MSMEs: Trade Opportunities and Market

Access Issues

Anil BhardwajSecretary General

Federation of Indian Micro and Small & Medium Enterprises (FISME)

What to expect from the Presentation

Opportunities & Trade issues•Why trade is important for MSMEs

•MSMEs and exports

•Pain points

•Trade issues

•Opportunities

MSMEs •A brief background

•Historical policy drivers

•Key pain points

•Initiatives

MSMEs: A brief background-1

• Widespread presence of cottage industries

– Traditional skill based sectors: Handicrafts, textiles, leather, agri-implements, jewellery..

– Catering to needs of local markets and also exports

• Creating employment for non-farm labour

• Historical base of private trading enterprises

MSMEs: A brief background-2

• British imperialistic policies destroyed the Indian Business model; rendered millions jobless

• Post 1947: Clarion Call of Mahatma Gandhi• “the poor of the world cannot be helped by mass

production but only by production by the masses” • Pre-assumption: employment generation is of paramount

importance in a labour surplus economy • Equitable spread of welfare benefits of industrial growth to

majority

• Political consensus cutting across party lines on providing thrust to development and growth of Khadi Village and Small Sector

MSMEs: A brief background-3

• Industrial licensing: I (D&R) Act 1951 • Special dispensation for Small Scale Industries (SSIs); no

license needed

• Policy of Reservation • Began with 47 products in 1967; by 1984 list peaked 873

• No. of SSI reserved items (8 digit HS) : 2016 (2001)

• Majority in three chapters : Ch-39: Plastics (137 items); Ch-62: Apparel/Clothing (366 items); Ch-84: Machinery parts (223 items)

• Uruguay Round: 1336 Bound; 680 unbound

- Majority of SSI items (922) were bound at 40%

- Applied MFN 15% on most SSI products (2005)

• Post QRs removal (2001): only 20 products remain

pickles, bread, mustard/ ground nut oil, wooden furniture, wax candles, laundry soap, safety matches, fire works, agarbattis, glass bangles, rolling shutters, Al. utensils, pad locks etc.

SMEs in India: An enigma!

MSMEs:•Micro, Small and Medium Enterprises

(defined by MSME Development Act (2006 ) on investment and plant and machinery; separately for Mfg and Services)

•Numbers*: – 45 Mn units (2011-12) employing 101 Mn

– 95% Micro; 4.8% Small; 0.2% Medium

– 97% proprietorship/ partnership firms; <2 % Cos

– Less than 5% have loans from banks!

– Yet account for almost half of Ind. Production and exports

* MSME Census: Census of regd MSMEs; Sample Survey of un-regd; Economic Survey for Services data (wholesale/retail trade; legal, education & social services; hotel & restaurants; transports and storage etc,)

MSMEs in India: Pain points• Access to Finance

(<5% have loans; cash strapped due to delayed payments; highly regulated banking- 85% PSU banks.. )

• Access to commercial/ industrial space (lack of affordable legal space for business; >95% operate from unauthorized areas)

• Access to technology (high cost of capital; mismatch of reward in risk taking; decline of PSUs..)

• Ease of Doing business ( 142 rank in WB’s survey; due to poor laws & unaccountability

& un-briddled power to harm; No Revival & Exit norms;)

• Access to Markets (Domestic- cartels, anti-competitive practices; delayed

payments; International- lack of institutional support)

Initiatives to address pain points..• Access to Finance

(KV Kamath Committee (NDA-II) to review the entire financing architecture)

• Access to commercial/ industrial space (DMIC-NIMZs, yet to have a policy for MSMEs)

• Access to technology (Yet to have a concrete plan)

• Ease of Doing business ( Damodaran Committee (UPA-II); Some movement forward in

NDA-II: Online registrations; Draft amendment proposed for Revival & Exit norms;)

• Access to Markets(Domestic: MSME Public Procurement policy; Intl. ? )

MSMEs and Trade

MSMEs and Exports

• Share of MSMEs in India's total exports: ~ 43 % (2011-12).• Share of the top six commodities- which account for about

70% of total MSME exports, is :

Access to Markets.. International

Why participation in Intl. Trade- exports, is important for MSMEs:

•All products subjected to discipline of imports

•It’s most effective gauge of competitiveness

•Option to choose markets you want to serve

•Gives you early warnings of change

(consumer behaviour, technology, standards..)

•Learnings: best practices, new horizons & opportunities..

MSMEs’ access to Intl. Mkts: Impediments

General

•All handicaps that plague industrialization in India (Infra, finance..)

•Inefficient Tax refund mechanism (absence of GST)

•High cost of exploring foreign markets (high sunk cost) •Unavailability of Indian food / Language barrier •Most importantly: missing support system in alien environment

Specific•Compliance with Voluntary/ Mandatory Standards

(Lack of MRAs among Testing/ Standards bodies) •Sectoral trade barriers: chemicals, pharma.. •Specialized infrastructure needed by Sectors •Specialized Marketing support •Financing/ insurance products

Opportunities

Exports• More space for Indian exports• China becoming high cost• Compliance vigil rising

Domestic (Make in India) • Public Procurement Policy

• 20% procurement must in Central Govt. purchase (no distinction of ownership in MSE category)

• Defence Offsets • Above $ 60 Mn, 30% indigenous goods/ services from India • 1.5 multi-plier if procured from MSMEs

Thank You !

Suggestions and feedback atsg@fisme.org.in

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