Digitalisation Of MSMEs: Strengthening India's Economic Backbone

India consists of a 1.42 billion population with a diverse income graph, where generating employment for every single individual is a tough task for government authorities. Though states come up with various policies to provide employment on a larger scale but cannot fill up every loophole. Therefore, self-employment and entrepreneurship suggest the best way for the large population to sustain their families and help to contribute the country’s economy. 

India's micro, small and medium enterprises (MSMEs) sector consists of business entities run by an individual or group of people and their division as micro, small and medium depends upon their investment and turnover. The genesis of MSMEs in India allows people to start their preferred businesses with less capital, few assets and a limited workforce.

In India, with the Micro, Small and Medium Enterprises Development Act 2006, MSMEs came into existence and played an immense role in expediting the regional economy and empowering people by providing employment. According to the 73rd National Sample Survey (NSS) during the period 2015-16, the MSME sector has been creating 11.10 crore jobs (360.41 lakh in manufacturing, 0.07 lakh in non-captive electricity generation and transmission, 387.18 lakh in trade and 362.82 lakh in other services) in the rural and the urban areas across the country.

Apart from generating a significant amount of work, MSMEs are also known for sustaining the traditional artistic culture that machines have replaced. Also, women are the driving force of the MSMEs sector, they are owning, running and being the part of the MSMEs a large number of employees. Still, there is a long way to go as the data suggest that for proprietary MSMEs as a whole, males owned 79.63 per cent of enterprises while 20.37 per cent of enterprises are owned by females.

Digitalisation Of MSMEs 

Earlier, working on the traditional pattern, MSMEs were not exposed to new technology, machines and innovations. They were mostly dependent on manual labour and handloom work. Obviously, that way of working was good for conservating ancient artworks and also saving money but gradually that way of working started influencing the productivity and efficiency of the MSME sector. As the MSME sector is the backbone of the economy, it has to walk along at a good pace with the recent trend. But as these MSMEs constituted with small amount of investment, there were major challenges of lack of money to digitalise themselves. 

However, the central and state governments of India provided a handful in the form of schemes like the digital MSME scheme which aimed to empower the sectors digitally by giving theme machines for their larger productivity, training for using the internet for their payment and knowledge of social media and online portal to promote and sell their work. At the same time, because of not functioning on a larger scale, the MSME sector has faced a number of challenges in evolving this transition. 

JB Singh, Director, MOVIN Express said, "In the context of India's MSME sector, the rapid rise of digital enterprises has presented both immense opportunities and notable challenges. As the government places increased emphasis on fostering digital transformation, it has become essential to address the barriers faced by MSMEs on their path to digitisation. Limited access to resources, inadequate technological infrastructure, and a lack of digital literacy hinder the progress of these small businesses.”

While digitisation there were not only infrastructural constraints but trickling down the concept of ‘digitisation’ among the workers of MSME was one of the most difficult jobs. Counting the other barriers, Sanjay Sharma, MD and CEO, Aye Finance said, “Many MSME owners and employees lack the necessary digital skills and knowledge to leverage technology effectively. Apart from this, Some MSMEs have reservations about adopting digital technologies due to concerns related to data security and privacy.”

Technology Empowering MSMEs 

Technology is the biggest enabler that not only opens the doors of opportunities rather helps individuals to become aces in their respective work and study. Every new technology takes time to dissolve to the ground level but in later stages, the same technology becomes the catalyst of further developments. The history of computers is an apt instance of this. The existing MSMEs in India tried their hands with technology in order to enrich their business entity with the right set of data structures, skilling their workers and making the manufacturing and deliverance efficient for the customer. 

According to the data of the Indian Brand Equity Foundation (IBEF), more than 50 per cent of MSMEs in rural areas are interacting with tech solutions to meet their existing requirements despite challenges such as limited internet reach, and lack of adequate capital, technology and innovation.

In order to help the sectors to embrace the latest technology, the enterprises themselves play a huge role. It is a strategic and smarter step to allow the technology with limited resources and capital.

Tejpal Singh Shekhawat, Founder and CEO, of Kalyanam Furniture highlighted his company’s effort in order to digitalise them and said, “As a furniture brand, we are convinced that the emergence of digital MSMEs in the nation is an encouraging development that would open up novel opportunities for small companies. Using the future possibilities of technology breakthroughs, organisations frequently encounter an array of challenges. These could be the result of a lack of modern advancements, capital, as well as skills.”

Indian MSMEs Leveraging Technology 

Every business entity that lies in the MSME sector is envisioned to emerge as a big enterprise that requires them to scale up the number of their products and enhance the quality of their goods and services at a faster pace. The use of the latest technology along with artificial intelligence (AI) can bring this rapid speed to the functioning of MSME companies. 

As per the data provided by IBEF, Meesho was an online based platform founded in 2015, which collaborated with a fintech startup Klub that resulted in 750 per cent growth in their customer base. 

Jayanth Murthy, Joint Managing Director South Asia and Africa, Kaizen Institute said in a statement that digital transformation is expected to play a key role in achieving this. As India's internet economy is poised to reach USD 1 trillion by 2030, the digital maturity of MSMEs, along with large enterprises and startups, will be vital in achieving sustainable growth. 

It, however, added that the growth of MSMEs is hindered by critical obstacles related to market access, operational efficiencies, and credit availability. 

With over 95 per cent of India's MSMEs classified as micro-firms, often operating with limited resources and struggling to expand into new markets, it is imperative to address their challenges. MSMEs face lower operating margins compared to larger enterprises, hindering their ability to thrive. 

Additionally, the lack of access to formal credit leaves MSMEs reliant on costly informal credit options. A report has highlighted that 47 per cent of credit demanded for MSMEs could not be addressed as this is from enterprises who are not financially viable, or who prefer to borrow from informal sources. 

"Despite these hurdles, digital tools are enabling MSMEs to enhance productivity and improve business management. Cost-effective software solutions cater to specific business functions, such as tax compliance and invoicing, while automation streamlines process like payment reporting platforms," it said.

Sharma also highlighted the significance of modern technology in upscaling of MSMEs in India these days. He said, “Technology allows MSMEs to provide better customer service through online ordering, personalized experiences, and efficient communication channels, leading to improved customer satisfaction and loyalty. Analytical tools and data analytics help MSMEs gain valuable insights into customer behaviour, market trends, and business performance, enabling them to make data-driven decisions and adapt their strategies accordingly.”

India and the whole world came across several catastrophes, but the way technology handle the pandemic situation was commendable. Education, trade, and healthcare would have collapsed with the help of technology. This example of technology holding the burden on its shoulder suggests that every sector across India necessitated utilising the power of technology to increase their respective potential.