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Niti Aayog has called for easing of access to export finance and a concerted push to boost e-commerce exports to realise the potential of the country’s micro, small, and medium enterprises (MSMEs).
In a report released on Wednesday, the Aayog said small firms have encountered difficulties in tapping into export markets due to the inherent obstacles posed by economies of scale. "It proves more challenging for small enterprises to enter foreign markets, adhere to compliance requirements, achieve cost-effective production, and efficiently manage logistics for clients," it added.
"By modifying our business environment to facilitate seamless exports through e-commerce platforms, coupled with addressing essential ease-of-doing-business factors, we have the potential to catalyse a radical transformation of our MSME sector into a formidable growth engine,” the report said.
As part of six key recommendations, Niti Aayog called for "green channel" clearances of MSME e-commerce exporters. It said that India has not been able to tap into e-commerce to work around market access barriers, unlike China. In 2022, China’s e-commerce exports by MSMEs were worth $200 billion, which is 100 times that of exports by Indian MSMEs.
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“One key reason for this gap is the cumbersome compliance process associated with exports, especially when it comes to payment reconciliation, which is particularly challenging for a new or small exporter. To boost e-commerce exports, it is essential to create distinction between Exporter on Record (EOR) and Seller on Record (SOR), allow reduction in invoice value without any percentage ceiling for all e-commerce exports, introduce 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 (National Trade Network) is implemented and creating a green channel clearance for e-commerce exports,” the report said.
The report jointly prepared by Niti Aayog and the non-profit Foundation for Economic Development, said that India needs a NTN to ease compliance burdens for MSMEs. This trade network would operate as an end-to-end single window system. “The Ministry of Commerce could form a task force to review the status of previous initiatives in this regard (e.g., SWIFT) and create a time-bound program to implement a national trade network on par with the best in the world,” the report said.
Access to finance is regularly seen as a key bottleneck for MSMEs. Towards this end, promotion of Export Credit Guarantee can help improve working capital availability for MSMEs, according to the Aayog.
“The current uptake of ECGC (Export Credit Guarantee Corporation) schemes is only 10 per cent and the government must create an incentive package to increase it to 50 per cent 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,” the report said.
The report also said that a single information portal must be put in place to address the asymmetry of information available to MSME exporters with the help of artificial intelligence, which could provide accurate data to vendors on tariffs, compliance, finance, and availability of incentives.
Data also needs to be assessed accurately, according to the report. “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.”
The central think tank has also called for exemption of MSMEs from compliance burdens for a determined period; any errors in compliance must be forgiven as MSMEs learn the ropes of export markets.
“On the other hand, a process must be created for time-bound disbursement of incentives so that working capital is not blocked for MSMEs,” it said.
According to a statement issued along with the report, the steps can lead to a fifteen-fold increase in India’s MSME exports to $30 billion in the coming years. Data used in the report said that there is an export potential of $318 billion for MSMEs to tap into in segments like herbal supplements and Ayurveda products, wood products, jewellery, handicrafts, and handloom textiles.
