Policymakers plan to make MSMEs the plank on which the country will ride through global economic speed breakers and achieve the ambitious export target of $900 billion by 2020. However, the problem is that MSMEs largely remain unappreciated and unattended. While there are many trade facilitation schemes in FTP for big players, almost none on the lines are available to MSMEs. Can’t we have a few extended to MSMEs? How about a separate ‘Status Holder’ categorisation for MSMEs?
Indranil Das | November 2016 Issues | The Dollar Business
That India’s exports are in doldrums is news to nobody. Fact is exports fell from $314.40 billion in FY2014 to $310.34 billion in FY2015 and then slumped to $262.29 billion in FY2016. Fact also is that India’s exports fell below the $300 billion mark in FY2016 for the first time since FY2011. Many had banked on the Foreign Trade Policy (FTP) 2015-2020 to boost exports, with government targeting $900 billion in exports by 2020. And not to say, hence FTP 2015-2020 has many new provisions and tweaks, ostensibly to facilitate foreign trade and improve country’s export performance.
One such tweak was a change in criteria for recognition as Status Holder (exports in the current and previous three financial years to be considered as against the earlier criteria of current and previous two financial years to recognise an exporter as Status Holder). As per FTP 2015-2020, “Status Holders are business leaders who have excelled in international trade and have successfully contributed to country’s foreign trade”. Well, the criteria was tweaked to provide special and differential treatment to those who really deserved it. However, in the talk of recognising those that are contributing big time to country’s foreign trade and are earning the nation valuable foreign exchange, the one segment that went unheeded though was the MSME (micro, small and medium enterprises) segment, a segment that accounts for about 50% of the country’s total exports and has the potential to increase India’s exports manifold.
“The share of MSMEs in India’s exports reached 49.86% in FY2016,” informed Union Cabinet Minister for Micro, Small and Medium Enterprises, Kalraj Mishra in a written reply in Lok Sabha recently. In fact, the share of MSMEs in exports have been steadily increasing over the last few years, and that too at a time when exports have been floundering across sectors. If that is not contribution to international trade, what is?
As per 4th All India Census of MSME, the number of functional and non-functional registered MSMEs in the country are 15,63,974 and 4,96,355 respectively. While exports from the MSME sector has been clocking excellent growth rates year after year, surprisingly a majority of MSMEs in India still do not export. Even if they do, they do it indirectly. For, most are deterred by the time-consuming paperwork and procedures required to export – in the way missing out on a large chunk of profits; not to speak about the government incentives that they would have been eligible for had they exported directly.
In CY2015, exports from most of our traditional sectors saw a decline overCY2014 (notable exceptions being pharmaceuticals and articles of apparels). It would surprise many to know that non-traditional products account for a large portion (95%, if we go by some industry reports) of MSME exports. Which means a focus on exports from MSMEs could have helped us to negate the effect of the slump in exports from our traditional sectors.
Earlier this year S. C. Ralhan, President, Federation of Indian Export Organisations (FIEO), while talking about his wish list of benefits for the MSME sector in the Union Budget 2016, had said, “In view of current downfall in exports, MSME exporters may be provided additional exports benefits.” Adding that, “the government may consider to encourage MSME exporters by providing them some of the benefits available to Status Holders under earlier policies, such as Status Holder Incentive Scheme (SHIS).”
Under erstwhile SHIS, Status Holders of certain MSME dominated sectors like leather, textiles and handicrafts were eligible for a 1% duty scrip. However, his wish remained just that, a wish!
Status Holder benefits come into play only if an MSME is able to attain the export figures required to achieve the status of a Star Export House. And that isn’t easy! Achieving $1.5 million (MSMEs get double weightage when being considered for Status Holder position, a saving grace we must say, though it is applicable only for achieving One Star Export House Status) in exports is a big ask for an MSME.
Consider this: a medium enterprise, which by definition does not have investments in plants and machinery worth more than Rs.30 crore (the quantum of investment was increased from the earlier Rs.10 crore cap in 2014), is expected to generate annual export revenues of about Rs.10 crore (the rough equivalent of $1.5 million considering the ongoing USDINR of 66.69). Those who think it is reasonable, should look at the investments made by 4 Star Export Houses like Essar Steel and Mahindra & Mahindra to contrast the amount of investments versus exports.
