Statistics tell us that in November, India’s overall trade deficit for goods and services fell to $11.11 billion vs. $13.19 billion last year. But, India’s merchandise and service exports in November grew 10.97% (YoY) to $58.22 billion, and overall from April-November, the industry grew 17.72% (YoY) to $499.67 billion. This is a vital sign of resilience that exports are showing amid turbulent times at the back of intermittent global challenges.
However, for the trade sector to truly reward the economy, the country’s medium, small and micro enterprises (MSMEs) must be given a free hand to expand and scale. This can only be achieved by eliminating the barriers obstructing their optimum growth, for which trade tech and trade financing could be the twin solutions.
The impact trade tech and trade finance created across 2022
The need to adopt immediate technology became more prominent in 2020 when most MSMEs were compelled to digitally transform their production and supply cycles.
Digitization further changed the nature of trade for MSMEs when they began resorting to automating simple processes through artificial intelligence and machine learning. While on the consumer front, digital commerce and electronic platforms enabling purchases and e-payments have started taking center stage.
On a global level, efforts towards ironing out significant hurdles, such as lack of technical know-how and understanding of trade tech and financial practices, started gathering attention from several economies. This resulted in many countries agreeing to implement the World Trade Organization (WTO) Trade Facilitation Agreement in effect from 2017 that covers reforms in various aspects of trade facilitation to enhance transparency, formalities, institutional coordination, transit facilitation, and paperless trade. Although significant improvements are still needed, it is at least a step in the right direction.
Scope for improvement and deeper penetration in 2023
According to a report by ResearchAndMarkets.com, India’s trade finance market is expected to reach $3.88 billion by 2027, growing at a CAGR of 7.1%. Moreover, the same report suggests that about 80 to 90% of world trade relies on trade finance, including trade credit and guarantees. This shows the importance of how in 2023, trade finance can be utilized to help Indian MSMEs scale their business by leveraging trade tech avenues like factoring, invoicing, and price/consumer discovery.
All aspects of business processes, including documentation, verification, financing, and trade settlements, can be done much more securely and transparently at lower costs than before by facilitating seamless tech adoption at the business and government levels. Consequently, this will lead to an export boom and help MSMEs address key inefficiencies across business functions of finance, streamlining labor-intensive, document-heavy cumbersome processes, etc.
Technology adoption is critical for any market success, and the trade finance market is no exception. The global trade finance gap currently stands at $1.5 trillion, or 10% of merchandise trade volume, and is set to grow to $2.4 trillion by 2025, the Asian Development Bank calculates.
For Indian MSMEs to prosper, trade tech and trade financing need to be looked at as their shield for 2023 to steer through a near-recession awaiting the world.
The writer is CEO/Co-Founder, Drip Capital
.