India is home to over 65 million MSMEs. However, the lack of a credible platform to identify and verify global opportunities and the limited access to market research and trade intelligence brings with it the complexity to understand and get into global trade. Thus, only a fraction of them (less than 1per cent) enter overseas markets for export/import, that too with a greater degree of risk.
Moreover, of India’s 769 Billion Global Trade last year, around 50 per cent was done by the merchant exporters, so the proportion of MSMEs exporting directly is very less. Similarly, only a fraction of overseas MSMEs trades with India because of lack of credible information on trade counterparts, trade insights and trade resources here in India.
The main reason for this extremely low participation is lack of knowledge and information and unavailability of any end-2-end managed solution for export/import.
There is a lack of market awareness on Global opportunities and how to find, qualify and act on those and to convert those into orders. For example, new opportunities with additional outbound shipment potential of up to 8.7 billion dollars a year, according to a latest Commerce Ministry study, have opened for MSMEs, specifically for the agro producers to increase the products export to China as a result of US-China trade war. However, most are just not aware of this. Being aware, visible and competitive on the global platform is most crucial for MSMEs for sustainable growth.
Pawan Gupta, Founder and CEO, Connect2India shared, “We need policies and framework in place to encourage MSMEs to export directly. We need to incentivise first-time exporters enabling more and more new MSMEs to get into global trade and make them aware of the existing schemes. This would increase the size of the pie of the Indian MSMEs participating in global trade, helping us achieve our USD 2Trillion Global Trade by 2025.
Anything that would enable and encourage MSMEs to export directly and mitigate trade risk would be very well received by the MSME community! Digitally empowering the MSME community and enabling them to go global can provide a much-needed solution to the country’s growing demands of jobs and employment.”
Sensing a need for a digitally managed marketplace, Connect2India was established in 2016 with a single mission to empower 65 million+ MSMEs to go global. With 2.5 billion Global Trade Statistics, 2 Million+ Genuine Trade Counterparts and 1.6 Million Organic Visitors per month, Connect2India is making global trade simple and safe for Indian and International MSMEs.
To bridge the knowledge and information gap, Connect2India offers global trade intelligence, global trade counterparts, global trade resources and global trade tools on its integrated trade platform. It also has an active trade helpline and trade forums, along with with a worldwide network of trade experts and trade providers, to help the first time MSME exporters.
Pawan believes that enabling the MSME segment with marketing, finance and credit insurance support would help more and more MSMEs to explore global trade opportunities.
Pawan highlighted that based on feedback from customers across India, one of the key pre-requisites for a first time MSME exporter looking to export globally is easy access to Trade finance, and more specifically the pre-shipment finance. The pre-shipment finance would allow these MSMEs to manufacture/arrange goods for shipment.
Generally, the banks and other institutions offer only post-shipment finance, which is not very helpful for an MSME. The easy access to trade finance would allow MSMEs, including agro producers to export directly without dependency on merchant exporters.
Further, to boost the MSME sector, the interest subsidy on a post and pre-shipment export credit was increased to 5 per cent from 3 per cent by RBI last year but it has not really picked up. The scheme, only operational until FY2020, has been only utilised by some exporters. A possible solution could be to extend it to the entire MSME sector in comparison to its current access to only select industries.
Further, ample awareness about services offered by Export Credit Guarantee Corporation (ECGC) for export credit insurance support should be created for first-time exporters to encourage more MSMEs to directly participate in global trade. Most first time MSMEs exporters are not aware of these services and for those aware, they are not able to comply with all the requirements. Seminars can be conducted to increase the level of awareness about ECGC schemes in the future period of time, awareness about payment risk can be revealed by ECGC and Premium rates must be reduced further to cover more MSME customers.
Rs. 500 crore funds have been allocated to be infused in ECGC in FY19-20 but a much higher impetus is needed for the MSME sector growth. ECGC could come up with specialized credit insurance products to cater specifically to MSME exporter requirements and also these services should be available at the city/town/rural level wherever MSMEs are located. ECGC covers exports to around 200 countries in the world and the present government aims to develop the ECGC as a credit enhancement agency. This may help solve the issues of credit unavailability and export credit to the MSMEs.