Trade, import and export for MSMEs: The global trade growth is likely to remain subdued in 2023 as the world economy navigates through multiple shocks including the ripple effects of the Russia-Ukraine war, inflation, looming recession, and more. According to the World Trade Organization (WTO), global trade is likely to see only one per cent growth this year, down sharply from its earlier forecast of 3.4 per cent. Nonetheless, India has set an optimistic target of $1 trillion in exports by 2030 and enhancing its share in global trade from around currently around 2 per cent to reportedly 3 per cent by 2027 and 10 per cent by 2047.
The growth in India’s exports assumes significance as the country’s vast 6.3 crore-enterprise strong MSME sector contributes nearly half of it. MSME exports had surged 21.8 per cent from $155.9 billion during FY20 and 31.9 per cent from $143.9 billion during FY21 to $190 billion during FY22. Importantly, the government intends to increase MSMEs’ share in exports to 60 per cent in the next few years, indicating the urgent and critical need to push lakhs of new small manufacturers and services providers into the global supply chains and markets with quality and price highly competitive.
Financialexpress.com’s second edition of the SMExports Summit 2023 organised on Friday tried to uncomplicate the process and path to glory in global exports India’s MSMEs aspire for.
Also read: MSMEs’ share in India’s exports till August in current fiscal nears FY22 level: Govt data
The one-day summit kicked off with the chief guest address by Dr Prafulla Chandra Mishra
Statistical Advisor, Directorate General of Foreign Trade, Ministry of Commerce & Industry, Government of India. Mishra leads the Statistics Division, Data Analytics Unit and Export Monitoring Unit of the Directorate General of Foreign Trade (DGFT) and drives the management information system (MIS) for monitoring and evaluation of export promotion schemes. According to Mishra, he had also designed and executed the government’s $400 billion exports target for FY22.
“To imagine more than $400 billion (export) target from $291 billion couldn’t have happened but it was facilitated by the government and MSME associations such as the Confederation of Indian Industry, Federation of Indian Export Organisations (FIEO) and other stakeholders,” he said.
The existing government schemes to promote exports such as Rebate of State and Central Levies and Taxes (RoSCTL) scheme, Remission of Duties and Taxes on Exported Products (RoDTEP) scheme, Districts as Export Hubs launched by identifying products with export potential in each district, Interest Equalization scheme etc., have seemingly helped exporters maximise their export value. “Interest Equalisation Scheme of DGFT provides 3 per cent interest rate on pre and post-shipment credit to MSME manufacturing exporters,” noted Mishra.
The chief guest’s address was followed by a panel discussion on how MSMEs can identify the right market for exports. As an exporter, there are several factors that could contribute to an MSME’s choice of the export market such as tradition – which countries are, traditionally, your big buyers; demand – which countries or regions are likely to seek your products; geopolitical climate – how favourable is the political environment of your selected market, etc.
Also, it is important for the exporter to understand what different strategies are available to test the markets, how can products be adapted to meet the requirements of the new market, the risks involved and more. This also becomes important as India is working on new free trade agreements with various countries.
Also read: No complaints on poor inter-ministerial coordination hurting MSME exports: MSME ministry
The panellists in the session shared their perspectives on multiple areas such as interest subvention, e-commerce exports, service exports, what makes a product export worthy etc.
Ajay Sahai, Director General and CEO, FIEO noted that there has been a 23 per cent increase in (the budget FY24) in the allocation of interest equalisation scheme while FIEO has requested the government to increase this further. The budget had enhanced the allocation from Rs 2,376 crore in FY23 to Rs 2,932 crore in FY24.
On e-commerce’s potential to boost MSME exports, Bhupen Wakankar, Director, Global Trade, Amazon
On the other hand, Shekhar Bhandari, President, Global Transaction Banking, Kotak Mahindra Bank
The next panel focused on how small businesses can manage financial risks in trade. International transactions are understood to be riskier than domestic trade due to the difference in currency, culture, legislation and even language. Forex trading company MyForexeye Fintech’s founder and CEO Anand Tandon said the incidence of volatility in the foreign exchange market has been increasing sharply and hence the enterprise has to evaluate its financing options at different times.
Gaurav Anshuman, DGM & Regional Manager, Northern Region at the government’s export credit agency, ECGC noted that while risk can be mitigated but not removed entirely, credit insurance is one of the best tools to mitigate the financial risk.
The summit also hosted a masterclass session on best practices for growth in MSME exports by Rajiv Chawla, Founder and Chairman at MSME body IamSMEofIndia. While having a good product is imperative, success in exports also requires knowledge, skills, and the right mindset. But there’s a lot more to growing exports than just that, around the political, economic, social, and technological environment, the demand-supply gap for the chosen product, competition in the foreign market, marketing, knowledge about market access, trade barriers, bilateral trade agreements, export regulations, and more.
Also read: MSME exporters demand for a grievance redressal mechanism amidst their falling share
Chawla said that making quality products is not enough, the cost is equally important to compete with the world and the only thing that would take you ahead is technology. Moreover, “Entrepreneurs often take life and business for granted. There is a need to identify the risks, find ways to minimize the risks through insurance and other strategies and cover them,” he added.
The summit concluded with a panel session on easing logistics for exporters with digitisation. Importantly, the Indian shipping industry has experienced severe volatility in the last couple of years leading to container shortages and shipment delays. Hence, the session threw light on how can digitisation help MSMEs in navigating these challenges. Also, how MSMEs should revamp their operations for the efficient cross-border movement of goods and how cost-effective is investing in technology for end-to-end visibility of their shipments? Moreover, what are the pros and cons for MSMEs in choosing between digital freight forwarding versus traditional players?
Animesh Saxena, Managing Director and CEO of apparel maker and manufacturer Neetee Clothing said one big problem in logistics is how freight costs are charged. “We don’t know how costs are built in. There are several terminal handling costs, security surcharge, fuel surcharge and many more. This is problematic because an MSME then doesn’t know how much to charge for the product because there is no clarity on how much freight will cost. This hurts small businesses which already have thin margins and little bargaining power.”
Vipin Vohra, Chair, Civil Aviation Committee at PHD Chamber of Commerce and Industry and Chairman, Continental Carriers noted that there are issues concerning the Goods and Services Tax (GST), implemented on freight from October last year, that need to be rationalised. “It is 5 per cent on sea freight and 18 per cent on air freight which is impacting MSMEs’ exports and increasing their cost of doing trade. No where in the world GST is implemented on freight,” he added.
“Logistics cost is 13-14 per cent of the GDP of the country and is one of the highest in the world,” said Nikita Singla, Associate Director at research and consulting organisation Bureau of Research on Industry and Economic Fundamentals (BRIEF).
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