The major challenge lies with manufacturing. Exports cannot be sustained unless manufacturing backs exports.
Indian exports clocked a CAGR of 17.2 per cent between 2003-04 and 2013-14. However, the CAGR has come down to 11.01 per cent during 2008-09 to 2013-14. The decline in CAGR is primarily on account of the fact that we witnessed negative growth in two out of last five years and only recorded 4 per cent growth in 2013-14. Moreover, the global trade was also subdued in last five years growing by about 2.6 per cent only.
The global trade is expected to increase by 4.7 per cent in 2014 and 5.3 per cent in 2015. The regional forecast is also much better for the next few years with the US posting better economic results. But contraction in major economies of Europe, expropriation in Africa and cases of sovereign default in Latin America are bothering SMEs.
Manufacturing Growth Slows Down
The major challenge lies at home where manufacturing is still not on track. In 2013-14, manufacturing contracted by 0.7 per cent. After clocking moderate growth in April–June, IIP (Index of Industrial Production) fallen to 0.5 per cent in July 2014.
Exports cannot be sustained unless manufacturing backs exports. For example, in 2011, we have positive IIP numbers in 11 out of 12 months and in five out of 12 months, we have IIP number greater than five, exports zoomed by over 25 per cent.
In 2012, we have negative IIPs in seven out of 12 months and only one out of 12 months, IIP greater than five, exports declined by 1.76 per cent. Therefore, there is a need to push manufacturing by augmenting investment in the sector both for modernisation and expansion. The “Made in India” and “Make in India” should be closely integrated in our manufacturing, trade, tariff and investment policies to realise this dream.
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 per cent in December 2000 to 3.5 per cent in December 2013 though Reserve Bank of India has kept a target to take it to 12 per cent. The share of export credit in country’s exports has also declined. In a short of span of five years, it has come down from 19.82 per cent to 11.36 per cent.
The flow of credit to the export sector has come down drastically affecting MSMEs the most. Therefore, export credit should be brought back again into the priority sector lending. To ensure that the flow of credit to other priority sectors remains unaffected, RBI may put a cap of 5 per cent within the 40 per cent target of the priority sector lending for the export sector.
Extension of Interests Subvention
The government has extended 3 per cent Interest Subvention Scheme to MSME Units and certain labour-intensive sector of exports like carpets, handicrafts, handlooms, garments, specified made-ups and 235 tariff lines in the engineering sector. However, the scheme lapsed on 31 March 2014.
Since interest rates are not moving southwards and the cost of credit in India is much above the international benchmarks, the interest subvention for exports may be extended immediatel y for the period of three years with effect from 1 April 2014 to provide stability.
Marketing Support for SMEs 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, its benefits can be termed as miniscule. The total allocation under both schemes of Department of Commerce is less than Rs 150 crore, while our exports are over Rs 18,00,000 crore.
1) For aggressive marketing, an Export Development Fund with a corpus of minimum 1 per cent of the preceding year’s exports may be set up. This may be taken as a planned scheme with target to take exports from $312 billion to $750 billion by 2018-19.
2) To replenish the fund, an export cess may be imposed on raw material exports. Similar contribution by the government will also be made.
3) India needs to develop home grown brands as brand fetches a minimum of 30-40 per cent more per unit realisation. However, developing a brand involves huge expenditure and time, and thus SMEs having liquidity problems are reluctant to attempt it.
E-commerce & Growth
E-commerce-led retail exports can be new instrument for accessing international market particularly by new entrepreneurs and small and tiny cottage sector exporters. The platform can be used for B2B and B2C transactions. The worldwide e-commerce sale has reached over $960 billion growing at close to 20 per cent.
E-commerce-led retail exports can easily add another $100 billion to exports besides attracting new entrepreneur in exports as such platform besides bringing buyers also ensure safety of payments, a basic need of any new exporter.
The writer of this article is Ajay Sahai, Director General & CEO at The Federation of Indian Export Organisations. The views expressed here are personal.