Are Indian MSMEs losing their edge in world markets?

Their share in the country's exports dips from 46.2% in 2009-10 to 43% in 2012-13

With their share of India's exports having declined from 46.2 per cent in 2009-10 to 43 per cent in 2012-13, India's micro, small and medium enterprises (MSMEs) appear to be losing their edge in world markets.

"While the dip in exports is chiefly attributed to the continuing contraction of global markets, Indian industry is aware that inadequate market development, limited R&D and innovation, and physical infrastructure bottlenecks have also contributed to the slowdown," said Raman Saluja, chairman of the Confederation of Indian Industry's northern region committee on MSMEs.

"It is high time MSMEs stepped up their innovation drive to gain a larger share of global markets and became more responsive to emerging global market trends. Export markets also help MSMEs reduce their dependence on the relatively price-sensitive domestic market," he added.

Saluja said that less than 0.5 per cent of Indian MSMEs export, while 25 per cent of European SMEs export within the EU and half of these (13 per cent) export worldwide. "The figures for Asian economies like Taiwan, South Korea, Singapore, and Malaysia are even higher, with SMEs driving their export boom," said Saluja.

Over the years Indian MSME manufacturers of items like readymade garments, leather goods, processed foods, engineering items, and sports goods have captured a sizeable share of global markets, but a lot more needs to be done, he noted.

The main markets for the 20 most-exported product groups, accounting for more than 90 per cent of MSME exports between 2009 and 2012, include the US, EU, UAE, Turkey, Singapore, Hong Kong, Israel and Saudi Arabia. Industry believes that Indian MSMEs need to diversify their export destinations and gain a larger share of emerging markets as well.

They also need to match the increasing standards of global supply chains, to gain market share. Ashwani Gupta, an exporter of scientific instruments from Ambala, said that to expand the number of exporters, the government could identify MSMEs that are export-worthy and provide them with market intelligence and training in the relevant areas. This, he added, would upgrade the skill-sets of small entrepreneurs.

Industry circles have also urged the government to provide assistance for establishing export development companies (EDCs) floated collectively by at least 10 MSMEs (of the same or similar product groups, or based in clusters) to market their produce.

A senior official in the Union ministry of MSME said that to boost exports, the ministry is implementing the National Manufacturing Competitiveness Programme (NMCP). The NMCP has specific components aimed at enhancing the competitiveness of MSMEs to enable them to withstand global competition and thrive through better technologies and skills.

In December 2013 the ministry and the National Innovation Council (NInC) jointly set up the India Inclusive Innovation Fund (IIIF), which will invest in innovative ventures that are scalable, sustainable and profitable, but address social needs of less privileged citizens in areas such as health care, food, nutrition, agriculture, education and skill development, energy, financial inclusion, water, sanitation and employment generation.

The Union Cabinet has approved the fund, which will have an initial corpus of Rs 500 crore, of which Rs 100 crore is being contributed by the ministry of MSME. The balance will come from banks, insurance companies and overseas financial and development institutions. Since lack of capital is a key reason why MSMEs fail to take off, at least 50 per cent of its investments initially will be in MSMEs.

Recently, an inter-ministerial committee (headed by Madhav Lal, secretary, ministry MSME) on boosting MSME exports also submitted its report. Its recommendations are to be implemented by all ministries and departments concerned in a time-bound manner. These measures are expected to give a fillip to exports by MSMEs, the official added.