Strategies to boost MSMEs growth through digitization

Over the last two decades, technology has influenced every aspect of our lives, permeating every facet of society, from healthcare and education to social relationships, and personal habits to business behaviours.

While technology has overpowered every sector and function of the world of enterprise and has led to significant innovations and opportunities, it has also resulted in a digital divide. Formal businesses have embraced technology, while the large universe of informal businesses, primarily MSMEs, have been struggling to catch up on this front.

If we look at China’s SME ecosystem, it has been clocking a 10 % growth year-on-year, resulting in the addition of ~ 5 million new businesses each year. This is because they have been early adopters of digital technology and hence played a crucial role in China’s economy, contributing over 60% to its GDP and accounting for 80% of employment opportunities in the country.

Now, let us compare this with India’s small and medium business communities. India’s MSME sector is the second largest after China, with over 64 million businesses significantly contributing to the nation’s socioeconomic growth. They even help in reducing regional disparities, assuring a fairer distribution of national income and wealth by creating employment opportunities across the nation.

For many decades, MSMEs had to face many challenges related to policy and regulatory frameworks, such as complicated taxations, licensing procedures, high compliance costs and inadequate infrastructure in Tier 2,3 cities and rural areas, which inhibited them from growing and prospering further. Both, the prohibitive cost of automation and awareness of the solution have mostly limited digital adoption among MSMEs.

But thanks to the increasing affordability of smartphones, low tariff of the internet, growing use of digital media and rising awareness of online platforms like marketplaces or e-commerce are spurring the future growth for MSMEs in India. Adding to it, the enhanced digital infrastructure through government policies like GSTN, e-way bills, MSME Udyog Aadhar, NPCI, and many more are playing a vital role in democratizing business opportunities and making it easier for MSMEs to embrace digital technology.

The need for Tech enablement

Marketplaces and digital platforms on one side do serve the basic needs of MSMEs to have access to new markets, on the other side they also create access to technology such as cloud-based applications, automation, data analytics, and business intelligence which enable MSMEs to gain an in-depth insight into market trends and consumer journeys. It facilitates faster decision-making based on up-to-date, real-time information resulting in increased sales and revenues. While many MSMEs are taking advantage of going digital for local markets, it also allows them to go international by adopting borderless marketplaces, thus boosting scalability and optimizing resources and costs. These online platforms including marketplaces, e-commerce platforms and social media comprising features such as online presence through websites, rating systems, feedback mechanisms, payment tools, conversation tools and trust certificates, build credibility in the market almost immediately thus democratizing the business opportunities for them irrespective of their demographics.

Digital proficiency clearly is the need of the hour if a business wants to survive disruptions, build resiliency, and transform itself strategically. It will be even more ubiquitous in the near future. And to maximize the benefits of online platforms, all MSMEs need to do is improve their own commitment directly or provide a dedicated resource to manage online marketing, customer interactions, platform engagement, and regulatory compliance.

Leveraging Digital Infrastructure for MSMEs’ Growth

While leveraging newer technologies helps these enterprises to take advantage of opportunities in today’s changing environment, it alone will not help them to become growth accelerators for India. MSMEs face legacy issues such as inadequate and untimely credit and lack of access to finance. This is because of the lack of sufficient collateral, and low credit score that compels them to rely on unsecured loans at higher interest rates, which dents the economic viability of their businesses, and deters them from expanding and investing in new technology. It also dampens their spirits.

Therefore, the emergence of digital financial services will not only provide viable solutions to some of the challenges hindering the growth of this heterogeneous sector but will also promote financial inclusion. India’s digital commerce ecosystem is increasingly becoming interconnected and interoperable, creating a dense stack of digital infrastructure that amplifies the value of other digital services and facilitates further innovation in the space. The Indian government initiatives such as Atmanirbhar Bharat Abhiyan, allocation of Rs 15,700 crore in the Union Budget 2022-23, and extension of the ‘One District One Product’ (ODOP) scheme to cover 7,500 new products or the Udyam Registration portal and the launch of ONDC are initiatives in the direction to create a strong digital infrastructure. Similarly, marketplaces whether it is IndiaMART or GeM, are acting as catalysts to enable MSMEs and promote this sector’s growth further.

India has improved its ranking in the World Bank’s Ease of Doing Business Index, but the Indian MSME need more at the national scale. They need a more enabling legal, regulatory, and administrative environment to prosper. E-commerce platforms and online marketplaces can serve as critical intermediaries for digital financial services, integrating payment and credit services into their interfaces and aggregating detailed data on MSMEs. By doing so, they can gain insights into the risk profiles of particular groups and develop targeted financial products that cater to their unique needs. Besides, the government must accelerate its effort to assist this segment and encourage innovation of new technologies that offer more customized digital solutions and credit enablement given the complexity of the sector.  

Today’s technology is gaining traction at an accelerated pace. The changes in the technology space is opening up a world of opportunities for these small businesses and is key to their growth and formalization. Digital transformation is no longer an option but a necessity in today’s fast-paced business landscape. With the right strategies in place, MSMEs can leverage technology to expand their market reach, increase efficiency, and tap into new revenue streams. As India sets its sights on becoming a $5 trillion economy by 2025, the role of MSMEs will be critical, and digitization will undoubtedly be a key enabler of their success.

Times Of India

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