Digital Transformation Empowering MSME Growth In India

With 33 per cent contribution to the GDP of Indian economy, Micro, Small and Medium Enterprises (MSMEs) owns a significant portion that helps the nation grow. Not just GDP, it also helps largely in generating employment for the people hence improving the living standard of them.

More than two crore businesses are registration on MSME Udyam out of which, 2,46,02,824 are micro, 5,68,289 are small and 53,322 are medium, according to government website.

The advancement of technology and digital era of today’s world has come up to be a tried and tested framework for the MSMEs which helps them reach out to and target a larger potential customer base. It also cuts down the costs while maximises the profits. Through the technology and digital platform a business can get access to the analytic data to gain knowledge about the consumer trends in the market and their preferences of the products.

Electronic-commerce platforms also play a crucial role in establishing MSMEs as businesses by putting them on wider consumer network and assisting them with listing of products. Through E-Commerce, the business can get seller’s feedback on its product which can later be improved or upgraded as per the requirement of the consumer, hence helping in reaching more profitable business while being remote.

As MSMEs is the greatest contributor in the economy of India, the well being of this sector also means greater transparency in transaction reporting, and an increase in taxable income of these MSMEs.

What is MSMEs?

• Manufacturing enterprises and enterprises rendering services whose investment in plant and machinery or equipment is not more than INR one crore and annual turnover is not more than INR five crore are micro enterprises.
• Manufacturing enterprises and enterprises rendering services whose investment in plant and machinery or equipment is not more than INR 10 crore and annual turnover is not more than INR 50 crore are categorised as small enterprises.
• Manufacturing enterprises and enterprises rendering services whose investment in plant and machinery or equipment is not more than INR 50 crore and annual turnover is not more than INR 250 crore, come under small enterprises.

MSMEs Before E-Commerce

Prior to the widespread adoption of e-commerce in India, MSMEs operated through traditional brick-and mortar setups. They faced many challenges including limited reach, high costs and limited access to the global audience. 

Limited Market Reach: MSMEs primarily served local or regional markets due to the constraints of physical presence and distribution networks. They were not able to reach the wider of base of customer like they can reach in today’s world of e-commerce.

Offline Transactions: Business transactions were predominantly conducted in person or through telephone orders, with limited use of online payment methods. This method of payment resulted in late payments hence shortage in the stock and raw material for manufacturing of the product. It also resulted in a mess in the account ledger which needed to be prepare for calculating the profit and loss at the end of the month.

Limited Product Exposure and Inventory Management: These businesses struggled to showcase their products or services to a wider audience beyond their immediate geographic area. Inventory management was often manual, leading to inefficiencies in stock control and supply chain management.

The advent of e-commerce in India has transformed the landscape for MSMEs. It has enabled them to overcome many of these challenges by providing a platform for online sales, expanding their reach, streamlining operations, and accessing a global customer base. E-commerce platforms have also facilitated digital payments, making transactions more convenient for both businesses and customers.

What Is E-Commerce?

E-Commerce stands for electronic commerce which facilitates online trading of product through its business model. Through this mean, people across world can connect via internet to purchase or sale the products they like.

India’s internet penetration rate stood at 48.7 per cent of the total population at the start of 2023. The greatest examples of biggest e-commerce platform which are operating across the world are Amazon and Alibaba.

How Digital Transformation Is Helping Growth Of MSME Sector

In the recent years, online markets through e-commerce has boosted and had a positive impact of MSMEs. By adopting e-commerce, MSMEs stand to gain significant advantages.

Increase In Productivity: With the use of online medium of selling products, small businesses can increase their productivity as well as improve their products on the demand of consumer.

Improve Customer Services: It also helps in improving customer services by providing quick solution to the problems and issues of the customer which gives a better user experience to the people and build trust on the brand.

Increase Revenues And Profit Margins: E-commerce adoption enables MSMEs to take advantage of third-party trading platforms with nominal or no investment in developing and hosting online storefronts and managing packaging, logistics, warehousing and other infrastructure. This can increase profit margins by reducing overhead and initial investments.

Government Push

Since 2014, the government has been introducing initiatives such as Digital India, Make in India, Start-up India, Skill India and Innovation Fund to accelerate e-commerce in India. It is also encouraging MSMEs to market their products on e-commerce sites, especially on the government-owned websites, such as Government e-Marketplace (GeM) which is used by Ministries and PSUs to procure materials. As part of the Digital India initiative, the Ministry of MSME undertook numerous initiatives to digitise the entire MSME ecosystem, wherein all offices have been digitally empowered, efforts have been taken to spread awareness on benefits of digital payment solutions such as BHIM, UPI and Bharat QR code. With this vision government also came up with Open Network for Digital Commerce (ONDC).

Conclusion: India’s e-commerce sector is projected to reach USD 300 billion (INR 2,000 crore) by 2030. E-commerce is rightly synonymous with economic stability, growth and security; and is a channel that allows even the smallest MSMEs to showcase their products in any part of the world without having to shell out on expansion or changing locations. These platforms have empowered businesses by removing barriers. These are perhaps the best catalysts for directing their transformation at minimal costs, investment and innovation. A collaborative effort between the government, the private sector, industry groups, training organisations and SMEs is the most efficient way to support MSMEs.