View: New foreign trade policy could benefit MSMEs

India’s 2021-26 foreign trade policy (FTP), currently under formulation, is likely to be released on April 1. The earlier FTP that was due to end in March 2020 was extended till March this year due to Covid-19.The new FTP may provide India an historic opportunity to plug in its MSMEs into a vibrant export-oriented growth through ecommerce, a proper regulatory architecture and robust logistics support.According to GoI, the goal will be to make India a global trade leader and ‘channelise these synergies through merchandise and services exports for growth and employment…. [which] has to be done through systematically addressing domestic and overseas constraints related to the policy, regulatory and operational framework for lowering transaction costs and enhancing the ease of doing business, and creating a low-cost operating environment through efficient logistical and utility infrastructure’. Each of these elements involves a chapter for policy action.The new FTP assumes special significance as it comes in the backdrop of a pandemic year. Exports from India (merchandise and services) during April-November 2020 totalled $290.66 billion, with a trade surplus of $13.59 billion. India now needs to formulate a new robust FTP identifying its areas of strength and current global trends.At present, India’s main strengths are MSMEs and ecommerce. The new FTP can plug-in India’s burgeoning MSME sector (at present only 35,000 MSMEs export) and give them a boost. This would need a proactive regulatory architecture, special ease of doing business, knowledge hubs through export promotion councils (EPCs), galvanising ‘district export hubs’ (GoI’s ‘One District, One Product’ initiative), creating foreign post offices in every such district and export processing zones (EPZs) across the country, and removing structural blocks.Some GoI measures for MSMEs during the pandemic have started yielding results. These include broadening of the definition of MSMEs, a ₹30 lakh crore relief package, the Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength (CHAMPIONS) infusion of tech support and e-market linkages.Today, almost two-thirds of India’s exports are from third-party merchants, who procure products from MSMEs. There is now need to make them self-reliant, providing them direct platforms of ecommerce for export and designing policies to make them active players. The entry barrier for small businesses, estimated to open markets worth $400 billion, needs to be opened. The new FTP should have a separate chapter for ecommerce.There should be a ‘knowledge centre’ for MSME exports, a separate EPC for ecommerce with a single-window export-clearing mechanism. For capacity, there could be dedicated training modules in the Niryat Bandhu scheme, MSME Champion Portal, Indian Institute of Foreign Trade (IIFT); and district export hubs, with milestones and periodic monitoring, troubleshooting and awards. An empowered interdepartmental coordination mechanism for on-spot decisions, with all concerned agencies-RBI, customs, Directorate General of Foreign Trade (DGFT) and Department of Revenue, needs to be constituted.MSMEs face real challenges in entry into ecommerce-based export businesses. Some of them that function in smaller cities and villages need to become competitive for exports. For this, special logistics, inputs and support in tax structure (tax-free or concessions) may be needed.Ecommerce biggies like Amazon and Walmart-Flipkart, which have developed strong forward and backward linkages across the country with such MSMEs, artisans, handicraft hubs and women clusters, provide them digitisation, tech support and access to export market. It may be worthwhile to integrate all such efforts for maximum outcomes.Infrastructure improvement needs a serious bump-up through an efficient network of logistics, warehouses, facilities at port, quality testing labs and certification centres. Similarly, in a competitive export market, it would be necessary to continually upgrade skills and technologies with regular feedback from overseas markets, where EPCs, Indian missions and technical institutions may play an effective role.If we look at the examples of China and some of the Asian Tigers who built their economies around exports and ecommerce, along with cost and quality competitiveness, vigorous efforts in tech infusion and constant support by governments played a key role. The new FTP can now open for our MSMEs a new gateway for ecommerce-led vibrant growth.(The writer is former executive director for India, World Bank)
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