New Delhi: Interim cash subsidies will help cushion the impact of US tariffs on Indian export-dependent small businesses as credit support alone may not be enough for these entities in uncertain market conditions, said Nirmal K. Minda, executive chairman of UNO Minda Group and newly appointed president of industry body Assocham.
Until the uncertainty surrounding the tariffs subsides, the government should consider temporary benefits for businesses that depend on exports, especially micro, small and medium enterprises (MSMEs), Minda said in an interview.
“Small businesses employ a lot of work, fixed costs, but face loss of income. The government should provide cash incentives to mitigate the loss of export income for a period of time, say a few months, based on their export record and latest data,” Minda said, stressing that such a scheme should be easily accessible to businesses. He said exporters are finding their own solutions to the tariff shock, including diversifying their markets.
India is currently negotiating a trade deal with the US to reduce the steep 50% tariffs, half of which are on Russian oil imports, imposed on Indian goods.
Minda said that if India is to sustainably attract investment and increase industrial capacity, the country can adopt some of China’s best practices. “For example, offering land to businesses for free or at a nominal cost, connecting infrastructure and offering plug-and-play facilities will make it easier for businesses. Incentivizing export-oriented research and development will also help,” Minda said.
The industry body is seeking incentives given that MSMEs account for about 45% of India’s merchandise exports and are a key segment of the economy.
Minda said most SMEs have recovered from the impact of the pandemic, but tight credit conditions resulting from credit worthiness issues in the small segment of the sector pose a challenge.
“Bank lending to SMEs increased significantly after 2020 due to policy support and government programs, with outstanding loans increasing by approx. ₹16.6 trillion around the beginning of 2020 and more ₹22.6 trillion by the end of FY23, indicating strong credit flow during the recovery, even as significant credit gaps persist,” Minda said, citing RBI and central government data.
While the contribution of SMEs to India’s economic output initially declined after the pandemic, it is now improving, said Minda, who heads Gurugram-based auto component maker Uno Minda.
The value addition contribution of SMEs to India’s gross domestic product (GDP), which fell to 27.3% in FY21 from 30.5% in the previous two years, increased to nearly 30% in FY23 and is reported to be close to 30% in 2024-25, Minda said citing government data. “So pre-covid levels are largely restored,” Minda said.
The sector’s share of exports fell after covid but has recovered, Minda said. “MSME-related products accounted for nearly 49-50% of exports in 2019-20, declined to around 43-45% in FY22 and FY23 and rebounded to 45.7% in FY24 and 45.8% by May 2024,” Minda said citing C Commercial Intelligence data released by the Directorate of Statistic and StatisticD. government. “The recovery in exports is visible and important for the revival of MSMEs,” Minda said.
Currently, investment sentiment varies across sectors, but the auto sector is witnessing strong tailwinds, Minda said, adding that the industry body was assessing various sectors on how to reduce import dependency and boost exports. The Union Budget for FY27, which will be presented on February 1, is likely to reflect the government’s response to industry demands for fiscal support.
