Export-oriented MSMEs must be encouraged through fiscal incentives: Expert

Jayarama Emani | The Dollar Business

Global value chain linkages, be it nationally or internationally (export route) must be promoted as a policy for promotion of MSMEs through fiscal incentives, said an expert. Talking to The Dollar Business, Tamal Sarkar, Director, Foundation for Micro, Small & Medium Enterprises (MSME) Clusters (FMC) said that export orientation brings in fresh ideas. “In most such cases, the firms get integrated to Global Value Chains and enhance their competitiveness through learning, which otherwise would never be available.” He added, “However, if the non-exporting units are divided into those who are producing for local market as against those who are producing for long term buyers with good market reputation, the gap will be narrower or may be even better for the firms linked to national champions (who must be globally competitive as the gates are all open), as this route also gives learning, enhances competitiveness and is relatively less costly to perform.” Tamal was reacting to a rating agency study that the average sales of MSMEs that have export presence grew by 26 per cent in 2013-14, as against 17 per cent for domestic players during the year. Currently, MSMEs contribute about 40 per cent of the country's total exports. CRISIL has analysed the performance of about 6,900 micro, small, and medium enterprises (MSMEs) which were rated on the basis of their 2013-14 (April 1 to March 31) financials. Exporters in the CRISIL sample also performed better than the domestic players in terms of operating profit margins. The export-based units registered an average operating profit margin of 9.14 per cent in 2013-14, up from 8.62 per cent during the previous year. On the other hand, operating profit margins of domestic players remained stagnant at 6.70 per cent in 2012-13 and 6.81 per cent in 2013-14. More than 60 per cent of MSME exporters have been in business for more than a decade and have been operating in different sectors and catering to diverse clients from abroad. CRISIL believes that these MSMEs are able to market their products in the international market on account of their business experience and by adhering to international standards, which enables them to source bulk orders on a regular basis. This also allows them to command high margins despite intense competition and fluctuations in the prices of raw material and foreign exchange rates.    

July 7, 2015 | 5:58 pm IST.