How an effective trade policy can help MSMEs spread their wings
The pandemic has impacted many lives and the world has been dealing with it for a year now. A report by Nomura India Business Resumption Index suggests that the second outbreak is likely to slow the country’s economic recovery.
In this grim backdrop, the stimulating power of exports cannot be understated. Focusing on the growth of India’s participation in international trade is reflective of the Atmanirbhar Bharat vision. Earning foreign exchange helps reduce the trade deficit and has a direct impact on the GDP. This has a positive impact the economic growth. Exports also generate employment which is needed at a time when the country has just clocked in an unemployment rate of 6.9%. The upcoming Foreign Trade Policy (FTP) which is slated for 2021-2026 will not only provide short-term relief from the consequences of the pandemic, but also give a strong foothold in our mission to reach a $5 trillion economy by 2025 and $1 trillion through the digital economy.
Participation of micro, small and medium enterprises (MSMEs), freelancers and entrepreneurs are vital for the growth of the country’s exports. The foreign exchange earnings by these small businesses are transmitted fast in the local domestic economy thereby creating a cycle of local demand, adding to the GDP growth. Therefore, it is prudent that our trade policy focuses on encouraging SMEs to expand their opportunity to move beyond domestic borders, increase competitiveness of home-grown brands and position India as a leader in the global marketplace. Here are some considerations within and outside the scope of the FTP to ensure robust export performance over the next five years.
Leverage India’s strength in exports of small value goods and services
It is an opportune time for small value exporters of goods. With increasing adoption of ecommerce, the floodgates to purchase custom-made goods from anywhere in the world has opened. In fact, a recent NASSCOM report pegs ecommerce exports to reach US $125 billion by 2030. This clubbed with low risk and investment gives a major boost to our MSMEs, which is why the new policy should consider extending necessary support to enable artisans of tribal products, handicrafts or small exporters of gems and jewellery to take advantage of the global B2C demand. This will result in an increase in the employment within the manufacturing sector.
Services and services exports are India’s strength. The pandemic has drastically impacted travel, paving way for remote work, online education and entertainment. India is one of the largest freelancer markets. Demand for their small value digital services in the areas of software, education, wellness, market research, etc. are booming with potential to growth at high double digits annually. Another upside of this situation is the rise of women entrepreneurs in the country. For instance, a home maker with passion and trained Indian classical dance or yoga, finds it relatively easy to teach a global audience from the ease of her home. The Indian Diaspora of more than 16 million is a clear target audience for remote services. These small value services have the capability to enhance India’s resiliency, so naturally the new FTP must enable ease in B2B and B2C trade.
One way includes faster GST refunds to increase ease of doing business and having sustainable business models. Another way can be by introducing modifications to the Services Exports from India Scheme (SEIS) and by including incentives for small value services up to Rs 5 crores.
Create a win-win for MSMEs and freelancers – introduce a talent portal for digitalisation
Digitisation is imperative for MSMEs to survive and thrive but is often a challenging task. The single biggest challenge is to get affordable and skilled talent to manage the digital transformation of basic business functions and processes such as website, SEO/SEM, procurement, supply chain, marketing etc. MSMEs cannot afford to attract and retain the talent required to run an omni-channel digital business.
On the other end of the spectrum, the country has an enviable base of freelancers with expertise across these domains. Clearly, they are the answer to the talent management problem faced by MSMEs. The policy can develop a talent portal based on a pay-per-use model. Right from digital marketing and social media specialists to website developers, SEO experts and shopping cart enhancement specialists can be listed on the portal to provide MSMEs access to skilled talent without incurring fixed costs, while seamlessly growing their exports. This also proves beneficial for freelancers by ensuring sustained business opportunities.
Modify the MSME Act to include merchant trade exports
The government has introduced various incentives for MSMEs during the last year to enable small businesses to effectively navigate through the crisis. Unfortunately, under the MSME Act only producers are eligible to avail these, while merchant trade exports are left out from the definition. This issue needs to be addressed and the definition needs to e expanded to ensure that merchant trade exports are eligible for the same benefits.
The next few years are crucial in setting the foundation for growth and international trade of small value goods and services play an equally important role in achieving this. India’s Foreign Trade Policy should pave newer ways for small businesses and freelancers to grow their presence beyond the country and reach global consumers. With key modifications to incentives and definitions and implementation of a talent platform, India can leverage the structural changes in global trade to emerge as a winning leader. This will result in both, short and long-term economic benefits for the country.