According to Rajesh Agrawal, Additional Secretary at the Department of Commerce, Indian MSMEs, which play a pivotal role in driving the country’s exports, continue to face growth hurdles because of information asymmetry as they aim to enter global markets through various FTAs.
Besides information asymmetry, there are many other pain points that require attention, and the government is actively addressing them, he stated. Agrawal was speaking at an expert discussion titled “Decoding FTAs and RTAs for MSMEs to explore Business Beyond Borders,” at the 20th CII Global MSME Business Summit MSME 2023 on November 23.
“FTAs can enable better GVC integration for MSMEs and promote higher quality, standards, and sustainability norms in the domestic MSME ecosystem. But, we need to focus on information asymmetry, access to affordable finance, regulatory burden, access to new markets, diversification, and capacity building through skill development,” said Agarwal.
The government official further highlighted that the government, in its G20 Jaipur call of action, talked about building resilient global value chains, focusing on priorities of various nations’ MSME sectors.
“One advantage FTA brings for MSMEs is tariff reduction. In the developed world, where large [level of] consumption happens, niche demand is huge. Handmade carpets, handicrafts. etc., are a few of our MSME success stories in these segments. We have to start putting more weight behind our MSMEs to execute these,” he added.Abhijit Das, International Trade Policy and WTO Expert stressed that India is very well positioned to leverage the idea of product differentiation. “Another dimension relevant for MSMEs is the opportunity that might come their way on account of specific provisions on Geographical Indications (GIs), which might be a part of India’s FTAs with the UK and the EU. We might have a dedicated chapter on GIs so that can be a good way of leveraging our unique products and sectoral strengths, he said, adding that GI products hold huge demand not only within the Indian diaspora but also among the global customer base.The trade expert further emphasised the potential of FTAs in assisting Indian MSMEs in procuring raw materials, parts, and components at globally competitive prices, especially in sectors where the Indian market has only 2-3 major players. According to Das, the ongoing plurilateral discussions among some WTO members on issues related to MSMEs could result in curtailing the elbow room of governments in formulating and implementing new regulations, or changing existing regulations. He added there is a need for making robust legal cases to safeguard the interest of the MSME community.
In his view, the Certificate of Origin (CO) can be a challenging issue that needs policymakers’ increased attention while negotiating FTAs.
According to Chandrima Chatterjee, Secretary General of the Confederation of Indian Textile Industry, several known issues have hindered their access to FTA markets. These include information asymmetry, limited access to expertise, finance, and sustainable materials sourcing, as well as challenges with cost, certification guidance, data bandwidth, and technology-driven reporting requirements.
She further highlighted that textile is an extremely cost-competitive sector and in locations such as the UK and EU, it is staring at a 9.6% tariff differential on average, and MSMEs remain most vulnerable to such changes. Notably, India’s textile industry has expressed its concerns to the government regarding the UK’s decision to remove zero-duty benefits. The industry has urged the government to intervene in the ongoing negotiations for a free trade deal between the two countries. Under the recently implemented Developing Countries Trading Scheme (DCTS), India’s exports of home textiles and garments to the UK, valued at $200 million, will no longer enjoy the zero-duty benefits until December 31, 2025. This move puts India at a disadvantage compared to countries like Bangladesh, Pakistan, and Sri Lanka, which will continue to receive the benefits.
