SMEs (Small and Medium-sized Enterprises up to Rs. 250 Crore Turnover) are responsible for the majority of employment in India. They cover up to 40% of the workforce and contribute 49% in exports and SME’s contribution in International Trade is growing rapidly.
Exports have the potential to rapidly scale the profitability of SMEs and also aid in bringing in Foreign Currency for our Large Trade Deficit running country. Exports help SMEs spread their Customer Base businesses across the globe rather than a limited domestic market and also helps Indian SMEs become globally competitive and offer better quality. Some more direct gains from exports for SMEs are :
The benefit of getting paid in foreign currency:-
Instead of getting paid in Indian Rupees (INR), exports pay you in Foreign Currency- US Dollars, EUR, GBP, Dirhams, etc. All these developed countries’ currencies consistently appreciate in value against INR – due to the differential inflation (or higher inflation in India) viz. USD/INR exchange rate in 2008 was Rs. 39 per US Dollar as compared to USD / INR = Rs. 75 today in 2021. Gradually each year, this percentage accrual in INR (even though adjusted by Buyers) overall results in better profitability as compared to pure INR sales locally.
• Payment Assurance and punctuality:-
While large Enterprises benefit from credit purchases and are focused on maximizing their capital these long cycles of cash flow adversely affect the SMEs. In Developed Country Buyer jurisdictions – US, EU, UK, Singapore etc., Invoice due dates are honoured a lot more consistently given the stricter regulations around Contract Act and International Credit Insurance Ratings, whereby any payment delays impact their ability to source future supplies on credit. Such credit insurance is not available in India – though some of the initiatives such as TReDs etc. have begun but early days.
• Receivables Finance or Factoring
With the help of factoring from various international Factoring Providers in Developed Countries, you can easily support your Debtors or Receivables Credit period without collateral or security. You will have access to incremental cash flow that will help meet increased demand from Export. Again this option of non recourse financing or factoring is not available as easily for local Invoices.
Exports is a zero rated supply i.e. no GST is applicable for most export categories. In addition to tax waivers, the Government of India to promote Exports provides numerous benefits that form about 3% -5% of FOB (Free on board) value of Exports of Goods or Services. There are also Interest Subvention schemes where Bank Interest on Working Capital or Capex Loans availed specifically for Exports are subsidised by the Government of India.
Faster Growth: as access to much larger global market & buyers:-
If small and medium-sized enterprises are provided with the right support then they can significantly boost our economic growth of the country. The gap between large Enterprises and SMEs is quite large. The productivity differences can reach up to 60%.
One more aspect here is the potential to enable eCommerce for Cross Border Trade from India instead of traditional offline Buyer Search or Demand Generation for SME Exports.
SMEs have started adapting to technology and this is required to bridge the productivity gap between large enterprises and small enterprises. The digitalization of Exports documentation and processes especially for SMEs is a key step to improve the competitiveness of SMEs and enable them to grow their Exports.