness required to enter and sustain their presence in international markets successfully.
The relatively smaller production volumes of MSMEs result in higher per- unit costs, making it difficult for them to compete with larger enterprises in terms of pricing and profitability.

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.