Why India Shouldn't Join the WTO MSME Forum Yet

A trade body like World Trade Organisation (WTO) can foster huge opportunities for the sector towards facilitation of business avenues globally

A higher proportion of global trade and exports can just be the stepping stone for Indian MSMEs towards further growth and prosperity.

A trade body like World Trade Organisation (WTO) can foster huge opportunities for the sector towards facilitation of business avenues globally. Then why is the Government of India not willing to be a party to an MSME forum being planned at WTO?

Despite the fact that MSMEs on an average remain 70 per cent less productive than large firms (World Trade Report 2016), about 38 per cent of India’s GDP is derived from the MSME sector.

About 95 per cent of firms fall under this category, and a majority of job creation is done by this sector alone, only second to agriculture. Smaller firms can grow big through greater access to overseas markets where the competition is low and profits are high.

A WTO forum plans to help address just the same. But as KK Jalan, Secretary, Ministry of MSME, says, “India is not in favour of a WTO forum on MSMEs.”

Structural issues

It is interesting to see that in India, MSMEs are categorized according to the amount of investments made into the business (Cost of plant/machinery, land, etc. ranging from Rs. 10 lakh- 10 crore) depending on whether the firm falls under manufacturing or the services sector.

This crops up elementary problems at defining the correct size and potential of an MSME firm as in some industries like steel, power and heavy machinery, the cost of investments could be very high compared to others like manufacturing of plastic bags, where the investment is low, but the profits are much higher. Similar structural anomalies exist in the services sector which could be at a variance with the standards defined by WTO.

Until this gap is abridged, a forum at WTO could throw up mandatory reforms domestically at a pace which India is not ready for yet even though India has already moved towards amending domestic rules that shall re-categorize the sector on the basis of parameters like employment generation and annual turnover apart from the existing parameter of total investment.

Labour Issues

While structure is not the only roadblock, the biggest and the most complicated hurdle is the issue with labour laws. Jalan adds, “In the WTO, developed countries are keen on bringing in an MSME forum in the context of the potential of the sector for job generation. While this is a welcome step, India is concerned about the possibility of labour issues becoming a non tariff barrier to markets.” While the issue of labour standards falls under the domain on International Labour Organisation (ILO), the WTO from late 80s has been trying to introduce them in one form or the other, much to the chagrin of developing countries like India and Brazil.

India has significantly progressed in areas like abolition of forced labour, minimum age to work, equal remuneration and end of discrimination, there still remain areas where Indian laws do not match WTO standards.

Ashok Saigal, Chair, Sub Group on Ease of Doing Business, CII, National MSME Council says, “Just like under the existing rules and protocols, we cannot be a part of Nuclear Supplier’s Group as it will mandate an even further scrutiny and inspection by international agencies, there are issues with the labour laws at WTO which we just cannot relent to now. For example, there is a mandate of 16 hours of work. We cannot subscribe to that yet.”

It is important to note that under the ILO conventions, labour inspections in agricultural and commercial workplaces is a requirement that India may find very hard to monitor at this time.

The failure to ensure adherance of such laws may result into considerable setbacks and sanctions for the country’s MSMEs sector if India indeed becomes a part of the WTO forum on MSMEs.

Industry Expectations

While there can be ‘law of the land’ issues that Indian government has been trying to homogenise with international standard, currently, the Indian industry is the one that is at the receiving end of all the troubles.

Geeta Goti, President, Confederation of Women EntrepreneursIndia, says, “Despite producing good quality products and packaging them well, Indian MSME produce is seen as inferior in the international market. For them to have acceptability, we are told to get certified by international agencies which are very expensing, and even after that, there is no guarantee that they will buy our products. An MSME Forum at WTO may help us at doing business internationally, but if there are labour issues, I am sure the government is taking steps to protect our national interest.”

Indian MSMEs are facing a myriad of problems domestically as well as internationally some of which include excessive dumping of cheap products that makes Indian produce fail in the market due to uncompetitive prices, issues with intellectual property wherein foreign companies tend to assert IPR over minor modifications to generic products, and international opposition to government subsidies which are paradoxically being provided overseas as a modified version and being called ‘affirmative action’.

Bharat Garg, State President, Haryana Chamber of Commerce and Industry informs, “Indian MSMEs do not have the resources to deploy representatives globally. We need a platform where we can get all the information that we need. The lack of information on international insights is a big hurdle towards Indian MSMEs becoming competitive. The other issue is with the proper support in the availability of finance.” All these issues and more have the propensity to be well addressed at an international forum like WTO, but for now, the road towards it needs to be tread with caution.

(This article was first published in the May issue of Entrepreneur Magazine. To subscribe, click here)

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