Go Digital is the Way Up for MSMEs in India
Micro, Small and Medium Enterprises (MSME) are the silent voice behind the social development and economic contribution of India. But it is undoubtedly true that the limelight often tends to shine upon the large-scale industries whose shadows cloak the presence of MSMEs. This makes the MSMEs the unsung soldiers who work in the shadows. Although their presence is not much noticeable, their efforts are closely interwoven in the mission towards a developed India.
MSMEs are also a beacon of hope for the youth population of our country, as they provide employment opportunities to about 120 million people as per the latest report by the Confederation of Indian Industry (CII). The report also highlights that MSMEs contribute 6.11 percent to the manufacturing GDP (Gross Domestic Product), 33.4 percent to the manufacturing output and 45 percent to the overall exports from India. Since about 20 percent are stationed in rural areas, as per the report, this makes for a significant contribution in those areas as well.
Despite all their efforts, it can be noticed that a lot of them are crippled by a lot of hardships that halt the growth of their existence to getting anywhere near to being called a developed sector. As hard as it could get, some factors even leave them being forced to shut down their business. Some of these factors that impact their growth can be their reluctance to grow considering the regulatory and taxation laws, lack of awareness on the latest technologies, lack of affordability for those technologies, and COVID-19 pandemic being the main factor that breached and helped them.
COVID-19's Plague on MSMEs
The arrival of the COVID-19 pandemic was surely an unexpected turn of events to every part of the planet. The country wide lockdown especially put the MSMEs in a risky situation, where they either lacked intel or resources to cope with the scenario.
The extending lockdown had impacted the supply of finished goods, procurement of raw materials, supply processes and even the availability of workforce that suffered loss of lives and hindrance to employability and supply processes. To make matters worse, the sector faced even more financial strains than it did before. Debts got bigger, wages were hard to pay and statutory dues grew volumes, leaving very minimal options to either struggle holding up or letting go.
According to the Directorate General of Commercial Intelligence and Statistics (DGCIS) the pandemic affected the MSMEs earnings by 20-50 percent, mainly as a result of liquidity crunch. This then forced these sectors to shred their workforce due to incapability of them, vacating their offices to escape from incurring expenses, halt in their production due to less demand.
Then there is also the hesitancy in lending a helping hand to these sectors, since Financial institutions felt reluctant to expand new financial lending or cover potential risk due to uncertainty in future trade and the capability of expecting a bounce back of new normal.
All of which turned out to be either a fight or flight situation. Although the pandemic plays the villain, however, it turns out that it did do good in a way. As it pushed these sectors to digital transform if it wished to hold on and digital transformation is one of the routes to becoming a developed sector.
The need for appropriate technology, which effectively creates a level playing field for businesses of all sizes, is greater than ever.
As a result of the pandemic, companies were forced to upgrade their business models and find new ways to provide useful services to their customers. Several MSMEs that were struggling to stay afloat in the market were helped by digitization on a larger scale by deferring tax filing dates, lowering interest rates, and so on. Ultimately, the need of the hour turned to embracing digital transformation to survive the present and to stay stable in the future.
By harnessing data MSMEs were able to create detailed credit profiles for potential borrowers and classify potential risks. As for borrowers, especially those without a formal credit score, artificial intelligence (AI) and machine learning (ML) helped extract insights including cash flow forecasts, loan repayment behavior, digital payment behavior, and so on.
It's also refreshing to see the government, business leaders, and other key stakeholders working together to help vulnerable MSMEs and give them a fighting chance by fostering a technology-enabled entrepreneurial ecosystem. Initiatives like conducting video KYC, which has been approved by the RBI, have greatly aided lenders in providing small business owners with fast and simple remote onboarding services.
Then there is India Stack, that is aiding lenders provide credit to MSMEs through quick, hassle free Aadhaar-based authentications, reducing the reliance on commonly needed financial documents such as bank statements, tax returns, GST filings, credit history, and so on.
Small businesses were able to speed up, simplify, and automate various daily tasks by leveraging technology, effectively allowing the digitization of India.
Technologies Curing their Distress
Since the devastating situation has made the world adopt technologies at a larger scale, the status of having the right technology has moved from ‘If’ to ‘Must Have’, to not just surviving but taking business to the next level. This is especially vital for MSMEs that wish to join the race to digital transformation. Here are some of the technologies that are helping MSMEs cope during these tough times.
From Infrastructure, ERP, payment, and accounting to partner evaluation and online marketplaces. They cover various facets of business management and are available at low rates with no upfront costs.
AI has levelled the playing field, allowing small companies to scale up and compete with larger corporations. As a result, consumers admire even more the distinct advantage that small companies have always had in terms of near customer participation, niche goods and services, and a strong company identity.
Cloud computing uses a pay-as-you-go model to include applications, platforms, and infrastructure as a service. It transforms IT spending from Capex to Opex, allowing MSMEs to take advantage of cutting-edge technology at a low cost.
Cyber-attacks are becoming more prevalent as a result of numerous entry points in digitized systems. It's critical to have a robust cybersecurity plan in place for business, one that covers all of your digital touchpoints, including staff, suppliers, customers, and any other partners.
Multi-location operations and a distributed workforce have become the standard. MSMEs are realizing this and making virtual environments a focus area. Current business processes are being redesigned to meet workers' end-to-end working needs, both in the workplace and in virtual environments.
The Future is Digital
The pandemic has exemplified the condition in a way that has never been seen before. It’s become a must for MSMEs to concentrate on positioning themselves to benefit from the upcoming transition. The need for appropriate technology, which effectively creates a level playing field for businesses of all sizes, is greater than ever.
MSMEs must also band together to create a network that enables them to access the latest information technology. There is no choice but to accelerate the adoption, if it means staying stable in the long run.