“MSMEs’ longer wait for a new foreign trade policy could stifle their growth”

Trade, import and export for MSMEs: Official guidelines that determine how the import and export of goods and services will proceed are further delayed. The foreign trade policy (FTP) aimed at substantial growth, doubling the percentage of world trade led by India, was seen as the necessary boost in a year full of new opportunities arising from concerns over the protracted trade war between the United States and China.

India is emerging as the global manufacturing and retail hub, opening the door for increased trade. A report by Cushman and Weikfield ranked India as the second largest manufacturing destination in the world, ahead of the United States, and noted that increased interest in India is aided by the country’s proven success in meeting the demands of outsourcing.

At a time when India could benefit from relocating factories from China to other parts of Asia due to an already established base in the pharmaceutical, chemical and engineering fields, a stalled FTP will not will only delay the impending growth of trade.

At the heart of the problem are India’s micro, small and medium enterprises (MSMEs). The sector forms the backbone of India’s economy and contributes around 29 percent of GDP through its domestic and international trade, making it essential for achieving ambitious export trade goals.

Impact of Extended FTP on MSMEs

Coping with rising input and fuel costs: The pandemic has dramatically increased input costs and fuel costs, both of which are critical to the operational success of MSMEs. There is an increase in the prices of raw materials such as metals, plastics as well as a shortage of shipping containers and labor, which makes matters worse. MSMEs are struggling to take full advantage of the increased demand and hope that the new CTF will alleviate their difficulties.

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Adopt e-commerce for micro-enterprises: With the world opening its arms to seamless global commerce via the Internet, the renewed FTP has been introduced to enable and encourage low-cost India-specific products, which are widely accepted and demanded around the world. A delay in extending aid to exporters of these products only prolongs a long lost opportunity.

Program to Strengthen Service Exports from India (SEIS): Under this scheme, an incentive of 3-7% of net foreign exchange earnings is granted to notified service exporters in India. A change in the minimum cap for net foreign currency income eligible under the scheme, and faster GST refunds to global services with robust growth due to covid-19, were needed with the new FTP. An extension of the deployment of FTP would only make it difficult for MSMEs to exploit the potential of the new opportunities available to them.

Extend incentives from MSMEs to exporters: The renewed FTP could change the lot of exporters if the incentives given to retail and wholesale traders under the MSME category are extended to exporters as well. A delay in leadership leaves exporters to fend for themselves without government help.

Overall, some of the government’s plans for CTF 2021-2026, such as identifying potential products and services in each district, mapping Geographical Indication (GI) products, and setting up panels of promoting district exports as part of their initiative targeting small businesses and farmers, and reducing domestic and foreign policy constraints and improving the ease of doing business, are steps in the right direction.

What is needed is for the new FTP to embrace the rapidly changing choices and use the explosion in commerce achieved using technology and the Internet instead of traditional offline means.

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Export target of $ 400 billion

Union Trade and Industry Minister Piyush Goyal has set a merchandise export target of $ 400 billion for the year 2021-2022 in order to meet Prime Minister Modi’s vision of globalize: “Make in India for the World” at the beginning of August. In his appeal to MSMEs, Goyal insisted on the need to maintain export momentum over the next eight months, with $ 34 billion in exports per month to meet this target. He called on the export community to target 2 trillion exports by 2030, including 1 trillion in merchandise exports and 1 trillion in services exports.

Conclusion

India has around 6.3 million MSMEs, who can help by adopting the technology first and then innovating themselves to achieve the goal of export trade. The lack of technology-based production activities and low investment in research and development are two important factors that have severely affected the sector. UUntil the announcement of a first FTP for MSMEs, they should seek help, for example, from academic institutions to provide research and development services for their product innovation and technology adoption. at every step of the export process. And until then, putting MSMEs on an equal footing with their global competitors and increasing their chances of growing faster will remain a far-fetched dream.

Pushkar Mukewar is CEO and co-founder of Drip Capital. The opinions expressed are those of the author.