To Overtake Chinese Consumer Goods, MSMEs Need Government Support


In order to reap the benefits of its comparative advantage over products made in China in the post-pandemic world, the government needs to give direct push to MSMEs to ramp up export of consumer goods as per a report by SBI.

India needs to build its capabilities to capture the share from China, it can achieve a range of incremental exports by $20 billion even in the base case scenario. This can translate to a significant $193 billion jump in the five-year horizon, according to SBI’s Ecowrap report released.

Even though, the revealed comparative advantage (RCA) for India is lower than China as far as capital goods exports are concerned, India can still capitalise on this opportunity to push its capital goods exports. At the moment, the bigger opportunity is in the consumer goods sector, in which India has an RCA greater than China, the report said.

Analysing the micro, small and medium enterprise (MSME) profile of the country in terms of the consumer goods sector, the biggest concentration is in the textile and clothing sector (17.30 per cent), food products (12.30 per cent) and crop and animal production (10.0 per cent).

Although we do have a comparative advantage in textiles and animal goods, in food products we are not competitive. The government can give a direct push to this sector, so that MSME firms involved in food products manufacturing get benefitted. The report says that although 2020 is a lost year, in terms of trade, India can think long-term and build relations so that it can occupy the space vacated by China.

Looking at the value of merchandise exports, for 2019, China exported $2.5 trillion worth of goods, while India exported $0.3 billion worth of merchandise. This means that China exports 7 times the amount of goods India exports in a year, the report states.

Taking a look at Vietnam, which has rapidly captured merchandise exports, it is also stated that a fair number of the factories being rapidly put up in Vietnam are owned and financed by the same Chinese companies being dislodged in their home country, the report said.

Vietnam has gained in this trade war, with its cheap labour and cheap currency. It will be crucial how India navigates the geopolitical space that would determine how successful it is in becoming an export behemoth. With just 1.7 per cent in world’s merchandise exports, India has a long road ahead to catch up with China.

As per the report, India is one country that can fulfil global demands with its sizeable population. However, India will have to take a hard look at its labour reforms and currency outlook to gain market share.

Although the demand will remain subdued in the coming years, it does provide an opportunity for global trade rebalancing, and India needs to play its cards right to gain something out of this catastrophe, said the SBI Ecowrap report.