Indian MSMEs need a policy thrust focusing on enhancing competitiveness and integrating with Global Value chain.

India’s merchandise exports in January 2022 increased by 23% to $34.06 billion over $27.54 billion in January 2021, according to the data released by the Ministry of Commerce and Industry.The stellar performance was backed by India’s ever increasing merchandise exports, India's merchandise exports in April-January period rose by 46.53% to $335.44 billion as against $228.9 billion in the year-ago period suggesting that India’s export may be on the right track to achieve the export target of $400 Billion this year, this outstanding performance came at a time when there was a uncertainty in the air over the underlying growth drivers like domestic demand and investment which remained subdued, and the ability of the government spending to drive growth is limited. A sustained and robust growth in exports was much needed to fill the gap in the Indian Economy caused by the Covid Pandemic.

India’s export growth was due to the stronger than expected global recovery. The Major drivers of India’s export growth for this year have been Petroleum products, Gems and jewellery, Engineering and electronic goods, and organic and in organic chemicals, these categories are those which have great responsiveness to global growth.

The growth in exports is said to be the result of the normalisation of economic activities across the world, thus sustainability of such is growth is debatable. The Rise in global demand is also causing fatigue in some countries like production and supply disruptions which is affecting global trade. All this only highlights the need to re-examine policies and initiatives and modify or upgrade them to support MSMEs to enhance export competitiveness, and seek deeper integration with global value chains.

This Policy needs to focus firstly on enhancement of skills, as a shortage of skills is a much prevailing issue for Indian MSMEs. The skills and training need to be provided with the focus of preparing them doing business with global brands. The second most important thing the policy needs to focus is with the incorporation of technology, MSMEs who want to export must keep up with both industry and international standards for technological advancement. In a Global Value Chain(GVCs) there are lead businesses for which an MSME exporter is a supplier, the supplier needs to innovate regularly if he wishes to remain in the GVC. Government can help incentivize these small businesses to purchase relevant technology to make MSMEs achieve global standards.  Policy should also focus on encouraging Research and Development by the Indian MSMEs who are a part of the global value chain.

The third critical factor the policy should be making MSMEs aware of the international quality standards and the compliance and helping them achieve those quality standards. Many small businesses face entry barriers like increase in cost and time when dealing with a range of standards, particularly in terms of training for certification. Developing countries should follow the extensive quality assurance, certification, and accreditation systems which are practiced by developed countries assuring that the cost for the same are very low. Technically-trained experts typically conduct certification. This process is seldom seen as a strategic variable.

The Fourth factor the policy needs to focus on creating is a way to enhance and build relationship between large corporations and MSMEs. A long-term partnership between the both is critical to enhance the chances of MSMEs to get integrated into GVCs. The government must financially support business development services that help SMEs (small and medium-sized enterprises) become more “partnership ready.” The Government can take up initiatives like the supplier development programme which aims at creating business linkages between large corporations and MSMEs. Many MSMEs in Egypt and Vietnam benefitted from this supplier development programme. Development of an Entrepreneurial culture will encourage SME entrepreneurs to start new business that can tap the doors of international investment.

The Fifth critical factor the policy should focus on developing clusters between MSMEs and research institutions and universities, this will help MSMEs master topics such as design and production engineering through proper training and guidance from research institutions and universities.

The Sixth Factor the policy needs to focus is on IPR protection, the Intellectual Property and Rights is a particularly ignored topic when it comes to MSMEs, inability to implement Intellectual property was identified as a significant barrier to the growth of MSMEs Small and medium-sized enterprises are dependent on IPRs for investment and for the sale of their cutting-edge innovations. In addition, these SMEs depend on IPRs to protect them from being copied increasing the value of intellectual assets and intellectual property earned by SMEs.

Developing an online market place to sell intellectual property and also helping SMEs in legally acquiring intellectual property assets from universities and research centres, will get SMEs to gain a better understanding of intellectual property issues.

 Author - Sandesh Sagvekar, India SME Forum