Technology will boost the role of MSMEs in India’s export success

The MSME sector is a critical driver of India’s economy, contributing approximately 33% to the country’s gross domestic product (GDP) and 50% of exports.
The MSME sector is a critical driver of India’s economy, contributing approximately 33% to the country’s gross domestic product (GDP) and 50% of exports.


Digital adoption and policy support will help small businesses leverage e-commerce platforms to make global market gains

During Prime Minister Narendra Modi’s recent visit to the US, technology was centre-stage at several discussions. American technology companies are among the largest investors in India. During the visit, the Prime Minister met with prominent American CEOs, including Elon Musk of Tesla, Andy Jassy of Amazon, Tim Cook of Apple, Sundar Pichai of Google and David L. Calhoun of Boeing. Modi’s vision for mutually beneficial collaboration has resulted in a wave of new investment initiatives to strengthen existing partnerships in digital trade and e-commerce. For example, in alignment with India’s G20 objective of linking micro, small and medium enterprises (MSMEs) to global value chains through e-commerce platforms, Amazon announced a goal of $20 billion in cumulative e-commerce exports from India by 2025 and $125 billion by 2030. A major beneficiary of this will be MSMEs.

The MSME sector is a critical driver of India’s economy, contributing approximately 33% to the country’s gross domestic product (GDP) and 50% of exports. It is projected to contribute at least 60% to India’s total export goal of $2 trillion in goods and services by 2030. Recognizing the importance of MSMEs, initiatives have been implemented through the Union Budget for 2023-24 and Foreign Trade Policy (FTP) 2023 to support the participation of MSMEs in international trade. For example, the FTP for the first time had a dedicated chapter on e-commerce, outlining how exporters using this channel will get export benefits. The latest FTP focuses on simplification of export procedures and reduction in clearance time, and aims to reduce compliance costs for exporters, thereby improving their competitiveness in the global market. Among other measures, it also increased the value limit on exports through courier services from 5 lakh to 10 lakh.

If India has to own a larger part of the global B2C e-commerce market, valued at $5 trillion in 2019, with international trade accounting for around 9% of that value (according to UNCTAD), then we need more and more MSMEs to be part of the global value chains (GVCs) of large companies like Amazon and Walmart-Flipkart.

Lower trade barriers, better knowledge of and strong customer demand for diverse products, coupled with advanced e-commerce technologies, will contribute to the growth of cross-border trade. India recognizes this potential and has taken various initiatives to tap it. This includes integrating e-commerce into the FTP, discussing e-commerce under trade agreements, developing a dedicated portal for MSME exporters, and identifying export hubs. Digital trade agreements include provisions for collaboration to address barriers faced by our MSME exporters, while domestic market processes are being streamlined through technology to expedite customs and agency clearances, which will help by reducing costs borne and time taken. By linking customs clearance portals with allied agencies and implementing a technology-driven risk management system, e-commerce cargo clearances can be accelerated.

However, urgent attention needs to be paid to two particular measures: removing value limits on exports to facilitate high-value product shipments like handicrafts; and establishing a robust process for return consignments to avoid import duties.

India’s exports saw double-digit growth last year despite global uncertainties like the Russia-Ukraine war. To continue along this growth path and achieve the FTP’s stated target of $2 trillion in exports by 2030, MSMEs using e-commerce to sell overseas will play a key role. Under the Atmanirbhar Bharat Abhiyan, India’s government intends to enhance the share of MSMEs in exports from 50% to 60% in five years. According to the 2023 Exports Digest by Amazon, over 100,000 Indian exporters have utilized Amazon’s e-commerce platform. Walmart-Flipkart aims to increase its annual sourcing from India to $10 billion by 2027.

A study by the author on express delivery services (EDS) in India reveals that the sector has seen double-digit growth, outpacing GDP expansion. However, India’s share in the global EDS market and merchandise trade remains small, at 2%. To enhance competitiveness, the study suggests adopting global best practices such as removing value limits on exports, lifting restrictions on perishable imports like pharmaceutical products, establishing clear policies on return consignments, and modernizing transport infrastructure and customs processes. Implementing these measures would benefit Indian exporters and could more than double India’s exports.

India’s digital transformation is not only about creating digital infrastructure and attracting investments, but also about empowering MSMEs and driving inclusive growth. India had over 63 million MSMEs and the country aims to increase their share to 40% of GDP (and 60% of exports). This is not a difficult target. According to a 2013 study by UNCTAD, around 80% of global trade and GVC participation is through SMEs. Multiple survey-based studies in India have concluded that by leveraging e-commerce platforms and digital inclusion initiatives, MSMEs can expand their customer base, increase revenues and contribute more robustly to India’s economic growth.

There are other benefits of attracting investment in e-commerce, including the generation of employment and creation of digital and logistical infrastructure. By focusing on digitalization, inclusive growth and government policy support, India is well placed to leverage its e-commerce potential and emerge as a significant player in the global digital economy.

Arpita Mukherjee is a professor at Indian Council for Research on International Economic Relations

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