Indian exports clocked a Compound Annual Growth Rate( CAGR) of 15.36 % between 2004-05 to 2014-15. However, the CAGR has come down to 8.56% during 2009-10 to 2014-15. The decline in CAGR is primarily on account of the fact that we witnessed negative growth in 2 out of last 5 years. Moreover, the global trade was also subdued in last 5 years growing by about 2.6% only. The forecast of global trade for 2015 and 2016 have been downwardly revised pointing to difficult time ahead. Such challenging times will put enormous pressure on SMEs who are mostly in price sensitive segment of exports.
We all are aware that credit plays a pivotal role for SMEs. However, over a period of time we have seen that share of exports credit in net banking credit has come down from little over 9% in Dec 2000 to 3.5 % in Dec 2014 though RBI’s target is to take it to 12%. The share of export credit in country’s exports has also declined in a short of span of last five years, affecting MSME companies the most .Luckily RBI has brought back exports credit again into the priority sector lending in April 2015 though with a lower ceiling but we hope that it will increase the flow of credit to SME units .
Government of India has recently extended 3% Interest Equalisation Scheme to MSME manufacturing units and certain labour intensive sector like Agri food and processed items , Carpets, Handicrafts, Handlooms, Garments, Made-ups , Leather goods , Sports goods, Engineering products etc covered by 416 tariff lines at 4 digit . The Scheme has been given effect from 1st April 2015 and would be in force for a period of 5 years giving stability to interest equalization regime. There would be a review after 3 years to evaluate its efficacy. However, merchant exporters and services exporters, though covered in the definition of MSME have been excluded in the scheme which will affect them adversely. Moreover , SMEs were awaiting that the scheme will be given effect from 1st April, 2014 when the interest subvention scheme lapsed which has not been done due to fiscal constraints.
SME exporters are provided marketing support by most of the developing and developed countries .In India, though such a support is provided under Market Development Assistance (MDA)/Market Access Initiative Scheme but it can best be termed as miniscule . The total allocation under both the schemes of Department of Commerce is less than Rs 150 crore, while our exports are over Rs 20,00,000 Crore . Therefore, for aggressive marketing, an Export Development Fund with a corpus of minimum 1 % of the preceding year’s exports may be set up .This may be taken as a planned scheme with target to take exports from US$ 312 Bn to US$ 900 Bn by 2019-20 . To replenish the fund, an export cess may be imposed on raw material exports . Similar contribution by the Government may also be made.
Lack of brand consciousness amongst SMEs is also a challenge . India needs to develop home grown brands as brand fetches a minimum of 30-40% more per unit realization. However, developing a brand involves huge expenditure and time and thus SME companies having liquidity problems are reluctant to attempt it. Government may extend fiscal support for launching a brand.
The issue of transaction cost has to be handled through effective EDI amongst all 13 agencies involved in Export and Imports. As per Government own estimates Transaction cost of Exports varies between 5-8% of fob value . This on exports of USD 300 Bn means USD 15-25 Bn. Assuming that 50% of the cost is addressable , Government can provide a support of USD7.5 -12.5 Bn to exports sector without any cost to exchequer . India, being the software leader, has implemented such a system in other countries but we are struggling at home turf. It is neither technology nor manpower issue. It is simply a question of Will. We are very happy that the new Government is making all out efforts to improve India’s ranking in Doing Business Report. Facilitating measures through EDI , reduction of document and processes will not only reduce transaction time and cost but will improve our ranking which inter alia will also attract investment.
