swaminathan j : local to global - the role of the financial sector in msme's development speech by mr swaminathan j, deputy governor of the reserve bank of india, at the annual day of the foreign exchange dealers association of india ( fedai ), mumbai, 21 august 2024. * * * distinguished guests, ladies, and gentlemen. a very good evening to all of you. it is a great honour to speak to this august gathering on fedai's annual day. through its tireless efforts in clarifying the complexities of inter - bank foreign exchange business and serving as a crucial voice with regulators, fedai has played a pivotal role in shaping the rules of foreign exchange business in india. so, when mr. sindhwani, chief executive invited me to this event, i knew it was an opportunity i could not miss. as we celebrate fedai's achievements, it is also an opportune moment to reflect on the broader vision for india's economic future. in 2022, as our nation commemorated 75 years of independence, the hon'ble prime minister outlined five key resolves for the country, one of which was the ambitious goal of transforming india into a developed nation by 2047. realising this vision will require a unified effort across all sectors, with micro small and medium enterprises ( msmes ) playing a pivotal role in driving economic output and boosting exports. msmes, often referred to as the backbone of our economy, hold immense potential to become national champions - potential that remains largely untapped. with this in mind, i have chosen the theme'local to global : the role of the financial sector in india's development'for my address today. the role of msmes in india's economic growth with a vast network of approximately 63 million units, msmes contribute nearly onethird of the nation's gdp and account for around 40 per cent of its manufacturing output 1. more importantly, it is the msme sector's ability to foster entrepreneurship and create substantial employment opportunities a€ “ the key factors in realising india's demographic dividend. additionally, as critical ancillary units, msmes support larger industries and significantly contribute to the secondary and tertiary sectors. with millions of jobs generated, the msme sector stands as one of the most significant sources of employment in india, underscoring its importance in sustaining livelihoods and driving inclusive growth. the msme sector's impact extends beyond domestic boundaries

face in the global market. beyond traditional products like pre - and post - shipment finance, factoring, and invoice discounting, the sector can significantly aid msmes in managing risks through export credit insurance and currency risk hedging solutions. these financial instruments not only protect against payment defaults and currency fluctuations but also provide msmes with the confidence to explore and expand into new international markets. current regulations mandate that forex needs, including cash and hedging products, must be met through authorised dealers, with scheduled commercial banks playing a dominant role. these banks, holding a privileged position, have a fiduciary duty to act fairly and transparently, particularly with smaller clients like msmes. the introduction of the fx - retail platform in 2019 aimed to enhance transparency and fairness in retail foreign exchange transactions has seen only a limited success. i would request banks to take proactive steps to increase awareness and facilitate higher customer participation on the fx - retail platform. sensitivity towards the sector 4 / 6 bis - central bankers'speeches finally, considering the key role that msmes play in the economy, the financial sector should adopt a more sensitive and empathetic approach towards them. while financial discipline is crucial, the unique challenges faced by msmes - such as low capital base, lack of scale, cash flow constraints from delayed payments, fluctuating market conditions, and external economic pressures - necessitate a more nuanced approach to assessment as well as follow up. while timely repayment of dues is crucial to maintain the health of the financial system, financial institutions should focus on deploying supportive measures such as restructuring options, grace periods, and tailored repayment plans that give msmes the breathing space they need to recover and get back on track while encountering difficult situations. collaboration and dialogue between lenders and borrowers can help create solutions that protect both the financial interests of the lender and the viability of the msmes. conclusion in conclusion, the journey of india's economic transformation cannot be complete without the robust development of our msme sector. msmes are not just the backbone of our economy - they are the engines of growth, innovation, and employment. however, for these enterprises to truly thrive and scale up, the financial sector must step up with innovative solutions, sensitivity, and a forward - looking approach. this is not just about providing credit ; its about enabling these enterprises to compete globally, drive exports, and contribute to the nation's goal of becoming a