Govt working on export promotion fund for MSMEs

New Delhi: The Union government is considering setting up a fund to support exports by small businesses. A proposal for the fund may be placed in the upcoming Union budget by the finance ministry, two people aware of the development said, adding that the fund may have a corpus of around ₹5,000 crore.

“The fund is likely to focus on first-time exporters with an annual turnover of less than ₹25 crore,” one of the two people mentioned above said on condition of anonymity. 

“MSMEs and, more so, efforts to boost their export potential are expected to get a major push in the upcoming budget,” the second person said.

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The fund would be used to set up export facilitation centres at district level to help small businesses gauge potential markets and explore opportunities. 

It would also be used to develop export capacity of first-time exporters at district level by imparting necessary skills to compete in international markets in both B2B (business-to-business) and B2C (business-to-consumer) areas. 

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

Boosting small businesses

Further, the first person cited earlier added that the fund would boost the ODOP (one district one product) scheme, which was launched in 2018 to provide a framework to develop the value chain and align support infrastructure for production of district-specific products. So far, under this initiative, the Centre has identified 1,102 products from 761 districts.

Several schemes are already in place to support MSME exports. For instance, the Centre runs the Marketing Assistance and Export Promotion scheme that provides training to the workforce of these smaller businesses on marketing, packaging for export products, and also gives out awards for quality products.

Currently, MSMEs contribute about 45% to the country's total exports, according to a Global Trade Research Initiative (GTRI) report. However, experts believe there is immense scope to increase this share further. 

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A report jointly published by Niti Aayog and Foundation for Economic Development in March this year noted that exports remain an under-utilized opportunity for MSMEs, even as they are called the powerhouse of the Indian economy and contribute significantly to employment generation, exports, and overall economic growth.

Citing data from the Udyam portal, the NITI Aayog report said that despite the opportunity for MSMEs to pursue exports, only 0.95% of MSMEs are engaged in it. Out of the 15.8 million MSMEs registered on Udyam, only over 150,000 units claimed to export their goods and services.

In terms of MSME exports through the e-commerce route, data from GTRI showed that India significantly lags a comparable economy like China. GTRI data showed that in 2022, MSMEs in China exported goods worth over $200 billion through e-commerce platforms, while India's e-commerce export is barely $2 billion that year.

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Rahul Ahluwalia, co-founder of Foundation For Economic Development, noted that one of the key support that MSMEs require is simpler export processes, including a green channel for e-commerce, simpler compliances, and fewer restrictions around export payments.

“Targeting particular firms will require government to decide which firm is 'worthy'...which is very tricky. Broad reforms that make MSMEs lives easier in tangible ways are much better,” he said.

Why MSMEs are being eyed

Presenting the interim budget for FY25 on 1 February, finance minister Nirmala Sitharaman had said that the government aims to make small businesses globally competitive.

“It is an important policy priority for our government to ensure timely and adequate finances, relevant technologies and appropriate training for the micro, small and medium enterprises (MSME) to grow and also compete globally," she had said. "Orienting the regulatory environment to facilitate their growth will be an important element of this policy mix.”

The focus on MSME exports has gained momentum at a time when India's merchandise exports dipped 3.11% year-on-year (y-o-y) in FY24 to $437.06 billion, according to data from the commerce ministry.

In May, India's merchandise trade deficit widened to a seven-month high, largely due to a surge in imports. That month, exports grew 9.1% y-o-y to $38.13 billion, while imports grew 7.7% y-o-y to $61.91 billion. The deficit in May stood at $23.78 billion, up 5.5% y-o-y and up 24.5% from April.

MSMEs contribute about 27% to India's GDP and employ more than 110 million people, making it the second largest employer in the country, after agriculture.