(MENAFN- Live Mint)

New Delhi: Interim cash subsidies will help ease the impact of US tariffs on India's export-dependent small businesses, as credit support alone may not be enough for these entities amid uncertain market conditions, said Nirmal K. Minda, executive chairman of UNO Minda Group and the newly-appointed president of industry body Assocham.

Till the tariff-related uncertainty wanes, the government should consider interim benefits to businesses, which are dependent on exports, particularly micro, small, and medium enterprises (MSMEs), said Minda in an interview.

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“Small businesses employ a lot of labour, a fixed cost, but face revenue loss. Government should give cash incentives to cushion the revenue loss from exports for a specified period, say a few months, going by their export track record and the latest figures," said Minda, emphasising that such a scheme should be easy to access for businesses. Exporters are finding their own solution to the tariff shock, including by diversifying their markets, he said.

India is currently negotiating a trade deal with the US to lower the steep 50% tariff, half of which is for importing Russian crude, imposed on Indian goods.

Minda said that for India to attract investments on a sustained basis and to scale up industrial capacity, the country could adopt some of China's good practices.“For example, offering land to businesses free or at nominal cost, infrastructure linkages and offering plug-and-play facilities will make it easy for businesses. Incentivising export-focused research and development will also help," said Minda.

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The industry body is pitching for incentives, given that MSMEs account for about 45% of India's merchandise exports and are a key segment of the economy.

Minda said that most MSMEs have recovered from the impact of the pandemic, but tight credit conditions arising from issues around credit-worthiness of a small segment of the sector, pose a challenge.

“Bank credit to MSMEs expanded significantly after 2020 owing to policy support and government schemes, with credit outstanding rising from about ₹16.6 trillion around early-2020 to over ₹22.6 trillion by the end of FY23, indicating strong credit flow during the recovery, though sizeable credit gaps remain," said Minda, quoting figures from the RBI and the central government.

While MSME s' contribution in India's economic output dropped initially after the pandemic, it is now improving, said Minda, who heads the Gurugram-based auto components maker Uno Minda.

The contribution of value addition by MSMEs in India's gross domestic product (GDP), which fell to 27.3% in FY21 from 30.5% in the preceding two years, has recovered to nearly 30% in FY23 and is reported near 30% in 2024-25, Minda, said quoting government figures.“Hence, pre-covid level is largely restored," said Minda.

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The sector's share in exports dipped after covid but recovered, Minda said.“MSME-related products accounted for nearly 49-50% of exports in 2019-20, fell to about 43-45% in FY22 and FY23 period, and rebounded to 45.7% in FY24, and to 45.8% by May 2024," Minda said referring to figures from the Directorate General of Commercial Intelligence and Statistics (DGCIS) made available by the government.“Export recovery is visible and important for MSME revival," said Minda.

At present, investment sentiment varies across sectors, but auto sector is witnessing strong tailwinds, Minda said, adding that the industry body was making an assessment of different sectors on how to reduce import dependence and how to boost exports. The Union Budget for FY27 to be presented on 1 February is likely to reflect the government's response to demands from industry for fiscal support.

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