India’s presidency of the Group of Twenty (G20) will continue until December 1, when the rotating presidency will be transferred to Brazil. But even with weeks to go, now is an opportune time to take stock of what India’s leaders have accomplished. There is, of course, the September 9-10 G20 leaders’ summit in New Delhi and the resulting significant communiqué, for which India is rightly commended for its adroit navigation in extremely difficult circumstances. As Kapil Sharma of the Atlantic Council said UnderlinesIndia has demonstrated a new model of diplomacy based on consensus, inclusion and solutions.
High-profile outcomes from the G20 Summit include progress on digital public infrastructure, crypto regulation, climate finance and multilateral development bank reform. But the India-led G20 also produced several outcomes that, while discrete, could still generate significant gains, particularly for micro, small and medium enterprises (MSMEs). For example, the G20 Statement refers to the Jaipur Call to Action, which highlights the need to improve MSMEs’ access to information. The statement also endorses the Regulatory Toolkit for Better Digital Financial Inclusion of MSMEs and the Financial Inclusion Action Plan, both aimed at improving access to credit for individuals and MSMEs.
But arguably the most concrete and impactful outcome for MSMEs can be found in the “Unlocking Trade for Growth” section of the G20 declaration. This section includes a reference to the High-Level Principles on the Digitization of Trade Documents, authored by Mark Linscott, former Deputy United States Trade Representative for South and Central Asian Affairs. identified for their importance. And one of the goals of these high-level principles is the digitalization and interconnection of countries’ trade documentation systems.
It is essential to build on this vision. And e-invoices offer a great potential starting point for building momentum toward much more ambitious outcomes, such as paperless commerce.
Waybills are documents issued by freight carriers containing shipping details and instructions. The details usually include information about the sender and recipient, the point of origin and destination of the shipment, and the route to be taken. Roadmaps can seem mysterious and mundane to many. But for businesses, especially MSMEs, invoicing processes can make or break their ability and appetite to participate in global trade.
Delays in generating or approving freight invoices can leave shipments stuck in customs for prolonged and unpredictable periods of time. These delays and uncertainties harm the credibility of MSMEs, which must earn and develop their reputation by delivering quality products within agreed deadlines. Additionally, rising costs and working capital problems caused by customs delays and uncertainties can wreak havoc on the often fragile balance sheets of MSMEs.
Conversely, electronic waybills – or electronic waybills – and interconnected electronic invoicing systems can significantly increase the ability of MSMEs to participate and compete in global trade. India’s implementation of the National Goods and Services Tax regime – with e-invoicing playing a vital role –reduced turnaround times for trucks in road transport by 18 to 20 percent in the year following its introduction in 2017. This represents a dramatic improvement in times and costs for all businesses, but even more so for MSMEs.
Electronic invoices and the interconnection of electronic invoicing systems can also be an area conducive to immediate agreements between countries on bilateral or multilateral bases. Electronic invoices could thus help create additional momentum towards more ambitious digitalization and the integration of commercial documentation, potentially along the lines of Singapore’s TradeNet and Taiwan’s TradeVan. The impact of TradeNet has been revolutionary: it has helped traders reduce their processing times in Singapore for commercial documentation from fifteen to twenty days before its introduction in 1989 to less than fifteen minutes in subsequent years, allowing companies to save four million dollars a year in the associated process costs. Similarly, after its launch in 1990, TradeVan helped accelerate Taiwanese customs process things anywhere from four hours to less than fifteen minutes.
Based on TradeNet, TradeVan and other efforts, a Report on Asia-Pacific Economic Cooperation estimates transaction cost reductions of 15 to 45 percent, depending on the scale of paperless trade implemented by a country. The report also highlights the potential impact of paperless trade on MSMEs’ access to new global trade opportunities.
India’s G20 presidency has therefore quietly but concretely elevated the important topic of digitalized trade systems to the agenda of the world’s leading governments, economies and multilateral development agencies. In doing so, India’s G20 presidency has laid the foundations for substantial improvements in MSME access to global trade. India’s Ministry of Commerce and Industry, which led the G20 Trade and Investment Working Group, deserves substantial kudos for championing high-level principles on digitalization of trade documents. The Department did so because it recognized both the importance of these principles and the greater potential for consensus among G20 members on this aspect of trade facilitation.
Small steps, big effects
In the coming months, countries will be able to build on this foundation to harmonize and interconnect their customs systems, with electronic invoicing being a good starting point. They could do this bilaterally or as a group. The backbone of the supply chain Indo-Pacific Economic Framework for Prosperity (IPEF), for example, offers an opportunity to increase digitalization and better connect the customs processes of all countries involved.
Of course, the harmonization of customs processes – even just for electronic invoicing – is by no means easy or assured. This will involve negotiations and potential compromises from the countries involved. Authorities in these countries may need to change parts of their systems and may be reluctant to do so. Ironically, even some MSMEs already thriving in the current environment may resist any change. MSMEs already reaping the benefits of global trade may prefer to maintain higher barriers to entry for other MSMEs, which would provide new sources of competition.
However, in an increasingly challenging global environment for trade negotiations, the digitalization and interconnection of roadmaps represents low-hanging fruit ripe for the picking. We hope that G20 countries – and among them India – will reap this fruit, building on the momentum generated by the G20 Trade and Investment Working Group. This would help to further increase momentum, potentially allowing IPEF members and other countries to follow suit.
Improvements that seem most incremental can often yield dramatic results because they are easier and quicker to implement. It is encouraging to see India’s Ministry of Commerce and Industry prioritizing such often overlooked yet extremely valuable gains for MSMEs, alongside higher profile issues.
Gopal Nadadur is a nonresident senior fellow at the Atlantic Council’s South Asia Center and is also vice president for South Asia at The Asia Group.
Thu July 27, 2023
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