Q) MSMEs if effectively facilitated by digitisation, will be the game changer to accelerate economic growth, employment, income levels and enhance supply chain efficiencies. Discuss.
Why this question?
Issue of current importance.
Key demand of the Question
To discuss in detail about the need for digital empowerment of MSMEs, the impact it will have, the challenges ahead and steps needed in this regard.
Discuss – This is an all-encompassing directive – you have to debate on paper by going through the details of the issues concerned by examining each one of them. You have to give reasons for both for and against arguments.
Start with giving an introduction about MSMEs in India.
In the first part, discuss the need and significance of digital empowerment of MSMEs.
In the next part, discuss the challenges associated with it and the steps needed to overcome them.
Conclude with a summary.
India’s economic landscape is defined by its micro, small and medium enterprises (MSMEs). However, the sector is based on obsolete technology, which hampers its production efficiency. With India’s goal of inclusive development, enhanced livelihoods and the notion of “vocal for local”, e-commerce marketplaces for the MSMEs become more significant.
Significance of Digitization in MSMEs
- Connects MSMEs Globally: It allows for small companies and startups located even in hinterlands to get their products to the national as well as global market. It provides opportunities to artisans and small sellers from Tier-2/3 towns to sell online to customers beyond their local catchment.
- Investment and Income: E-commerce marketplaces are today the best possible enablers for this transformation at minimal cost, innovation and investment. By investing in supply chains, the e-commerce sector provides opportunities for MSMEs to partner them in supply and delivery networks. This leads to additional income generation through multiple livelihood opportunities and thus contributes to economic prosperity and inclusive growth.
- Cost Effective: E-commerce could also become a tool for Indian MSMEs to lower operational costs, increase revenue, acquire more customers and benefit from customer advocacy. The online medium could help them access a seamless global supply chain at a fraction of the proportional cost of market access and delivery, freeing up cash for growth.
- Unless companies adopt digitization now, they will never be able to gain a competitive advantage. Adoption of the digital is critical for them to drive business efficiency.
- No Threshold Exemption from GST: The businesses with an annual turnover of up to Rs 40 lakh are exempted from GST. Sellers on e-commerce marketplaces do not get advantage of GST threshold exemption for intra–state supplies that offline sellers enjoy. They have to “compulsorily register” even though their turnover is low.
- Physical Principal Place of Business (PPoB): In e-commerce, it is not quite practical for online sellers to have a physical PPoB. It leads to increased complexities for MSMEs in registering in e-commerce marketplaces.
- Lack of Access to Appropriate Infrastructure and Technology: Buying the latest smart devices, best internet services, retaining skilled employees to manage digital systems and maintaining physical and digital infrastructure is also an expensive affair for small, nascent companies.
- Lack of Awareness: There are still many small and medium scale enterprises who are unaware of the impact of digital transformation and fail to build customer loyalty and retention as other e-businesses. Moreover, MSMEs are resistant to augment digital technologies because cutting-edge technologies evolve faster, and they sometimes may not be able to match up with that advancement.
- Maintaining a Database: Storing, analyzing, and managing crucial structured and unstructured data to make business decisions is challenging for MSMEs. Data, cloud, and system management along with the training required to handle them, leave MSMEs uncertain.
Steps that can be taken
- Dovetailing Existing Schemes with Technology: Examine the existing schemes and benefits for MSMEs, which were formulated with an offline, physical market in mind, and tweak them to include the special needs to leverage online sales channels. Connecting the skilling policy and programmes with the requirements of the e-commerce sector to meet future demand of the sector.
- Increasing Exports via e-Commerce: Taking specific steps to increase exports via e-commerce. The steps may include:
- Identifying products that have potential for the export market.
- Connecting e-commerce with export-oriented manufacturing clusters.
- Encouraging tie-ups with sector-specific export promotion councils.
- Leveraging existing Special Economic Zones to create e-commerce export zones.
- E-Commerce and Foreign Trade Policy (FTP): The Foreign Trade Policy should identify the areas required by online sellers to succeed in global markets and include e-commerce export specific provisions in the upcoming revised policy. It may include:
- Specific policy provisions providing incentives for e-commerce exports.
- Enabling end to end digitization for e-commerce exports.
- Role of Bigger Tech-Based Companies: Many technology-based companies are building exclusive tools to support small and medium scale enterprises by enhancing their business proficiency and profitability.
- The government shall simplify the PPoB requirement especially for online sellers by making it digital and not requiring physical presence to expand their reach outside their home state. Replacing physical PPoB with Place of Communication. Eliminating the need for state specific physical PPoB requirement will facilitate sellers to get state-level GST with a single national place of business.
MSMEs contribute 30% of the GDP growth of the country and 48% of the country's exports come from MSMEs. The MSME sector has created 11 crore jobs and is targeting to create 5 crore new jobs. Industry and the Indian economy along with MSMEs would reap the benefits of this upcoming digital infrastructure that will have positive ripple effects on the nation’s GDP and the creation of more jobs.