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MSMEs: Challenges, Opportunities, and Global Growth



  Sep 20, 2023

Export Potential of MSMEs to Empower India's Economy



Introduction:

Micro, small, and medium enterprises (MSMEs) have earned the moniker "powerhouse" in India's economic landscape.
They undeniably contribute a substantial 27% to India's gross domestic product (GDP) and play a pivotal role in generating employment for approximately 110 million individuals.
However, beneath this seemingly impressive surface, a nuanced narrative unfolds.
A closer examination reveals that a whopping 85% of these MSMEs are categorized as "dwarfs" – entities older than a decade but with a workforce fewer than 100 employees.
Unfortunately, these enterprises, while numerous, encounter formidable challenges due to their modest scale.
Moreover, when they endeavor to expand, they grapple with regulatory roadblocks.
 

Challenges vs. Opportunities:

The dichotomy between challenges and opportunities faced by MSMEs beckons our attention.
While they are the backbone of the Indian economy, their growth is stymied by their intrinsic small scale.
Additionally, they encounter formidable regulatory hurdles when they aspire to scale up their operations.
To comprehensively support and uplift these enterprises, we must decipher where the greatest opportunity for their advancement lies and pinpoint the obstacles obstructing their journey towards global prominence.
 

Identifying Natural Fit Sectors:

Certain industries naturally align with MSMEs. These sectors are characterized by high labor-intensity and relatively modest investment prerequisites.
Examples include wood products, ayurvedic and herbal supplements, toys, handloom textiles, handicrafts, leather products, and jewelry, among others.
These industries, with their labor-intensive nature, are well-suited for harnessing the capabilities of MSMEs.
However, a critical caveat is that India's domestic market represents a mere 2% of the global market size for these products. For instance, India's domestic toy market comprises approximately $1 billion, whereas the global toy market commands a colossal $300 billion.
This dichotomy between domestic and global market potential underscores the imperative need for MSMEs to venture into the international market arena.
 

India's Global Aspirations:

India, armed with around 20% of the world's working-age population, is poised to secure its rightful place on the global stage.
A realistic aspiration is to claim at least a 10% share of global trade.
Presently, India's share in global merchandise exports is a mere 2%.
Notably, the data available on the government's portal indicates that MSMEs contribute a 6% share to Indian exports, and less than 1% of MSMEs are exporters.
This sobering statistic amplifies the struggles faced by the 110 million individuals employed in MSMEs, who are thwarted in their quest to prosper due to their inability to tap into the global market.
 

Overcoming Small Scale Limitations:

Historically, the inherent limitation of small-scale operations has been a significant impediment to MSMEs' ability to engage in international trade.
The arduous process of identifying foreign customers, navigating the intricate web of logistics and compliance associated with exporting,
all while managing the typical challenges of day-to-day business operations, is an undertaking fraught with complexities.
These formidable hurdles have meant that the majority of exporters are large conglomerates, as they possess the necessary economies of scale to absorb the intricacies and uncertainties associated with international trade.
 

E-commerce as a Game Changer:

However, the advent and proliferation of e-commerce platforms have ushered in a new era.
The emergence of these platforms signifies a paradigm shift from the conventional world of international trade.
E-commerce platforms possess the unique capability to seamlessly connect small businesses with customers on a global scale.
Moreover, they proficiently handle the intricacies of logistics and compliance, alleviating these burdens from the shoulders of MSMEs.
This innovative approach empowers MSMEs to engage actively and effectively in the global marketplace, thereby transcending their inherent limitations of scale.
 

Challenges in E-commerce Exports️:

Despite the evident potential of e-commerce as a vehicle for export growth, India's current e-commerce exports stand at a modest $2 billion, constituting a mere 0.5% of our total merchandise exports.
In stark contrast, China leads the way by conducting a substantial 8% of its overall exports through e-commerce platforms.
To fulfill India's ambitious export target of $1 trillion by 2030, MSMEs and e-commerce must rise to the occasion and contribute significantly, potentially exceeding $100 billion in export value.
 

Three Vital Steps to Propel MSMEs into the Global Arena:

To embark on this transformative journey, we must embrace three strategic steps – three essential reforms and one vital implementation measure – that have the potential to catalyze this evolution.
 

Streamlining Financial Regulations for Exports:

The existing financial regulations governing exports were crafted during an era marked by stringent foreign exchange controls, where every dollar was scrutinized.
In today's dynamic global trade landscape, characterized by openness and confidence, we need to evolve these rules.
The current regulations place a heavy and unsustainable compliance burden on MSMEs, imposing exorbitant costs on each transaction.
These rules also unfairly disadvantage Indian producers by restraining the flexibility of dynamic pricing for goods once they are outside India's borders.
 

"Green Channel" for E-commerce Exports:

Learning from China's success, India must implement a "green channel" for e-commerce exports to expedite Customs clearance.
This approach has demonstrated remarkable efficacy and can significantly expedite the export process for MSMEs.
 

One-stop Trade Portal Implementation:

MSMEs, particularly exporters, currently struggle to navigate a maze of interfaces with the government, compounded by a lack of credible sources of information.
The introduction of a comprehensive one-stop trade portal, consolidating all export-related information and processes into a unified, streamlined workflow, can be a game-changer.
Such a portal, which has been announced post the G20 meeting, can serve as the cornerstone of facilitating and expediting export procedures.
 

Shifting Mindsets:

Beyond these focused reform recommendations lies the indispensable need for a paradigm shift in mindset.
Our government must transition from a stance of suspicion to one grounded in trust when dealing with Indian entrepreneurs and enterprises.
 

Conclusion:

In conclusion, these strategic reforms have the potential to be transformative for our vast ecosystem of MSMEs.
While the path ahead is undoubtedly challenging, the collective implementation of these measures can yield remarkable results.
These reforms, guided by the principles of trust and empowerment, can elevate MSMEs to global prominence and enable them to assert their rightful position in the international trade arena.
In doing so, they can become true catalysts for India's economic growth and global relevance.


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