These large companies have invested millions of dollars over many years in their plants and machinery to be able to cross the $500-million mark in exports. For instance, Mahindra & Mahindra, whose total planned investment in just its Chakan plant is to the tune of Rs.8,000 crore, achieved export sales of Rs2,341.80 crore in FY2016. Should we then not look at a different weightage or may be a different ‘Status Holder’ category altogether for MSMEs?
Let us look at some pain points that exporters from the MSME segment face. Most obstacles are related to procedures, while some are related to export competitiveness. The Status Holder scheme addresses both issues without burdening the exchequer. Customs clearance on the basis self-declaration would be a great boon to the segment. Just in case the government feels the need for checks and balances here for MSME Status Holders, a special random checking method can be instituted. This while saving the treasury money will also keep the MSMEs on their toes.
Bal Krishna Kabra, MD of Kabra Exports, a Noida based exports firm that deals in home furnishing products rues problems at Customs. He says, “Look at our (MSMEs) share in exports and see the level of harassment and corruption we face at Customs entry and exit points. Both the central and state governments take us for granted. A vibrant MSME culture has the potential to be the engine of growth for our country. But these procedural hassles deter small export houses. The government needs to understand the challenge that we face and make ease of doing business a reality on the ground for MSME exporters. Giving us benefits similar to those that Star Export Houses get will encourage many of us to export in larger volumes.”
M. Mody, Director, R. F. International, a textile exporter agrees, “The government stands only for big players. Their policies and incentives are heavily tilted towards large exporters. See our contribution to ‘Make in India’, but despite this we are getting a stepmotherly treatment – be it ease of access to credit, regulatory standards and procedures or supply chain, smaller players are always at a disadvantage.” He reasons that unlike big export houses (Star Houses) MSMEs cannot lobby and lubricate their way to the top of the decision-making. “I am all for giving special privileges to exporters who have achieved a certain level of excellence. They, in my view, do deserve all relaxations and entitlements the government bestows on them. Let them be rewarded, but the MSME sector has also performed well, and will be motivated to perform better if we can be given some of the benefits that Star Export Houses get,” adds Mody.
Debashis Bandyopadhyay, Director – Policy at Federation of Indian Micro and Small & Medium Enterprises (FISME), holds similar views. “With regards to MSME, I would like to say that government needs to remove bottlenecks and procedural delays affecting our various schemes – be it, Advance Authorization Scheme or Duty Drawbacks entitlement procedures. Exporters want smooth, hassle-free and prompt duty refund. Further, in case of Advance Licensing Scheme, the validity period should be extended so that exporters get more time to source their inputs. Also, DGFT’s Grievance Redressal Committee currently comprises of just government officials and lacks industry participation. This disparity must be addressed, at the earliest,” says Bandyopadhyay.
It would be wrong to say that the government has neglected the MSME sector entirely. There are many schemes that have been implemented to help MSMEs export, including schemes like Towns of Export Excellence (TEE), International Cooperation Scheme, and capital subsidies for upgradation of technology among others. What these schemes do not address though is the procedural non-fiscal benefits that ease the way Star Export Houses conduct their business. And that seems to be what is needed to encourage MSME exporters.
The Ministry of Commerce, GoI, has recently started the review process for the on-going FTP, and would be holding consultations with all stakeholders. The reviewed policy document will be tabled next year. Meanwhile, we can only hope that the voice of MSMEs will reach the ears that matter and we will soon see a slew of trade facilitating measures for this sector a-la-Status Holders.
A separate categorisation system for this segment will motivate many who are yet to start exporting, deterred mostly by procedural challenges. We believe that is not too big an ask, considering the contribution of this sector not only to our exports but towards employment generation as well as the gross value added to the economy. Well, MSMEs are not asking for favours, just the recognition that is due to them. In fact, if this measure can help boost exports it would be a favour to the nation. Need we say more!
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