In a report jointly released by Google, Temasek and Bain, the untapped potential of Micro, Small, and Medium Enterprises (MSMEs) has been identified as a significant catalyst for India's economic growth. With 60 million MSMEs currently operating in the country, employing approximately 120 million people (accounting for nearly 40 percent of the non-agricultural workforce), and contributing 30 percent to India's GDP, the development and support of this sector are crucial for the nation's progress.

However, the report also highlights three critical hurdles that hinder the growth of MSMEs: limited geographical reach and market access, operational inefficiencies resulting in lower operating margins, and the lack of formal credit availability. Addressing these challenges requires innovative digital solutions that empower MSMEs and enhance their business operations.

One key aspect where digital tools are making a remarkable impact is in driving operational efficiencies. MSMEs are increasingly leveraging digital solutions to improve productivity and streamline their business management processes. Notably, over 10 million MSMEs now utilise Vyapar GST billing software, a free mobile app that simplifies tax compliance and invoicing procedures.

Furthermore, a study conducted by the International Data Corporation (IDC) reveals that 74 percent of medium-sized enterprises are expected to adopt cloud applications by 2022, highlighting the increasing trend towards digital transformation.

Several startups, such as Zoho, have emerged to offer affordable cloud suites tailored to the needs of MSMEs. These suites include customer relationship management (CRM), customised enterprise resource planning (ERP), and human resources management. Additionally, Indian languages are being integrated into digital solutions like employee self-service (ESS), human capital management (HCM), and customer resource management (CRM), enabling MSMEs from Tier 2 and beyond to access these tools more effectively.

To tackle specific business functions, such as tax compliance and invoicing, software platforms like Clear and Vyapar are playing a pivotal role. These platforms assist companies with GST filing, e-way bills, tax deducted at source (TDS), e-invoicing, income tax return filing, and more. By maximising tax savings and ensuring compliance, these solutions alleviate some of the burdens faced by MSMEs.

Digital channels have emerged as a game-changer for MSMEs, facilitating access to domestic and global markets. Currently, six million out of the 60 million MSMEs are actively buying and/or selling products online within India. Moreover, 64 percent of MSMEs report higher sales when utilizing digital or e-commerce channels. Notably, the Government e-Marketplace has procured goods and services worth $40 billion from MSMEs through online platforms.

B2C and B2B marketplaces like Amazon, Etsy, Zetwerk, and OfBusiness have become instrumental in connecting small businesses with customers worldwide, offering pan-India and global access. Amazon India alone has over four million MSMEs selling their products, including weavers and artisans. In addition, tech-driven B2B aggregators facilitate supply chain management and working capital financing, providing MSMEs with opportunities to expand globally.

The emergence of low-code/no-code platforms such as Dukaan and Bikayi has enabled MSMEs to establish direct-to-customer (D2C) stores, eliminating the need for intermediaries. These platforms offer pre-integrated services for delivery, payments, and inventory management, empowering small business owners to establish an online presence effortlessly. Furthermore, logistics integrators like Shiprocket and Xpressbees offer reliable, large-scale logistics networks, ensuring efficient fulfilment for MSMEs.

Digital adoption has unlocked previously unavailable financial products and formal credit for MSMEs, accelerating their growth. Despite the challenges posed by legacy systems and lack of documentation and credit history, the impact of digital solutions is evident. Fintech companies disbursed $10 billion in formal credit to MSMEs in 2021, and a projected compound annual growth rate (CAGR) of 50 percent is expected for formal credit disbursed by fintechs between 2021 and 2026.

Digital lenders are partnering with e-commerce enterprises, online aggregators, and B2B marketplaces, offering instant embedded loans and buy now, pay later (BNPL) options for digital B2B transactions. By leveraging transactional and inventory data, these lenders are revolutionising the loan underwriting process. Platforms like UdaanCapital, KredX, LendingKart, and CredAble have played pivotal roles in providing short-term business loans, invoice discounting, and working capital financing to MSMEs.

Also Read: Google, Bain & Temasek say India will become a $1 trillion internet economy by 2030

First Published:Jun 6, 2023 1:30 PM IST