India plans global trade promotion body for MSME exports, to be announced in budget

New Delhi: The Centre may propose a global trade promotion body focused on boosting MSME exports in the upcoming Union budget, three people aware of the development said. The move comes on the backdrop of India's rising trade deficit and the urgent need to boost exports, the people said on condition of anonymity.

The new global trade promotion organization (GTPO) is being conceptualized on the lines of the Japan External Trade Organization (JETRO) and Australian Trade and Investment Commission (AUSTRADE), and will have branches in major economies. 

Focused towards MSMEs

“There has been a demand and also a consideration for a trade promotion body that would have offices abroad and work hands-on in terms of promoting exports for MSMEs who do not the economic muscle to promote their goods and establish a market abroad on their own,” said one of the people cited above.

Another person said that although there are sector-specific trade promotion bodies in the country along with the India Trade Promotion Organisation (ITPO), they do not have a robust presence globally and mostly work out of India.

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The GTPO is aimed to help small businesses with registration, licensing, and certification required for exports of goods and services to different developed and developing economies, and creating business opportunities for them in coordination with India's consulates abroad.

“It will work like a one-stop solution for MSME firms. The commerce ministry is hoping that it will play a key role in reducing trade deficit by encouraging MSME exports,” the third person said, adding that it would also help smaller business participate in global exhibitions, trade shows and buyer-seller meets.

Queries sent to the ministries of commerce, MSME and finance remained unanswered till press time.

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“Such a trade promotion body with its branches in other countries is key for the country's MSMEs,” Vinod Kumar, president of India SME Forum said. "It would be apt if such a body is given a target to increase India's exports to $1 trillion." 

India's merchandise exports in the just-concluded financial year (FY24) fell by 3.11% to $437.06 billion as against $451.07 billion in FY23, as per commerce ministry data.

The trade situation

The country's merchandise trade deficit widened to a seven-month high in May, but largely due to a surge in imports. The deficit stood at $23.78 billion in May, up 5.5% year-on-year and up 24.5% from April. 

Merchandise exports increased to $38.13 billion in May, up from $34.95 billion in May 2023 and $34.99 billion in April. 

Imports, however, saw a sharper rise, reaching $61.91 billion in May, up from $57.48 billion in May 2023 and $54.09 billion in the previous month.

Why MSMEs are important

MSMEs are a key constituent of the Indian exports ecosystem, contributing about 45% to the country's total exports, according to a Global Trade Research Initiative (GTRI) report. They also account for around 38% of India's manufacturing output.

MSMEs also contribute about 27% to India's GDP and employ more than 110 million people, making it the largest employer after agriculture (about 148 million employed, according to GTRI).

A NITI Aayog report on MSME exports released in March this year said: "Exports represent an enormous and under-utilized opportunity for the MSME sector. Sectors where Indian MSMEs can participate and compete in export markets include handicrafts, handloom textiles, ayurveda and herbal supplements, leather goods, imitation jewellery and wooden products. Globally, these sectors constitute substantial markets exceeding $340 billion, whereas their domestic market is considerably smaller."

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Noting that over time, small firms have encountered difficulties in tapping into export markets due to the inherent obstacles posed by economies of scale, the report said that it's more challenging for small enterprises to enter foreign markets, adhere to compliance requirements, achieve cost-effective production, and efficiently manage logistics for clients.

“Exporting is crucial for Indian MSMEs to break away from dwarfism and unlock their true growth potential. Exporting can allow 54 lakh (5.4 million) manufacturing MSMEs to tap into new markets and expand their customer base, leading to increased revenue and profit,” it said.