Need govt push for MSMEs to benefit if India capitalizes on exodus of factories from China, says SBI

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May 7, 2020 2:43 PM

Trade, import and export for MSMEs: For India to benefit from the relocation of factories and companies from China, the MSME sector is likely to play a key role. This is particularly for food product manufacturing sector where India lacks competitiveness in exports.

china foreign trade, pandemic drugs, coronavirus outbreak, china trading, china export sector, global COVID-19 ,latest news on coronavirusMSMEs have a share of 48 per cent in India’s total exports. (Reuters photo)

Trade, import and export for MSMEs: For India to benefit from the relocation of factories and companies from China, the MSME sector is likely to play a key role. This is particularly for food product manufacturing sector where India lacks competitiveness in exports and hence, the government can give it a direct push for its MSMEs to benefit, SBI said in its latest Ecowrap report on Thursday. This is because India has a greater Revealed Comparative Advantage (RCA) than China in the overall consumer goods sector. Within the sector, “although we do have a comparative advantage in textiles and animal goods, in food products we are not competitive,” it said. RCA is an index for indicating the advantage or disadvantage of a particular country in certain goods or services type by looking at trade flows.

MSMEs have the biggest concentration of 17.30 per cent is in textile and clothing vertical while 12.30 per cent is food products market and 10 per cent in crop and animal goods production markets. India can target incremental exports growth by $20 billion in the least favourable out-come to a significant $193 billion increase in the five-year period, only if it builds its capabilities and captures share from China, the report said. India has a “very small manufacturing base as compared to China” and hence it would require “significant push both in terms of strategic relations and structural reforms” by the government.

Also read: Govt to support MSMEs making ‘import substitute’ products; mulls policy for replacing foreign goods

While India can fulfil global demands for products and services, however, it will have to take a “hard look at its labour reforms and currency outlook to gain market share.” Moreover, infrastructure issues are also critical to gauge the extent of the growth of trade. MSMEs currently have a share of 48 per cent of India’s exports. However, amid Covid outbreak, foreign buyers have paused orders from Indian MSMEs. “In a lot of emails, buyers are asking our members to hold back the consignments. Most of the request is emanating from Europe followed by the US and other regions. Since demand has taken a hit, we feel many of these orders may eventually be cancelled,” Ajay Sahai, CEO and DG, FIEO had told Financial Express Online.

To boost MSME exports, the government had in February this year said there would soon be a unified portal called global market intelligence system having all export-related information. “Surprisingly there are only 33,000 registered MSME exporters as per the figure we have. This means that while MSMEs products are exported but they themselves are not able to export them because they don’t know about documentation, what are non-tariff barriers, what are regulatory requirements, standards etc.,” MSME Ministry Joint Secretary Arun Kumar Panda had said at an event.

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