The MSME sector in India faced a disproportionate impact during the COVID-19 pandemic, but it has since rebounded with increased vigour. According to the PHD Chamber of Commerce and Industry, India’s local businesses, particularly micro, small, and medium-sized companies (MSMEs), across 36 subsectors, are poised to gradually reduce the country’s 40% imports from China, which stands at around around $95 billion. This reduction is expected to occur without incurring significant additional expenditures, thanks to recent government initiatives such as the Production Linked Incentive (PLI) and PM Gati Shakti, which have boosted the competitiveness of Indian producers.
Key imports from China include consumer electronics, computer hardware, electrical parts, machinery, organic chemicals, power-related equipment, telecom, plastics, and fertilizers. These products are produced at lower volumes in India. However, the recent schemes announced by the government are poised to facilitate Indian manufacturers to produce more at a competitive cost, in turn reducing the burden of imports from China to India. MSMEs will play a significant role in this process, as they account for over 36% of manufacturing in the country. Here’s a look at the role of MSMEs in import and export in the country, and their potential to lower Indian imports.
A New Foreign Trade Policy is anticipated in the coming month, which is poised to facilitate import and export in India. This policy is expected to address ways to alleviate the compliance burden on small exporters and provide financial support to MSMEs, facilitating increased exports, especially in e-commerce. The ongoing efforts aim to enhance the self-sufficiency of Indian businesses and curtail dependency on imports. Government initiatives targeting various sectors contribute to the reduction of the trade deficit. The government’s focus on increasing production, through schemes like Make in India and PLI Scheme, aims to reduce import dependence and boost exports.
Industries across the board are reliant on import and export in India, but some are disproportionately reliant on Indian imports and stand to be adversely affected by supply chain interruptions. Here are a few examples:
In recent years, India has experienced a significant upswing in electronics consumption. The Indian semiconductor industry is anticipated to reach a market value of $55 billion by 2026. This growth is primarily attributed to the escalating demand for semiconductors in smartphones, wearables, automotive parts, and computers and data storage, collectively constituting over 60% of the market.
However, the notable surge in electronics consumption has unveiled a critical vulnerability in India’s reliance on imports for essential components. This dependence became particularly evident during global supply chain disruptions, as witnessed during the pandemic. The country’s heavy dependence on semiconductor imports from China to India, as well as other countries like Taiwan, South Korea, and Singapore, accounting for 95% of its supply, has exposed vulnerabilities during disruptive events like the pandemic. This industry stands to benefit tremendously from increased production from MSMEs in the country.
The Indian government has taken a number of measures to improve domestic electronics production, lessen dependence on imports, and boost exports. The Make in India Initiative, National Policy on Electronics (2019), PLI Scheme for the electronics sector, Modified Special Incentives Scheme, Electronics Manufacturing Clusters (EMCs) Scheme, and numerous other initiatives are made to encourage domestic manufacturing, localisation of electronics manufacturing, attracting foreign direct investment, and boosting exports.
The sector is already reaping the benefits of this, as evidenced by the fact that Indian imports of electronic goods have been declining. According to a report by the economic think tank Global Trade Research Initiative, imports from China to India of goods like laptops, PCs, integrated circuits, and solar cells fell during the FY 2022-23. There was a 23.1% decline in the import of laptops and PCs, totaling $4.1 billion, while the import of mobile phones decreased by 4.1% to $857 million in the last financial year compared to 2021-22. The reduction in imports is particularly notable in electronic items covered by the PLI scheme.
The Indian auto component industry is experiencing remarkable growth, with exports reaching a value of $13.3 billion. Forecasts suggest that these exports are expected to soar to a noteworthy $80 billion by 2026. India has a competitive advantage in auto components categories such as shafts, bearings and fasteners due to the sector having a large number of players, many of which are MSMEs. However, imports remain high. In the financial year 2023, the value of automobile components imported into India amounted to over $20 billion, marking an increase from the previous year.
The government has made efforts to reduce the import burden on the sector by introducing schemes to increase the manufacturing of electric and hydrogen-fueled vehicles. It approved the PLI scheme for the automotive industry worth around RS. 26,000 crores. Major players in the space will benefit significantly from increased production by MSMEs in the space, as costs and overheads will be reduced compared to importing the components.
Innovations serve as the engine that propels the economy as a whole. Nearly all industries, including agriculture, manufacturing, and services, are impacted by technology and its rapid advancement as well as its adoption. Innovations and technical developments are crucial in determining how businesses and ventures contribute to the economic growth of the country and how they expand globally to lessen the load of Indian imports.
The Ministry of MSME has created a number of programmes to stimulate the use of cutting-edge manufacturing technology as well as knowledge based innovative MSMEs or ventures. These programmes are primarily intended to encourage and support small business owners’ untapped potential. The use of cutting-edge manufacturing technologies as well as knowledge based innovative MSMEs or ventures can boost domestic production.
The Ministry also encourages interaction with MSME-Technology Centres, which assist small business entrepreneurs in growing their businesses by supporting planning, strategy, and execution. The Technology Centres act as an integral part and are crucial to the growth of business.
As India progresses towards becoming a $5 trillion economy in the next five years, reducing the burden of Indian imports and counterbalancing it with an increase in exports is critical to drive the growth necessary to support this trajectory across sectors. MSMEs have a critical role to play in this journey, and they need infrastructure to support more domestic manufacturing, reducing overall imports, including import from china to india. Technology has made great strides in recent years, which opens up a wide range of technical advancements in several fields, and the democratization of these innovations means that small businesses can access them and utilize them to boost their production capabilities.
Aside from access to tech and policy support, MSMEs require financing support to make the most of their potential. Kinara Capital, one of the top NBFCs in India, improves the lives of MSME business owners by offering quick and flexible business loans without any property collateral. Kinara has a track record of helping small business owners get access to financing and make a lasting impact. Check your business eligibility in just one minute and apply for the loan within a few hours to finance the purchase of assets, business improvements, or any other business-related needs.