India needs to improve access to finance for micro, small and medium enterprises (MSMEs), reduce trade barriers by lowering tariffs and negotiate more trade agreements to boost its position in the global supply chain, said Kalyan Basu, Managing Director (MD) and Chief Executive Director (CEO), Vayana TradeXchange in an interview with BW Businessworld.
Notably, MSMEs play a crucial role in supply chains, they contribute around 30 per cent to the gross domestic product (GDP) and approximately 45 per cent to exports. In FY 22-23, India’s exports rose 14 per cent to a record USD 770 billion and imports rose to USD 892 billion.
One of the world’s fastest-growing economies, India is expected to outpace global trade growth and the MSME sector is poised to play a significant role in realising this potential, he added. “India’s strengths, including a large domestic market, a skilled and young workforce, a diverse economy with a growing manufacturing sector, strategic location and evolving supply chains (China+1 strategy), can be leveraged for enhanced global trade,” asserted Basu. Edited Excerpts:
Building trust and reliability in supply chain partnerships is crucial for businesses to grow. Can you tell us the role of the MSME sector in India’s supply chain and its potential for inclusive growth and innovation?
Indian MSMEs play a crucial role in supply chains, they contribute around 30 per cent to the GDP and approximately 45 per cent to exports. MSMEs in India are present across various sectors and regions. They play a critical role in the smooth production and delivery of goods and services, especially in the manufacturing sector. In India, they employ over 11 crore individuals, with over 50 per cent located in rural areas, supporting regional economic development and inclusive growth.
The MSME sector due to its low-cost innovations in space exploration, automotive manufacturing, agriculture etc. has highlighted its role in delivering cost-effective innovations, enhancing India’s competitiveness.
Tell us about the measures that Vayana and its subsidiary Vayana TradeXchange (VTX) have adopted to help boost the Indian supply chain.
Vayana, an Indian trade finance and trade enablement platform is facilitating a monthly trade financing volume exceeding USD 1.2 billion. The company prioritises financial inclusion, aiming to provide small businesses, especially in remote areas with timely and affordable access to finance.
We have introduced several products designed to bolster the supply chains including working capital loans for MSMEs at competitive interest rates and trade finance solutions that mitigate transaction risks and enhance the flow of goods and services.
Since its inception, VTX has reduced the cost of trade finance for MSMEs by over 50 per cent, streamlining production cycles by eliminating delays in payments from importers. Through technological innovation and cost engineering methods, the company has lowered the cost of lending for their partners, thereby increasing coverage across sectors by 2 times.
Can you tell us about India’s current position in global trade growth and how it can further leverage its strengths, especially with the active participation of the MSME sector?
In FY22-23, India’s exports rose 14 per cent to a record USD 770 billion and imports rose to USD 892 billion. It is one of the world’s fastest-growing economies, expected to outpace global trade growth. India’s strengths, including a large domestic market, a skilled and young workforce, a diverse economy with a growing manufacturing sector, strategic location and evolving supply chains (China+1 strategy), can be leveraged for enhanced global trade. The MSME sector is poised to play a significant role in realizing this potential.
To augment India’s global trade footprint through the MSME sector, India needs to develop high-quality products and services tailored to the requirements of international markets while maintaining cost efficiency and adopting newer technologies and innovative processes to improve productivity and elevate quality standards.
There is a need to establish collaborative partnerships with larger global peers to gain access to new markets and cutting-edge technologies and participate in international trade fairs and exhibitions to showcase products and services to potential buyers.
What are the key strategies and policies that India can adopt to effectively harness its position in the global supply chain, with a focus on empowering MSMEs?
The government understands the critical role the MSME sector plays and thus has been working on multiple fronts to ensure that MSMEs continue to contribute towards exports and employment creation. There have been initiatives across the spectrum that need to continue and be amplified, especially in developing a skilled workforce.
Continue to invest in physical and digital infrastructure: India’s Public Digital infrastructure is hailed globally. The Govt. is now pushing timely completion of infrastructure projects through the Gati Shakti scheme which will give a boost to trade and commerce.
Improve access to finance for MSMEs: The Reserve Bank Of India (RBI) has undertaken various initiatives such as TreDS, in terms of providing collateral-free, invoice-based financing. More initiatives are being undertaken as MSMEs do not possess the wherewithal to meet the stringent requirements laid down by legacy financiers for asset-based loans.
Reduce trade barriers by lowering tariffs, simplifying customs procedures, and negotiating trade agreements. The government is aggressively working on entering into FTAs with more and more countries with whom India has significant trade volumes. The new Foreign Trade Policy has also been enacted keeping in mind the ease of business.
Promote innovation through tax incentives, innovation hubs, and support for startups. Multiple schemes have been launched by the govt. in this regard, such as Start-Up India, Stand-Up India, etc.
Develop a skilled workforce through vocational training, education, and apprenticeships.
Encourage MSMEs to participate in global supply chains by facilitating access to international markets and trade events and supporting them in complying with international standards through technical assistance and training.
Amid the disruptions faced by the Indian supply chain industry and MSMEs due to geopolitical crises across the globe, what is India doing to strengthen its supply chain and small businesses?
Diversifying supply chains: India is diversifying its supply chain by building new supplier relationships and boosting self-reliance through domestic production.
Promoting localisation: The Indian government incentivises businesses to manufacture and invest in India, reducing import dependence and enhancing supply chain resilience.
Supporting MSMEs: The government is aiding MSMEs with subvention schemes, risk management training, and access to new markets to navigate geopolitical challenges.
Some specific initiatives that the Indian govt has taken to strengthen its supply chain and small businesses include the Production-linked Incentive (PLI) scheme, the National Single Window System (NSWS), the National Export Insurance Agency (NEIA), etc. Recently India has also been signing FTAs with several key countries that will significantly reduce the supply volatility of key raw materials and improve our exports.
What according to you is the outlook on the global supply chain and what impact it will have on India?
The outlook for the global supply chain is marked by a degree of uncertainty and complexity. Several positive and negative trends are shaping and reshaping global supply chains, leading to a mixed scenario. Key trends that are expected to influence the global supply chains in the coming years include:
Digitalisation: Technologies like blockchain are being employed to track the movement of goods and services, and finance trade, making the process transparent and traceable, while artificial intelligence is optimizing inventory management and production schedules.
Globalisation: Globalisation and de-globalisation undertaken by certain countries for specific sectors to protect intellectual capital will result in not only the re-drawing of supply chains but shifting of financial capital and human resources.
Geopolitical Tensions: Conflicts in regions like Ukraine and Gaza will continue to strain supply chains and the availability of specific products, leading to increased prices.
Climate Change: Extreme weather events that have been seen in certain parts of India and other countries have disrupted production and transportation, resulting in damage to infrastructure and shortages, leading to increased prices, especially for agricultural produce.
The impact of these trends on India will vary across sectors and industries. Sectors such as manufacturing, IT and ITeS are likely to benefit from the growth of global trade and the adoption of digital technologies. In contrast, sectors like agriculture and energy are more susceptible to climate change, geopolitical tensions and higher duties/taxes to protect national interests.
Overall, the future of global trade remains uncertain and the supply chains will keep evolving to overcome the challenges and threats they face. However, India, with its advantageous position in the global economic landscape, continued the focus of the government on a stable policy regime, making India well-placed to potentially capitalise on the positive trends witnessed in recent times.
