Thursday 19th October 2017

    Will the SME Sector Take Advantage of its Export Arsenal?

    According to the Ministry of Micro, Small and Medium Enterprises (MSME) and the Ministry of Commerce and Industry (MoCI), Government of India, there are about 50 million MSMEs in the country that collectively generate more than a third of India’s GDP. They employ 20% of the workforce, accounting for almost half of India’s total exports. MSMEs also contribute about 45% to India’s industrial output. They, therefore, play a critical role in generating employment, especially at the low-skill level to many rural households (55% of MSMEs are based in rural India).

    India’s 50 million MSMEs 

    account for:

     

    20% of the workforce

    Over 33% of GDP

    ~50% of total exports

    45% of industrial output

    Source: DGCI&S and Ministry of MSME, Government of India

     

    While the low scale and low skill level of most MSME units help the sector to employ a large, semi-skilled and unskilled workforce, these same factors hinder individual units from scaling up due to the lack of capacity development. Nearly 90% of such units employ less than 10 people and are unable to scale up further during their lifecycle. To strengthen the sector and help it to outgrow its capacity concerns, a good strategy as any will be to play on its strengths.

    Among the many strengths of the sector, is its ability to alleviate India’s existing trade deficit and contribute to its global exports. The share of MSMEs in India's total global exports have been depicting a growth trend in the last three fiscals.

    India's Balance of Trade Scenario

    The cumulative trade deficit rose to US$ 40 billion as of June 2017, according to recently released data by MoCI, with indications that the current account deficit might rise to US$ 15 billion in the first quarter of FY2018.

    Total global exports stood at US$ 23.56 billion in June 2017, registering a gradual, tenth month growth trend. Imports, on the other hand, registered a 19% rise to stand at US$ 36.52 billion in June 2017.

    The country's trade balance has worsened over the years, with a continuous fall in exports since FY2013. Although recent months show a positive export trend, the overall imbalance needs to be addressed urgently.


    Against such a backdrop, it becomes all the more necessary for MSME units to focus on export markets. In recent months, the Government too has been pushing for the growth and development of the SME and MSME sectors through various favourable regulations and reforms.

    Government Regulations & Reforms 

    The Government's focus on according priority to and boosting the capabilities of MSME exports in the global market has been heartening to note. The key export schemes are presented in detail in the table below. Moreover, the announcement of a 5% cut in income tax for SMEs in the Union Budget 2017 was also designed to help the growth and development of the sector.

    In addition, a number of reforms have been announced targeted at boosting SMEs/start-up enterprises in recent times. These include:

    • The Public Procurement Policy,
    • The Pradhan Mantri MUDRA Yojana,
    • Make in India,
    • Startup India, and
    • Skill India

    Overall, the Government plans to make financial and technical support more accessible for export units. 

    Government's Schemes to Incentivise Exports for SMEs & MSMEs

     

     

    Merchandise Exports from India Scheme (MEIS)

    Introduced in Foreign Trade Policy (FTP) 2015-20 w.e.f. April 1, 2015 to offset infrastructural inefficiencies and associated costs of exporting goods / products produced /manufactured in India, including products produced / manufactured by MSMEs. Of the 11,544 total tariff lines recognised by the Govt., 7,914 tariff lines are currently covered under MEIS scheme. It incentivises exporters in terms of freely transferable Duty Credit Scrips.

     

    Status Holder Recognition Scheme of the Foreign Trade Policy 2015-20

    The Govt. provides double weightage to exports of MSMEs for grant of one star export house status under the Scheme. A Status Holder Certificate enables enterprises to avail certain privileges under Foreign Trade Policy, such as legal undertaking in lieu of bank guarantee, and facility for free of cost exports for export promotion purposes, among others.

     

    Interest Equalization Scheme on Pre and Post Shipment Rupee Export Credit

    The Scheme was launched w.e.f. April 1, 2015 for five years. It is available to all MSME exports. The rate of interest equalisation is 3% per annum. It aims to provide affordable credit to exporters to make them more competitive in the global market.

     

    Special Advance Authorisation Scheme

    This Scheme was introduced for the export of apparel and clothing accessories w.e.f. September 1, 2016, wherein exporters are entitled for an authorisation for fabrics, including inter lining on pre-import, and All Industry Rate of Duty Drawback for non-fabric inputs on exports.

     

    Niryat Bandhu Scheme

    The Scheme was implemented to reach out to new and potential exporters, including those from MSMEs, and mentor them through orientation programmes, counselling sessions, individual facilitation, etc., on various aspects of foreign trade to help them get into international trade and boost exports from India.

     

    Export Promotion Capital Goods (EPCG) Scheme and Duty Exemption/Remission Schemes

    Under these Schemes a number of facilities are available for boosting MSME exports, such as the Advance Authorisation (AA), Duty Free Import Authorisation (DFIA), Duty Drawback (DBK), advance procurement / replenishment of precious metals from nominated agencies, replenishment authorisation for gems, replenishment authorisation for consumables and advance authorisation for precious metals.

    Source: MoCI & PIB, Government of India 

    In Conclusion

    Quite recently, the First India–Commonwealth SME Trade Summit was held in Delhi. The event was a joint initiative of the Commonwealth Secretariat, London, and India’s premier industry bodies of Federation of Indian Chambers of Commerce and industry (FICCI), Confederation of Indian Industry (CII) and the Federation of Indian Micro and Small and Medium Enterprises (FISME)—supported by the Ministry of Commerce & Industry, Government of India.

    Deliberations at the event pointed that out a healthy possibility exists for Commonwealth economies to lead growth in global trade amid a general slowdown in the world economy. It was revealed that through the ‘Commonwealth Advantage’, it is almost 19% more cost effective to trade among Commonwealth markets than otherwise in the current global trade scenario. It was also asserted that India being the largest Commonwealth member in terms of its demographic strength could look to exploit this trade advantage and take on a leadership role in the Commonwealth bloc.

    Armed with various Government export incentives and overseas trading advantages, it now remains to be seen how our 50-million strong MSME sector takes advantage of the arsenal at its disposal.