How Indian Fintech is powering textile exports to the UK under the FTA
Indian fintech companies are empowering large-scale exporters and making it possible for smaller and first-time textile exporters to participate in global trade, says Munindra Verma.
India’s textile industry is on the verge of a promising new chapter. With the recent signing of the India-UK Free Trade Agreement (FTA), the textile sector is set to unlock a landmark export opportunity worth $1.1 to $1.2 billion. The FTA provides Indian textile exports with a significant advantage – duty-free access to the UK market, giving them a competitive edge. But it’s not just about favourable trade terms. To truly make the most of this opportunity, Indian MSME textile exporters must navigate the complexities of cross-border trade smoothly. This is where the India’s fintech platforms can help these exporters sail through the high tides of the global trade disruptions.
A new chapter for Indian textile exports
The FTA, aimed at boosting bilateral trade to $120 billion by 2030, marks a turning point for India’s exports in global Trade. With this agreement, textile exports to the UK are expected to receive a significant lift, owing to duty-free access and a wealth of new export opportunities. For small and medium-sized textile businesses, the agreement promises enhanced market access, lower tariffs, and simplified customs processes, opening up a world of potential.
India already plays a major role in the global textile trade, holding a 3.9 per cent share in the global market for textiles and apparel. India continues to build on its strong position as the world’s second-largest exporter of textiles and garments. The USA and the EU remain India’s top markets, accounting for almost half, around 47 per cent, of the country’s textile and apparel exports. While the nation is known for producing high-quality textiles at competitive prices, the sector’s full growth potential is often held back by challenges in securing timely financing and navigating complex trade processes. Even so, India’s textile industry continues to run a trade surplus, further cementing its critical role in the global arena.
The untapped potential of MSME textile exporters
MSMEs are the core strength of India’s textile industry, contributing to a huge share of the sector’s total export revenue. According to the Ministry of Textiles, over 45 million people are employed in India’s textile sector, with a large proportion working in MSMEs. However, despite their significant role, small business textile exporters face several barriers in accessing global markets.
One of the primary challenges faced by these businesses is access to collateral free trade finance. Unlike large enterprises, they struggle to secure the necessary funding to expand operations and meet the demand from international buyers. Financing gaps, long payment cycles, and working capital stress are commonplace in the sector, limiting their ability to scale up production and fulfill large export orders.
For small firms, the struggle isn’t due to a lack of competitive pricing or product quality; instead, it’s the inability to manage the financial requirements arising of the increasing cross-border trade demands. To leverage the opportunities presented by the India-UK FTA, these small firms need easier, faster access to finance and payment solutions that cater specifically to the unique challenges of international trade.
Financing bottlenecks
Trade financing remains one of India’s most significant roadblocks to growth for textile exporters. Traditional financing methods like bank loans require significant collateral, involve lengthy approval processes, and often come with cumbersome paperwork, making it difficult for MSMEs to access capital when needed. Additionally, delays in financing can have a detrimental impact on production cycles and the ability to meet delivery deadlines, a critical issue when managing export orders.
To capitalize on the opportunities offered by the India-UK FTA, small business textile exporters require financial solutions that are not only faster but also flexible and scalable. The global textile market operates on tight timelines, and Indian exporters need quick access to capital to respond to demand fluctuations, ensure smooth production processes, and manage inventory effectively.
Furthermore, as the agreement is expected to increase export orders, the need for a more efficient and accessible trade finance infrastructure has never been more pressing.
How the double contribution convention pact will boost the textile sector
The Double Contribution Convention pact is expected to transform the Indian textile industry. According to the Indian government, the agreement can potentially increase the volume of textile exports to the UK, one of India’s key trading partners. By eliminating tariffs on a wide range of textile products, Indian exporters can offer more competitive prices, making their products more attractive to UK buyers.
The agreement is projected to create significant employment opportunities within India’s textile clusters, particularly in regions like Gujarat, Tamil Nadu, and Maharashtra. This rise in demand will provide an impetus for textile manufacturers to expand their operations, which, in turn, will lead to an increase in job creation, especially in rural areas where the sector is a major source of livelihood.
