The important role played by micro, small and medium enterprises (MSMEs) in the economic and social development of the country is widely recognised. The MSME sector encourages entrepreneurship, often led by individual creativity and innovation.
According to the 2015-16 NSSO survey, there are 6.3 million MSMEs in India, employing over 111 million individuals. It stands as the second largest employer after agriculture. The sector contributes 45% of the total industrial production, 40% of the total exports and 30% of the country’s GDP.
Challenges faced by small businesses
Small and Medium Enterprises (MSMEs) have demonstrated their resilience to challenging economic conditions at home and abroad. However, when it comes to selling their products and services in international markets, they face many challenges, e.g.
Lack of insight
- Need to gain more knowledge of how to search for their products and services.
- A limited understanding of how foreign markets work, including the challenges of export distribution channels and dealing with foreign buyers
- Inadequate government support programs for export promotion.
- Not knowing the laws and regulations in other countries.
- Lack of knowledge about Intellectual Property Rights (IPR) and International Trade Agreements (ITAs).
- Cheap working capital is hard to come by.
- Increased costs associated with meeting product standards and certification requirements.
- Rising logistics costs, including those associated with airports and shipping.
- Less innovation and lower value-added due to less technology.
- Importers need to meet the required standards and provide adequate designs and models for the export market.
Time-consuming and complex paperwork is required to comply with regulations in both foreign and domestic markets. One of the most important documents and licenses to apply for export is the Advance Authorisation Scheme, which is issued by DGFT India.
Strategy Action Plan
Despite showing reasonable growth and holding a significant share in total exports, small and medium-sized enterprises (MSMEs) often encounter challenges that hinder their entry into foreign markets. These challenges require a thorough examination, for which DGFT has established an ecosystem that enables these enterprises to engage independently in the global value chain and achieve economies of scale.
To address this, DGFT has proposed a focused strategy action plan to create a sustainable ecosystem for the overall development of MSMEs. The action plan aims to achieve the following objectives:
- Attain a target of USD 100 billion in exports from India by 2020.
- Assess the preparedness of MSMEs to export their products and services.
- Identify areas that require improvement to enhance their ability to export effectively and efficiently.
- Integrate MSMEs into the global value chain.
New Foreign Trade Policy by DGFT India
The Director General of Foreign Trade (DGFT) has recently unveiled a new Foreign Trade Policy (FTP) aimed at increasing exports, improving competitiveness and simplifying business processes for traders. In this comprehensive publication, we will examine various aspects of India’s new foreign trade policy introduced by the DGFT, providing valuable insights and expert input.
Primary Goals of the New Foreign Trade Policy
The new FTP aims to achieve several important objectives that will influence India’s international trade landscape in the years ahead. Some of the main goals are:
- Boosting Export Growth: Encouraging industries focused on exporting and providing assistance to enhance their competitiveness in global markets.
- Supporting Small Businesses: Helping micro, small, and medium enterprises (MSMEs) participate in global trade and offering them necessary assistance.
- Enhancing Regional Trade: Strengthening trade relationships with neighbouring countries to promote economic growth and regional cooperation.
- Simplifying Import and Export Procedures: Streamlining documentation and processes to reduce trade obstacles and make it easier to do business.
- Embracing Digitalization and E-Governance: Promoting the use of technology to make trade procedures more efficient, transparent, and user-friendly.
Incentive Programs in the New Foreign Trade Policy
The new Foreign Trade Policy (FTP) introduces several incentive programs aimed at promoting exports and providing benefits to specific sectors. Some of the key programs include
Merchandise Exports from India Scheme (MEIS)
MEIS offers rewards to exporters in the form of duty credit certificates based on their export performance. These certificates can be used to pay customs duties on imported goods or can be traded in the open market.
Services Exports from India Scheme (SEIS)
SEIS is designed to reward service exporters with certificates based on their earnings from foreign exchange. It covers various service sectors, such as software, research and development, legal, accounting, and more.
Export Promotion Capital Goods Scheme (EPCG)
EPCG allows the duty-free import of capital goods for the production of export goods at a reduced customs duty rate. Export targets must be met within a specified period to fulfil the obligation.
Duty-Free Import Authorization (DFIA)
DFIA permits the duty-free import of inputs used in the production of export goods, which helps exporters remain competitive by lowering costs.
Special Economic Zones (SEZ)
SEZs are specific areas with favourable policies that create a supportive environment for export-oriented industries. Businesses operating within SEZs receive tax benefits and benefit from simplified procedures.
Through various schemes and initiatives, the DGFT provides essential benefits to MSMEs, such as reduced compliance burdens, financial incentives, and easier market access. These measures not only enhance the competitiveness of MSMEs but also contribute to the overall growth of the Indian economy.
As the global trade landscape evolves, the DGFT’s commitment to supporting MSMEs in their international endeavours is poised to further bolster their role as key drivers of economic development.