Panel suggests measures to boost falling MSME exports

Also recommends an increase in capital investment limits for the purpose of defining micro, small and medium enterprises

An inter-ministerial committee set up to suggest ways to boost exports of India's micro, small, and medium enterprise (MSME) sector has recommended more credit for the sector at competitive rates, extension of foreign currency credit and marketing support.

The committee also recommended an increase in capital investment limits for the purpose of defining MSMEs, and leveraging of defence offsets to support MSME exports.

According to the ministry of MSME, several product groups exported by MSMEs reported declines in 2012-13 - gems and jewellery (by 3.5 per cent), electronics (9.27 per cent), ready-made garments (5.76 per cent) and engineering goods (3.1 per cent).

The committee submitted its report last month. It was headed by the Finance Secretary R S Gujral and its other members included Raghuram Rajan, chief economic advisor and governor-designate of the Reserve Bank of India; S R Rao, commerce secretary; Sumit Bose, revenue secretary; Madhav Lal, MSME secretary; and Rajiv Takru, secretary, financial services.

Availability and cost of credit at internationally competitive rates is a major issue facing Indian MSMEs, the report noted, with interest rates of 14-16 per cent, limited access to equity capital, and banks insisting on collateral requirements.

The committee has recommended an additional interest subvention of two per cent for exporters who repay on a timely basis; reduction of the spread of foreign currency credit to London Interbank Offered Rate (Libor) + 2 per cent; and automatic increase in foreign currency limits due to the depreciation of the rupee. It also said export credit must comprise at least 40 per cent of overall bank credit to MSMEs, and banks must increase the number of their MSME borrowers by 10 per cent annually until 2017.

Marketing is one of the critical areas where MSMEs face problems, the report said, adding that there are also challenges in product differentiation, brand-building, customised services, clientele-building and after-sales servicing.

"Many entrepreneurs are not entering the field of exports due to lack of market knowledge, availability of a growing domestic market and the complexities of international trade," it noted.

The committee also recommended a larger budget for market development assistance and market access initiative schemes, greater focus on brand-building and trade fairs, income tax deduction for marketing expenses, support for e-commerce and a focus on Asia.

Modifications in labour laws to facilitate more overtime hours and employment of women in night shifts with necessary safety, enhancement of technology upgradation schemes with both capital subsidy and interest subvention; setting up of research/resource/product development centres and linkages with the technical institutions and CSIR laboratories have also been recommended.

The committee has recommended setting up round-the-clock facilities for export consignments at major air cargo and sea port complexes, enhancement of the ASIDE (Assistance to States for Development of Export Infrastructure & Allied Activities) scheme and development of MSME clusters near highways and rail corridors.

The committee has said a differential corporate tax regime for MSME exporters, separate ECGC policy for MSMEs to reduce costs, and removal of service tax on conversion of export proceeds remittances will reduce transaction costs in exports.

The constitution of a standing committee of secretaries to resolve policy- and implementation-related issues and greater coordination at the ground level between customs and DGFT offices has also been recommended.

The committee recommended a cess of 0.1 per cent on the production of chemicals and plastics, to create a technology upgradation fund for the two sectors; additional budgetary support for the handicrafts sector; enhanced support for the Integrated Leather Development Scheme; amendment of APMC Acts to enable direct purchase of horticulture/vegetable items from farmers by exporters; and greater infrastructure support (testing, labs, packaging houses) for processed agriculture exports.

The committee said tax-related incentives were necessary in view of the imperative need to boost exports and reduce the current account deficit, but could be extended for only five years in order not to increase budgetary expenditures or reduce tax revenue.