Budget 2022: Banks should treat export-oriented MSMEs as priority segment to adress liquidity issue

Boosting cross-border trade is a key element of the post-pandemic economic recovery strategy of many nations, including India. Streamlining cross-border trade is expected to help in making India a key part of the global supply chain. Empowering and incentivising production by MSMEs at the local level will be a crucial factor in achieving the $1 trillion export target in the next five years.

Here are some measures that can become a catalyst for this growth:

Speedy implementation of ‘District as Exports Hub’ initiative

India’s export sector is highly location-specific, with every area specialising in the manufacture of a certain type of good. In this context, we hope that the Budget will increase allocation for the ‘Districts as Export Hubs’ initiative which is one of the flagship projects of the commerce ministry.

Under the scheme, 450 districts have submitted District Export Action Plans (DEAPs), which identify quickly scalable, economically sustainable, and stable export opportunities at a district level. The implementation of DEAPs will begin in 2022, and we hope the Budget allocates sufficient funds to ensure that these plans are executed fully.

Several sellers listed on Bzaar are located in districts that are well-known for exporting certain categories of goods. For example, our fastest-growing wooden product manufacturers and brass product manufacturers are based in Saharanpur and Moradabad respectively. A lot of value can be unlocked by building specific infrastructure, offering relevant subsidies/incentives, and offering training and quality certification assistance in these districts.

Addressing liquidity issues faced by exporters

The trading volatility caused by the pandemic over the last few years has significantly increased outstanding receivables by exporters. The shortage of liquidity is making it difficult for exporters to stock raw material and finished goods, which puts us at a disadvantage with respect to China vis-a-vis manufacturing speed.

Several exporters are MSMEs, a business sector that has several credit schemes in place, thanks to the government. We expect the government to work with banks-- who are responsible for implementing these schemes--to treat export-oriented MSMEs as a priority segment within the sector.

Initiate short-term, long-term measures to reduce shipping costs

The cost of ocean freight has increased exponentially in the last few years and has caused a massive disruption in the global supply chain. Coupled with a container shortage, it has created a logistics crisis that will not get resolved for at least a few years.

While it is not possible for the government to control international shipping rates, we hope some incentives are introduced to reduce the logistics costs incurred during the domestic leg of the journey. This could be in the form of reducing freight rates for export shipments, giving tax breaks on the logistics costs, or offering a rebate to exporters for the same.

In the long term, we need the government to invest in structural solutions to solve the logistics issue. This includes setting up an Indian shipping line of global repute to reduce dependence on foreign shipping lines, as well as encourage manufacturing of shipping containers locally under a production-linked incentive (PLI) scheme.

Expedite Free Trade Agreements

We have still not negotiated and implemented Free Trade Agreements (FTA) with our biggest export markets, which are primarily in North America and the European Union. This is placing Indian exporters at a disadvantage vis-a-vis other countries that have done so in the recent past. We hope the Budget makes provisions for the economic impact of FTAs, in order to expedite their signing and implementation.

We can look at Vietnam, for instance, which successfully negotiated FTAs like the Trans-Pacific Partnership (CPTPP), EU-Vietnam FTA (EVFTA), and UK-Vietnam FTA (UKFTA) in just a few years, leading to a large increase in exports to these geographies.

The author is Co-Founder and CEO, Bzaar- digital global wholesale marketplace. Views are personal.

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