Empowering MSMEs for Export Success

19 Sep 2023

Subject: GS-3 Indian Economy 

Context:

  • MSMEs are the backbone of the Indian economy, but they need support to succeed in exporting. Reforms and e-commerce can help MSMEs overcome challenges and achieve export success.

Role of MSME Sector In Indian Economy:

  • The share of MSME Gross Value Added (GVA) in India’s Gross Domestic Product (GDP) has displayed a fluctuating trend over the last three years (Refer-Graph).
  • However, the share of MSME manufacturing output in the overall Indian manufacturing output remained relatively stable (Refer-Graph).
Classification Micro  Small Medium
Investment in Plant and Machinery or Equipment Not more than Rs.1 crore. Not more than Rs.10 crore. Not more than Rs.50 crores
Annual Turnover Not more than Rs. 5 crores. Not more than Rs. 50 crores. not more than Rs. 250 crores.
  • The share of MSME products in India’s total exports experienced a decline over the past three years. While in the fiscal year 2019-20, they constituted 49.4% of India’s exports, the share decreased to 45.0% in 2020-21 and further to 43.6% in 2021-22.
  • MSMEs
  • Today, India’s share in global merchandise exports is around 2 percent, and less than 1 percent of MSMEs are exporters.
  • The MSME sector has been a significant source of employment in India providing 110 million jobs. (Udyam Registration Portal).

Challenges for MSMEs in Exporting:

  • MSMEs and the Global Market:
      • India’s domestic market accounts for only about 2 percent of the global market size for these industries.
      • However, to address the global market, India must aim for at least a 10 percent share of the global trade.
  • Integration with ‘E-commerce’ platforms for MSMEs
    • The rise of e-commerce platforms means MSMEs can now compete in the global arena.
    • However, India’s current e-commerce exports stand at a modest $2 billion, a mere 0.5 percent of our merchandise exports.
  • Small Scale (Dwarfism) of MSMEs:
    • It is nearly impossible for a typical small business to first find customers abroad, and then navigate the logistical, financial and compliance complexities of the export sector.
    • However, 85 percent of MSMEs are classified as “dwarfs” — older than 10 years but still smaller than 100 employees.

Way Forward for MSMEs: 

  • E-commerce platforms can match small businesses with customers, and handle logistics and even compliance.
  • Create a “green channel” for e-commerce exports to expedite Customs clearance. This will help MSMEs to get their products to market faster.
  • Allow “exporter” and “product owner” to be separate entities. This will let aggregators work much more easily with small enterprises.
  • Streamline the rules of financial regulation for exports. Reduce the burden on MSMEs and give them the flexibility to price their products dynamically.
  • Implement a one-stop trade portal that brings together all information and processes related to exporting, and places it into a single, streamlined workflow. This will make it easier for MSMEs to comply with all government regulations.

Source: Business Standard

 

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