GS Paper III

News Excerpt:

Niti Aayog, in its report ‘Boosting Exports from MSMEs’, has advocated for a single information portal for exporters to promote e-commerce exports and improve access to finance, especially for micro, small, and medium enterprises (MSMEs).

Background:

• MSMEs contribute significantly to employment generation, exports, and overall economic growth. 
• They reportedly account for more than 11 crore jobs and contribute around 27.0% of India's GDP. 
• According to estimates, the sector consists of around 6.4 crore MSMEs, 1.5 crore of which are registered on the Udyam portal. 
• It employs around 23.0% of the Indian labour force, making it the second-largest employer in India after agriculture. 
• They account for 38.4% of the total manufacturing output and contribute 45.03% of the country's total exports.

Key highlights of the report:

• India has several portals that help exporters access information, most of which offer incomplete or outdated information.
• Therefore, creating a one-stop information data intelligence portal will be essential. 
• The report noted that Indian MSMEs can participate in and compete in export markets for handicrafts, handloom textiles, ayurveda and herbal supplements, leather goods, imitation jewellery, and wooden products.
• Globally, these sectors constitute substantial markets exceeding USD 340 billion, whereas their domestic market is considerably smaller.
• According to the report, access to finance is regularly seen as a key bottleneck for MSMEs, and the promotion of the Export Credit Guarantee (ECGC) can help improve their availability of working capital.
• The current uptake of ECGC schemes is only 10%, and the government must create an incentive package to increase it to 50% or more.
• While China exported $200 billion worth of goods through e-commerce in 2022, India exported only $2 billion. 
• A key reason for this gap is the cumbersome compliance process associated with exports, especially payment reconciliation, which is particularly challenging for new or small exporters.
• The Aayog said MSMEs account for more than 11 crore jobs and contribute around 27% of India’s GDP.

In this report, there are six broad sets of recommendations to boost MSME Exports:

• Create One Stop Information Channel for Exporters:

• • Creating a one-stop information data intelligence portal using an Al-based interface will be essential to impart information to MSMEs. 
  • This portal shall answer all potential exporters' queries related to the market, such as -
    • tariffs, 
    • required paperwork, 
    • sources of finance, 
    • service providers, 
    • available incentives, 
    • potential customers. 
  • This could be done under the Ministry of Commerce by enlisting a competent external vendor. 

• Create a National Trade Network (NTN) as a Comprehensive Trade Portal:

• • Currently, an exporter needs to navigate multiple portals to get the necessary approvals. 
    • This includes the documentation for licenses and certification to actual receipt of payment in the bank account. 
    • The entire process is extremely cumbersome and requires navigating several interfaces, including physically submitting documents. 
  • This difficulty can be eliminated by creating an end-to-end national trade portal (NTN), which will provide a seamless experience to exporters, including answering queries and resolving any gaps in paperwork. 
    • This will help reduce the processing burden and delay for MSME exporters and enable them to compete effectively.

• Promote E-commerce Exports:

• • Access to the market consistently emerges as a significant obstacle hindering MSME exports. 
    • Fortunately, a readily available solution to this issue is E-commerce. 
  • According to the Global Trade Research Initiative's (GTRI) report, in 2022, MSMEs in China are already exporting goods worth over $200 bn through E-commerce platforms, while India's e-commerce export is barely $2 bn.
    • One key reason for this gap is the cumbersome compliance process associated with exports, especially regarding payment reconciliation, which is particularly challenging for a new or small exporter. 
  • To boost e-commerce exports, it is essential to - 
    • create the distinction between Exporter on Record (EOR) and Seller on Record (SOR), 
    • allow a reduction in invoice value without any percentage ceiling for all e-commerce exports, 
    • introduce an annual financial reconciliation process for e-commerce exporters, 
    • exempt import duties on rejects/returns, 
    • consider an exemption on reconciliation requirements for shipments up to $1000 until NTN is implemented,
    • creating a green channel clearance for e-commerce exports.

• Promote Ease of Merchandise Exports:

• • While the government has emphasised improving Ease of Doing Business, it should be extended to export processes, particularly targeted at MSME exporters. 
    • For example, MSMEs can be offered relaxation from certain compliance requirements for a period and forgiven for errors as they begin to learn the requirements of export markets. 
  • On the other hand, a process must be created for time-bound incentive disbursement so that MSMEs' working capital is not blocked.

• Improve Access to Export Finance:

• • Access to finance is regularly seen as a key bottleneck for MSMEs. 
    • Towards this end, promoting Export Credit Guarantees can help improve working capital availability for MSMEs. 
    • The current uptake of ECGC schemes is only 10%, and the government must create an incentive package to increase it to 50% or more. 
  • Finally, a single marketplace can be created, like in the case of higher education loans, where all providers of export credit can compete for business and help reduce the cost to MSMEs.

• Ensure Accurate Measurement:

• Currently, a dependable single data source for MSME exports is lacking. 
• The existing estimates of MSME exports are likely unreliable and almost certainly inflated, given that they rely on an outdated list of reserved sectors for MSMEs. 
• Initiating any improvement requires accurate measurement and consistent tracking of impact. 
• Establishing a reliable depiction of MSME exports involves integrating Directorate General of Foreign Trade (DGFT) trade data with GST and income tax data. 
• Using PAN numbers as the common identifier, this fusion of datasets will accurately portray MSME exports. 
• A key issue is the reluctance to share information across government departments. 
• To resolve this, a committee could be formed with representatives from DGFT, the finance ministry, and the MSME ministry to create a mechanism for sharing requisite information without compromising the confidential data of individual firms. 

Conclusion:

The MSME sector stands as a vital force propelling India's economic engine, contributing significantly to employment, GDP, and manufacturing output. Despite its potential in global markets, MSMEs face challenges in accessing and navigating export opportunities. The report proposes a strategic roadmap with six key recommendations, ranging from the creation of comprehensive trade portals and the promotion of e-commerce exports to accurate measurement through data integration. By addressing these barriers and enhancing access to export finance, the transformative power of MSMEs can be harnessed, leading to substantial growth in exports without imposing additional fiscal burdens. The proposed measures offer a pragmatic path to unlock the immense export potential of India's MSMEs and foster a more resilient and competitive economic landscape.