How an effective trade policy can help MSMEs spread their wings

The pandemic has impacted many lives and for over a year, the world has been dealing with its concomitant crisis. A report by Nomura India Business Resumption Index suggests that the second outbreak is likely to slow the country’s economic recovery.[1]

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 government’s Atmanirbhar Bharat vision. Earning valuable foreign exchange helps reduce the trade deficit and has a direct impact on the GDP. This positively impacts the economic growth. Exports also generate employment which is much needed at a time when the country has just clocked in an unemployment rate of 6.9%.[2] 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 us 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 in growing the country’s exports. The foreign exchange earnings by these small businesses are transmitted fast in the local domestic economy thereby creating a virtuous cycle of local demand adding to GDP growth. Therefore, it is prudent that our trade policy focuses on encouraging small and medium businesses to expand their opportunity to beyond domestic borders, increase competitiveness of home-grown brands and position India as a leader in the global marketplace. In line with this, following 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 Indian artisans of tribal products, handicrafts or small exporters of gems and jewellery and so on to take advantage of the global B2C demand. It will result in great 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 Bharatanatyam or yoga a global audience from the ease of her home. Indian Diaspora of 16M+ is clear target audience for remote services Such small value services have the capability to enhance India’s resiliency, so naturally the new FTP must enable ease in B2B and B2C trade of it.

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 INR 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 to digitization is affordable, yet skilled talent to manage the digital transformation of basic business functions and processes such as website, SEO/SEM, procurement, supply chain, marketing, etc. MSMEs simply cannot afford to attract and retain the talent required to run an omnichannel 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 could possibly solve for this by developing 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

Lastly, 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, whereas merchant trade exports are left out from the definition. This issue needs to be addressed and expand the definition to ensure 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 positively 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.

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