Digital empowerment is essential for MSMEs to boost their resilience
Micro, Small and Medium Enterprises (MSMEs) mainly participate in the 'development, manufacturing, processing and storage of goods and services in India.' The growth story of MSMEs started in 2007 when the Ministry of Small Scale Industries was merged with the Ministry of Agro and Rural Industries to form the Ministry of Micro, Small and Medium Enterprises (MSME). MSMEs are today considered India's 'growth engines' and 'catalyst of economic and social development'. MSMEs constitute more than 80 per cent of India's total number of industries. The micro and small enterprises are mainly engaged in the food and agriculture sector, whereas medium-sized enterprises are predominantly engaged in the automotive, pharma and textile industries. MSME sector in India is the second-largest workforce employer after agriculture.
The contribution of MSMEs toward the Gross Domestic Product (GDP) has been around 30 per cent for the past several years. The MSME sector also created 1109.89 lakh employments in manufacturing, trade and other services in 2021-22 compared to 510.57 lakh in 2014-15. This clearly shows that empowering the MSMEs is in the national interest. They generate employment, increase manufacturing, earn more foreign exchange and are primarily self-funded.
As MSMEs continue to grow, they are also competing at an international level. If they go digital, this further increases their chance to grow, develop and excel. Digital empowerment of MSMEs helps build an ecosystem that helps enterprises understand challenges and visualise their solutions, thereby creating awareness and making businesses resilient to uncertainties. The digitalisation of MSMEs also allows enterprises to stand out from their competitors.
The Asia-Pacific Economic Cooperation (APEC) Small and Medium Enterprise (SME) Ministerial Meeting held in Chile, 2019 discussed that digital platform allows Small and Medium Enterprises (SMEs) access to a broader range of international markets and can reduce risk in supply chains. This, in a way, will boost inclusive economic growth. The digitalisation of MSMEs enables enterprises to use digital technology. This, in a way, will:
- Ensure expansion of the geographical reach of MSMEs, and it will be able to acquire new customers. Digitalisation will offer easy access to the international market for even women-owned enterprises. Through this, MSMEs can manage their customer base effectively and ensure better engagement with them.
- It is also cost-effective to run business operations as the internet can be used to source raw materials and manage inventory. Digitalization also increases revenue growth, estimated to be 27 per cent higher than that of their offline competitors.
- The digitalisation helps MSMEs monitor client credit and set customer credit limits. This can serve as a risk-reduction strategy, control credit loss, and support the maintenance of a productive cash flow in the company.
- Going digital also saves time from paperwork for the availability of funds. Real-time operations-oriented funding takes place by going digital, giving MSMEs the required confidence and resources.
To ensure the digitalisation of MSMEs, it is important to build the digital capacities of entrepreneurs. It includes three main stages. The beginner level needs support to enter the new digital world. They become comfortable with it at the intermediate level and try to explore more. Lastly, while reaching the experienced level, they become accustomed to the digital platform and benefit from it.
The MSMED (Micro, Small and Medium Enterprises Development) Act of 2006 safeguards MSMEs from a large company's late or missed payments. Lack of awareness and documentation prevented MSMEs from benefiting from it. However, as the entire process became digital, it solved the liquidity problem. It is well known that MSMEs struggle with issues including poor lead management, absence on digital platforms, poor material management, lack of delegation, and inadequate process documentation. They can digitise company processes by implementing Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), Task Management System (TMS), and Project Management Systems (PMS). This digital empowerment can improve decision-making and increase the efficiency of MSMEs, making them more productive, profitable, and competitive.
Digital empowerment, however, has some risks attached to it. As MSMEs will start to rely more on these digital platforms for their assets like documents, intellectual property, emails and accounts, their loss, theft or leaking can affect the business continuity. Thus, MSMEs must be digitally empowered in terms of information security enforcement, data protection, and cyber security.
MSMEs in India have helped to increase economic growth, reduce inflation, decrease the fiscal deficit and increase the inflow of foreign capital needed for investment. This makes MSMEs the 'backbone of the Indian Economy.' The digitalisation of MSMEs can further help in boosting their growth and resilience. It is cost-effective, simple and minimalistic. Government initiatives, data protection and MSME-oriented services or products are critical factors in achieving the goal of MSMEs' digital empowerment and increasing their resilience.
This has been co-authored by Bhakti Jain and Ishita Dhar.
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