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    ‘MSMEs’ longer wait for new Foreign Trade Policy may stifle their growth’

    ‘MSMEs’ longer wait for new Foreign Trade Policy may stifle their growth’

    The official guidelines that determine how the import and export of goods and services will take place are delayed yet again. The Foreign Trade Policy (FTP) aimed at substantial growth, doubling the percentage of global trade India conducts, has been viewed as the shot in the arm needed in a year full of new opportunities arising amid concerns over the extended US-China trade war.

    India is pivoting itself as the global hub for manufacturing and retail, opening doors for an increase in trade. A report by Cushman and Weikfield ranked India as the second top global manufacturing destination, ahead of the US and outlined that the increased interest in India is helped by the country’s proven success in meeting outsourcing requirements.

    At a time when India could benefit from plant relocations from China to other parts of Asia owing to an already established base in pharmaceuticals, chemicals, and engineering, a stalled FTP will only delay the imminent growth of trade.

    At the heart of the issue are India’s micro, small and medium enterprises (MSMEs). The sector forms the backbone of the Indian economy and contributes about 29 per cent towards the GDP through its national and international trade, making it vital in achieving the ambitious export trade targets.

    Impact of Extended FTP on MSMEs

    Addressing rising input and fuel costs:

    The pandemic has severely increased input costs and fuel costs, both pivotal for the operational success of MSMEs. There’s a rise in prices of raw materials such as metals, plastics along with a shortage of shipping containers and labor, making matters worse. MSMEs are finding it difficult to take full advantage of the increase in demand and hoped the new FTP will ease their woes.

    Adopting e-commerce for micro-enterprises:

    With the world opening its arms to seamless global trade via the internet, the renewed FTP was touted to enable and encourage small-ticket India-specific goods, which are widely accepted and in demand worldwide. A delay in extending help to exporters of such goods only prolongs a long-lost opportunity.

    Strengthening Services Exports from India Scheme (SEIS):

    Under this scheme, an incentive of 3-7% of net foreign exchange earnings is provided to services exporters of notified services in India. A modification in the minimum cap for the net foreign exchange earnings eligible to claim under the scheme and faster GST refunds to global services with robust growth because of covid-19, was much needed with the new FTP. An extension in the rollout of the FTP would only make it difficult for MSMEs to leverage the potential of new opportunities ahead of them.

    Extending MSME incentives to exporters:

    The renewed FTP could change the fate of exporters if incentives granted to retail and wholesale traders under the ambit of being in the MSME category are extended to exporters as well. A delay in the direction is leaving exporters to fend for themselves without the government’s help.

    Overall, some of the government’s plans for the FTP 2021-2026, such as identifying potential products and services in each district, mapping Geographical Indication (GI) products, and setting up district export promotion panels as part of their initiative targeted at small businesses and farmers and reducing domestic and overseas constraints related to the policy and enhancing the ease of doing business, are steps in the right direction.

    What’s needed is for the new FTP to embrace the rapidly changing choices and make use of the explosion in the field of trade done using technology and the internet instead of the traditional offline means.

    $400 billion export target

    The Union Commerce and Industry Minister Piyush Goyal set a merchandise export target of $400 billion for the year 2021-22 to meet PM Modi’s vision of going global: “Make in India for the World” earlier this August. In his plea to MSMEs, Goyal urged the need to maintain the export momentum for the next eight months, with US$ 34 billion exports per month to achieve this target. He asked the export community to target $2 trillion exports by 2030, comprising $1 trillion merchandise exports and $1 trillion services exports.

    Conclusion

    India has approximately 6.3 crore MSMEs, who can help by first adopting technology and then innovating themselves to meet the export trade target. Lack of technology-based production activities and low investment in research and development are two significant factors that have impacted the sector severely. Until an MSME-first FTP is announced, they must look for help from, for example, academic institutions in providing research and development services for their product innovation and embracing technology in every stage of the export process. And till then, bringing MSMEs on an equal footing with global competitors and enhancing their chances of growing faster will remain a far-fetched dream.

    The article was first published on financialexpress.com

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    Pushkar Mukewar
    Pushkar Mukewar
    CEO and Co-Founder, Drip Capital
    4 min read