[ad_1]
In recent times, Prime Minister Narendra Modi-led central government has increased its pace to settle free trade agreements (FTAs) with several nations. The latest example is the ongoing negotiations with the United Kingdom which are going in full swing and expected to complete soon.
The traditional approach to FTAs involved tariff-cutting exercises and liberalisation of services, however, not it includes modern trade elements like sustainability, resilience, labour, gender and digital trade with a focus on sectors, such as gems and jewellery, agro-processed foods, textiles, technology services and financial services.
While India has signed 13 FTAs so far, there has been a shift in the architecture of the earlier FTAs with Japan, Korea and ASEAN and the recent FTAs with the UAE and Australia. Industry leaders told BW Businessworld that it is also likely to continue across other FTA negotiations with various nations such as India’s close ally Israel, Bangladesh and the Gulf Cooperation Council (GCC), which are expected to start over the next few months.
Though modern FTAs offer distinct trade opportunities for India’s micro, small and medium enterprises (MSMEs) by encompassing several chapters and concerns not present in traditional agreements, small businesses often struggle to comprehend and fully capitalise on these benefits under trade deals.
“This vision of the government towards the growth of MSMEs needs a strong boost which the modern FTAs intend to provide. These modern FTAs can strengthen the ecosystem by providing improved market access, promoting diversification, integrating sustainability into global value chains, and including elements of labour, gender, and digital trade. Moreover, FTAs also protect intellectual property, facilitate e-commerce, and attract foreign investment,” said Gurjodhpal Singh, CEO, Tide India, the UK’s SME-focused business financial platform.
By leveraging these benefits, MSMEs can expand their exports, increase productivity and gain a competitive edge. This growth in MSME exports, coupled with favourable trade conditions, can contribute to India’s goal of achieving an export shipment target of USD 450-500 billion by FY23.
Although, FTAs are a great trade tool to expand India’s exports; the negotiators have a major responsibility of ensuring that while seeking market access for Indian goods in the export market through FTAs, wider coverage be given to the items which have a strong presence of MSMEs in the value chain.
“For instance, items such as handicraft, textile, leather goods, engineering and agro-processing should be given preference in seeking export market access. At the same time, it must also be ensured that the sectors which are critical to MSMEs should not be allowed to be flooded with imports through trade-opening agreements like FTAs which means elimination or significant reduction in import tariffs, stated Deepak Sood, Secretary General, Assocham.
Trouble everywhere
With the presence of over 63 million MSMEs employing over 110 million people staggered across services, the sector contributes nearly 30 per cent to the gross domestic product (GDP). There is also an increasing effort to double the number of micro-enterprises in the next five years from six crore.
However, in spite of all the contributions, MSMEs also face issues relating to the availability of information about foreign markets, difficulties in accessing export-distribution channels and expensive product standards and certification procedures in the foreign country.
“The sector currently faces a notable credit gap of approximately USD 530 billion, largely stemming from insufficient documentation for credit assessment and a lack of tangible collateral. Supply chain financing resolves this challenge by ensuring prompt payments to smaller suppliers, bolstering their operational funds for immediate needs and growth,” asserted Raja Debnath, Managing Director, Veefin Solutions.
To solve these challenges, Debnath added that new SCF techniques like deep-tier vendor financing have the potential to significantly boost economic advancement by pushing credit down the supply chain. In this context, governments play a pivotal role in promoting such solutions. Streamlining finance access, simplifying documentation processes, and fostering digital infrastructure can empower MSMEs to thrive and contribute significantly to economic prosperity.
The way forward
The recent moves where India is moving from multilateral trade agreements and the World Trade Organisation (WTO) regime to bilateral FTAs is a boon and bane for the MSMEs. The current bilateral FTAs altogether remove tariff barriers on 85 to 90 per cent of goods, treating foreigners and local companies at par.
“To aid exports by MSMEs, India would majorly need to prioritise automation to increase the efficiency of ports, shipping, customs, etc. Similarly, MSMEs need assistance in technological adoption and upgrades as they are usually owner-driven and would not have the necessary incentives to be tech-savvy from the beginning. Therefore, a hybrid model which facilitates tech adoption while still leveraging the profitable business models of MSMEs is needed,” added Singh.
There is also a need to build capacities at various stages of this value chain so the vision of more women-led MSMEs contributing sees the light of the day sooner than later. Notably, a deeper focus on tier-II and beyond markets will not only improve the system efficiency but also make India’s workforce more productive and potent overall.
Additionally, to achieve the USD 2 trillion export target by 2030, India’s active participation in GVCs is essential. Today, 70 per cent of the global goods and services exports come from GVCs. That integration will happen as the workforce becomes exponentially future-ready via a deeper outreach.
“India’s drive to include entrepreneurs from tier-II and beyond cities in global economic networks is pivotal. The tech surge reaching these regions, fueled by policies and infrastructure, empowers startups, local solutions, and economic progress. Diversity in startups widens talent pools, enriches decisions and sparks innovation. Access to resources enables these businesses to tackle unique challenges and propel the Indian SMEs ecosystem,” added Singh.
Assocham’s Sood added that there are several tariff and non-tariff barriers which at times are difficult to navigate, especially for small exporters. The new age fintechs can build seamless solutions using the expertise of professionals in international law, trade rules and logistics. This would help the MSME exporters such compliance easy.
[ad_2]
Source link