Editorial Notes

Editorial Notes 29th December 2016

Micro, Small and Medium Enterprises (MSME) Sector; Impact of demonetization; India’s exports; Steps should be taken by the Government
By IT's Editorial Notes Team
December 29, 2016


GS (M) Paper-3: “Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.”
GS (M) Paper-3: “Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.”


Reviving Exports



India’s exports have been struggling for years now and the reasons namely,

  1. due to slow growth in many destination nations and
  2. also due to contraction of demand from oil exporting nations in West Asia.

The demonetisation of Rs. 500 and Rs. 1,000 banknotes has also adversely affected many exporters. Faced with a cash crunch, they have been unable to adequately source material and labour to fulfil orders.

Following steps should be taken by the Government:

India’s export sector needs to be strengthened to withstand changes that could take place in world trade.

  • Apart from giving incentives to exports, and preparing for a possibly altered trade environment, India needs to make products that find greater global acceptance.
  • That requires getting more sophisticated with designs and giving superior finishes — two qualities a lot of Indian exports lack.
  • Indian exporters also need to spend more on understanding the tastes of global consumers.
  • Greater acceptance of Indian products will help the country secure better prices.
  • Increasing the demand for Indian goods, particularly those produced in the small-scale sector, is important to create more jobs, particularly for youth.
  • The finance minister ought to pay heed to his commerce ministry colleague’s appeal for more funds in order to enable the latter to offer more incentives to exporters in labour-intensive sectors.
  • Additional incentives are needed to make India’s exports competitive.
  • The commerce ministry, in its petition to the finance ministry, has proposed enhancing the incentives it offers under the merchandise export incentive scheme (MEIS), announced in the April 2015 Foreign Trade Policy.
  • These incentives are meant to compensate exporters for infrastructural inefficiencies and associated costs, particularly with respect to India-made goods with high employment potential and export intensity.
  • Currently, MEIS is allocated Rs. 23,000 crore and covers 7,103 items.
  • With nearly half of India’s exports comprising items manufactured in labour-intensive sectors such as gems and jewellery, textiles and apparels, agriculture and allied products, marine products, and leather goods, the Foreign Trade Policy 2015 had rightly emphasised support for such sectors.
[Ref: Business Line]


GS (M) Paper-3: “Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.”
GS (M) Paper-3: “Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.”


Needed, a comprehensive national MSME policy

Why we need comprehensive national MSME policy?


  • The MSME sector contributes 8% to the GDP, whilst employing more than 80 million people.
  • Growth in micro and small enterprises has been consistent over the past five decades due to a combination of government support, implementation of technological enhancements, and support by the banking sector.
  • In 2016, initiatives have been taken by the Centre as well as State governments to improve ‘ease of doing business’ and to make Micro, Small and Medium Enterprises (MSMEs) more globally competitive – such as
  1. The Udyog Aadhar Memorandum framework for revival and rehabilitation of MSMEs, which enables banks/creditors to identify enterprises in the stage of initial stress and thus take corrective action, and
  2. A Scheme for Promoting Innovation, Rural Industry and Entrepreneurship (ASPIRE), among others.

Impact of demonetization:

  • The historic paradigm change through demonetisation, is strongly expected to have a long-lasting favourable impact.
  • In case of SMEs, most will be unsure of payments coming from customers for some time.
  • Currently, businesses and MSMEs dependent on cash for daily operations have been hit badly and though the Centre increased withdrawal caps, it will still be a few months before the situation stabilises.
  • The Centre should immediately act to enhance awareness amongst Indian SMEs about the importance and benefits of cashless transactions and digital payments, and in addition to that, deliberate on the role trade associations and other SME stakeholders could play to assist in this transition.


  • The Centre must notify the Micro Small and Medium Enterprises Development (Amendment) Bill, 2015, which seeks to enhance the existing limit for investment in plant and machinery, considering inflation and the dynamic market situation.
  • At the moment, there is no integrated approach for the development of MSMEs despite the fact that it accounts for 40 per cent of India’s manufacturing and 45 per cent of exports.
  • Therefore, the Centre should come out with one comprehensive policy.
  • Several areas of concern relating to the GST law and its implementation, must be addressed.
  • It is equally important to provide special incentives for the promotion of export, such as freight subsidy and marketing support.
[Ref: Business Line]


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