Moreover, the increased demand for Indian textiles from the UK will strengthen India’s position not only in the UK but also in the broader European market, which is a vital destination for Indian textile exports. However, the true potential can only be realized if MSME exporters have access to the trade finance solutions they need to handle higher volumes and increased production requirements.
Creating an inclusive export financing ecosystem for Bharat’s MSMEs
Indian fintech companies are playing a fundamental role in bridging the financing gap for small organizations. As traditional financial institutions often fail to meet the specific needs of these business textile exporters, fintech players are stepping in to offer innovative digital solutions that are designed to streamline cross-border trade finance.
Digital supply chains and trade finance solutions
One key way fintech platforms are supporting MSMEs is through the digitization of supply chains and trade finance. These platforms offer solutions such as International Trade Financing (ITF), invoice discounting, and factoring services, which help exporters access immediate liquidity against their receivables. By digitizing the documentation and approval process, these platforms reduce the time and cost of securing trade finance.
Additionally, fintech-driven platforms are offering digital payment solutions that facilitate cross-border transactions. This allows exporters to receive payments quickly and securely, mitigating the risk of delayed or defaulted payments, which is a common challenge in international trade.
Real-time credit assessments and digital onboarding
Fintech platforms are also improving the trade finance experience by offering real-time credit assessments, which are crucial for small ventures that may not have a strong financial history. Digital onboarding processes, involving minimal paperwork and faster verification, have made it easier for MSMEs in smaller towns and traditional textile hubs to access financing.
Through partnerships with global financial institutions, these platforms can provide these firms with access to larger pools of capital, thus enabling them to finance larger or more frequent orders. The flexibility to finance multiple export orders without creating balance sheet stress is a game-changer for textile exporters, especially in the context of increased demand post-FTA.
Empowering first-time and small-scale textile exporters to participate in global trade
Indian fintech companies are empowering large-scale exporters and making it possible for smaller and first-time textile exporters to participate in global trade. Traditionally, many textile producers in smaller towns and regions like Panipat, Surat, and Varanasi have found it difficult to break into international markets due to a lack of financing options.
By democratizing trade finance access, fintech solutions enable these small-scale exporters to engage with larger international markets, including the UK. As a result, even smaller textile producers can scale up their operations and meet the requirements of international buyers, thus benefiting from the opportunities presented by the India-UK FTA.
Outlook: Powering India’s textile export ambitions under the India-UK FTA
The agreement can potentially to reshape the landscape of India’s textile export industry. However, a robust, digital-first export financing ecosystem is crucial for this potential to be fully realised. Continued collaboration between fintech players, the government, and industry stakeholders is essential to creating a sustainable ecosystem supporting MSME exporters’ growth.
The Indian fintech sector is already playing a pivotal role in this transformation by providing innovative, flexible, and scalable trade finance solutions. As the India-UK FTA creates new avenues for growth, the next step is to ensure that Indian small business exporters have access to the tools they need to navigate the complexities of global trade.
Conclusion
Our country’s textile industry is at the threshold of a new chapter, fueled by the promise of the India-UK Free Trade Agreement. However, to fully capitalize on the potential of this opportunity, Indian MSME exporters need to access efficient, digital trade finance solutions. With the support of fintech, these exporters can overcome traditional barriers to global trade, scale their operations, and contribute to India’s growing export ambitions. By providing the necessary financial infrastructure, fintech platforms are not only empowering small textile companies but also helping us weave a stronger presence in global markets.
About the author:
Munindra Verma, Chief Executive Officer, M1NXT is a seasoned banking professional with over 27 years of experience in Corporate and Transaction Banking, brings wealth of knowledge and expertise. At M1 NXT, Verma is focused on building and establishing the company’s position as a trusted Trade Finance solution provider. Verma’s career journey is characterized by a diverse range of experiences across different banking domains and private and public sector banks. His extensive tenure in the industry has equipped him with a profound understanding of Digital Transaction Banking, Trade, Supply Chain, Structured Trade Remittances, CMS, Forex, Bullion Product & Sales Functions and Risk Management.
