Apart from constant issues such as delayed payments and debt on the domestic front, complex challenges in banking and trade regulations are hampering Indian micro, small and medium enterprises (MSMEs) participation in exports, according to a report by India SME Forum.
The report which talks about navigating global markets and the potential Of USD 300 billion in exports stated that there are requirements for imports and exports to discourage engagement, alongside compliance and cost burdens, especially for smaller enterprises.
“Tight restrictions on overseas payments, sectoral caps, FDls, delays in procurements, infrastructure costs, and stringent security regulations add further hurdles to the MSMEs in this domain, it added.
India has set an ambitious export target of USD 2 trillion by 2030, presenting significant growth prospects for small businesses seeking expansion into international markets. The country boasts a robust community of more than 6.3 crore MSMEs, serving as the cornerstone of the economy by contributing approximately 28 per cent to the gross domestic product (GDP) and over 48 per cent to exports.
Despite the substantial MSME presence, only a nominal 35,000 actively engage in exports, revealing a considerable untapped potential. Nearly 64 per cent of Indian MSMEs operate with an annual turnover of less than one crore and less than one per cent currently export goods or services.
The World Trade Organisation (WTO) identifies barriers such as a lack of skills and knowledge about foreign markets, non tariff barriers, intricate regulations, and complex cross-border remittance processes hindering their global participation. Additionally, limited access to crucial financial support, especially trade finance, constrains their ability to expand overseas.
Santosh Sarangi, Director General, Foreign Trade said, ”No country can become an export powerhouse without focusing on manufacturing competitiveness, and MSMEs will play an extremely crucial role in achieving this ambitious goal of 2 trillion exports. Adherence to standards and uncompromising commitment to quality are essential for long-term success in India’s export ecosystem. Striving for excellence in standards and quality is a must for every exporter.”
Notably, the Department of Commerce is working towards ensuring exporters’ competitive access to markets through tariff reductions. Free trade agreements with countries like Mauritius, Australia, UAE and ongoing negotiations with the UK. EU and Peru, and discussions with Gulf countries and the Eurasian economic union are key steps in this direction.
The export opportunities, estimated at USD 2 trillion, span diverse sectors, including automotive components, textiles, creative manufacturing, medical devices, IT services, electronics and agro products. Key export destinations encompass the USA, UAE, China, Bangladesh, Germany, Indonesia, Nepal, Turkey and Saudi Arabia.
However, realising the USD 2 trillion export goal necessitates concerted efforts from all ecosystem stakeholders. Industry bodies must proactively identify high-potential MSME product segments in India aligned with global demand. Central and state agencies should provide targeted skilling, certification, and R&D grants to elevate quality standards for global trade. Financial institutions must expand the availability of trade finance, foreign exchange and export credit to facilitate seamless global transactions for small businesses.
Radhicka Kapoor, Professor, Indian Council for Research on International Economic Relations (ICRIER) stated, “The primary concerns that I like to focus on are those related to productivity. Based on the data, I started with the most crucial one: access to finance, which is generally a major obstacle for the MSME sector. However, if you want to serve international markets, you must integrate and establish a single platform. Less trade is occurring through MSMEs in global trade.”
Kapoor added that only 15 per cent of MSMEs are engaging in exports and merely 40% are selling through e-platforms. “If we aim to unlock the potential of MSMEs, we must enhance the productivity and capacity of these enterprises,” Kapoor added.
Boosting MSMEs Contribution In Exports
With the right policy support, sustainability initiatives, and global market connectivity, India’s MSME export contribution can witness accelerated growth. The transformative impact of initiatives like the Digital India program, facilitating internet connectivity and widespread adoption of digital payments, has streamlined cross-border transactions and enhanced the export landscape for MSMEs.
SME India Forum reported that initiatives like instant refund capabilities further bolster exporter transactions, providing a conducive environment for achieving the aspirational USD 2 trillion export target. Experts suggested that by resolving ground-level challenges and constraints for the country’s entrepreneurs, the export goal can shift from aspiration to achievable ambition.
Bipin Sapra, Partner, EY mentioned, “There are certain regulatory supports that the government needs to provide. For instance, allowing ecommerce platforms to hold inventory exclusively for export purposes against clear export orders would be a significant step. This would enable more MSMEs to participate in ecommerce exports.”
Additionally, a clear national ecommerce policy is essential and the introduction of a chapter in the foreign trade policy for ecommerce is a positive step. State-level e commerce policies are also crucial, considering states often serve as the first point of contact for MSMEs dealing with manufacturing and export issues.
“Addressing challenges related to return goods is vital, as even a small percentage can significantly impact MSMEs. Government support in terms of flexible policies for foreign exchange, extended time limits for receiving payments, and allowing ecommerce platforms to play a role in returns are essential,” Sapra stated.
According to the experts, states should actively participate by developing state-level ecommerce policies, considering their proximity to MSMEs and their role as the first point of contact for manufacturing and export-related queries.
