Globalisation has opened up new opportunities for small enterprises, and India is no exception. But India has not adequately leveraged the dynamism of its small enterprises to make a mark on global supply chains.

With a huge base of over 44 million micro, small and medium enterprises (MSMEs) that account for 8% of GDP, 45% of manufactured output and 40% of exports, the Indian MSME sector can surely be a global player. Employing over 100 million, Indian MSMEs enjoy expertise across diverse sectors such as apparel & textiles, metal & mineral products, and machinery & equipment, among others, producing over 6,000 goods, ranging from simple artisan products to sophisticated high-technology items. By building up their export capabilities, the country can create additional employment and self-employment opportunities in the sector.

The department of commerce has accorded high priority to export promotion from MSMEs, and it offers schemes for incentives, preferential treatments, market development, and simplification of procedures. Competitiveness of MSMEs is assisted through the National Manufacturing Competitiveness Programme. But much more can be done to unlock the potential of the sector.

To begin with, taxation incentives can be implemented as per their original intention. For instance, service tax is still being charged on inward foreign remittances, while exporters are unable to get credit for the 2% CST on inputs. The Duty Drawback Scheme should be extended to the entire electronics systems design and manufacturing sector.

Secondly, access to finance is a major challenge for MSMEs. Banks could offer pre- and post-shipment foreign currency loans at Libor+200 basis points. Rupee credit rates should also be set below the base rate through refinancing mechanisms so that MSME exporters are not at a disadvantage in global markets.

Interest rate subvention can be extended to key global export sectors like automotives

and electronics.

Credit rating and non-performing asset norms for MSMEs are other key issues to be addressed for finance availability. Payment moratorium and securitisation of receivables can deepen and broaden MSME credit markets. For example, the Mexican SME development bank, Nafin, has an electronic system for presenting and accepting receivables of SMEs issued by large firms, thus helping SMEs borrow more.

Three, export credit guarantee under ECGC requires banks to take insurance for the entire SME turnover, which is costly. Sector-specific insurance for MSME would help reduce risks for exporters and banks and encourage greater flow of funds to exporters with ECGC cover.

Further, export promotion and marketing is an expensive proposition for MSMEs as it involves travel and advertising in other countries. Most exporting nations have special agencies that assist their MSME exporters with market information and promotion. These agencies also help build MSME competitiveness. In India, there is no single agency to undertake this task and MSMEs are often unaware of concessional government market-promotion schemes provided through different agencies, causing confusion.

A special fund for MSME export promotion, and allowances for tax deduction on branding, advertisement and the like could enable greater participation of MSMEs in overseas trade shows.

Another issue is technology. At a time when emerging sectors such as defence, aviation, biotechnology, and clean and green manufacturing are gaining significance, MSMEs find it challenging to acquire niche technology. In addition, support is needed for buying equipment and gaining skills. These can be encouraged through higher scales of assistance under schemes.

IT adoption is required across all areas such as finance, technology, marketing, infrastructure and skill development. A technology upgradation fund scheme (TUFS) for engineering MSMEs needs to be introduced. Credit-linked capital goods scheme can be increased from 15% to 25% with a loan provision of R5 crore.

Most MSMEs cannot meet the rigorous global quality and standards benchmarks due to the expense involved and lack of information. Building competitiveness would require giving training and advisory services and these can be offered through a public-private partnership in all industrial areas and clusters. Industry associations like the Confederation of Indian Industry can help in this endeavour.

Non-resident Indians (NRIs) can be a source of foreign direct investment (FDI) for MSMEs, but any small firm with more than 24% FDI loses its MSME status. To encourage FDI in MSME, some provisions like export obligation, continuing SME status after crossing the limit, and special incentives for NRIs to invest are needed.

Many procedural and policy issues confront MSME exporters. For instance, currently MSMEs need to submit handwritten documentation to the bank for obtaining requisite certification. The annual supplement 2013-14 to the Foreign Trade Policy has stressed simplification and electronic documentation and this would be a boon for MSMEs.

Finally, MSME exporters should have access to high quality infrastructure through industrial estates and good connectivity to ports. Testing laboratories, tool rooms and technology development centres must be set up in all industrial areas to help meet global standards.

MSME and exports are two mutually beneficial sectors. Proactive policies can strengthen their synergies and offer new avenues of growth.

The author is director-general, Confederation of Indian Industry