G20's trade and finance synergy can fortify India’s economic backbone. It can help MSMEs plug into global supply chains and tap international markets
The future is looking bright for India's Micro, Small, and Medium Enterprises (MSMEs). Often called the 'engine of growth,' MSMEs contribute to over 30% of India's GDP and are the second-largest employment generators after agriculture. Despite their paramount importance, MSMEs face a wide array of challenges, from regulatory tangles to financial constraints. The answer to boosting this vital sector may lie in harmonising global trade facilitation measures with more accessible finance options, as laid out by G20 initiatives.
Unified Policies: With G20 countries accounting for nearly 85% of the global GDP, the opportunity for Indian MSMEs is enormous. However, complex trade regulations often stifle these opportunities. A streamlined policy framework that unifies trade and finance could make it easier for India's MSMEs to penetrate international markets, therefore allowing them to contribute an estimated 40% to the nation's exports.
Linkages with Foreign Capital Markets: Access to capital is one of the most significant challenges faced by MSMEs. Traditional banking systems are often insufficient for their needs, particularly for smaller enterprises. The G20's trade and finance synergy can facilitate smoother linkages with foreign capital markets. Initiatives could include bilateral agreements that make it easier for MSMEs to access foreign venture capital or special MSME-focused funds that invest in promising startups and medium-sized enterprises in India. The integration with foreign capital markets not only eases the liquidity crunch but also exposes these businesses to international best practices.
Ease of Doing Business: The ease of doing business is often a litmus test for the health of MSMEs in any economy. G20 initiatives that simplify global trade can be adapted to ease domestic regulations as well. For instance, single-window systems for all regulatory clearances can significantly speed up the time it takes to start a new business. Tax reforms, simplified registration processes, and quicker dispute-resolution mechanisms can drastically improve the operational efficiency of MSMEs. A business-friendly environment will make Indian MSMEs more competitive globally, fitting perfectly into the G20's larger framework of fostering global trade and economic development.
Strengthening Global Trade: At a time when the world is grappling with increasing protectionism and strained relations between major economic players, India finds itself in an advantageous position to effect real change within the G20 framework. Owing to its standing in the World Trade Organisation and experience in brokering deals on contentious issues like agriculture and intellectual property, India has a genuine opportunity to guide the G20 toward a trading system that is equitable .
Increased Access to Technology: The G20's tech-driven approach to modernizing trade offers a roadmap for Indian MSMEs. Adopting cutting-edge technologies like ERP systems or advanced manufacturing solutions through international partnerships can elevate MSMEs from followers to leaders in innovation. Specialized training programs can help integrate these technologies, making MSMEs more efficient and globally competitive.
Partnerships for Success: Collaborations between various stakeholders—including government bodies, financial institutions, and trade organizations—could cultivate a vibrant ecosystem that allows MSMEs to flourish. In India, public-private partnerships have already begun showing positive outcomes, with pilot projects reducing MSME loan processing times by as much as 25%. G20's influence in shaping global policy gives it a unique vantage point. It can help Indian MSMEs acquire foreign technology and skills. Such integration would enhance the competitiveness of Indian MSMEs and make them global champions.
(The author is Founder and CEO of Red Fort Capital)