Digitalization of MSMEs is the need of the hour

By Nath Parameshwaran, Director, Corporate Affairs

“However difficult life may seem, there is always something you can do and succeed at. It matters that you just don’t give up”. These words by Stephen Hawking inspire me and probably resonate with many of you during these unusual and challenging times. The pandemic has led economies to rethink their strategies. MSMEs which have been the backbone and growth drivers for several economies, are now striving to keep their businesses alive in these unprecedented times.

India is no different. MSMEs contribute 29.7% to the GDP and 49.66% to Indian exports as stated by Hon. Minister of MSME’s Mr. Nitin Gadkari They are also considered as significant direct and indirect employment generators. The same is true for many global markets. According to the World Economic Forum, these small businesses across South-East Asia contribute around 52% to 97% of the employment in the region. The Government of India’s vision is also to increase MSMEs’ GDP contribution to 50%. This goal was easily attainable before COVID-19, but the pandemic has created clouds of uncertainty.

COVID-19 has created a challenging environment for MSMEs, paving the way for survival of not the fittest but those who are agile and adaptable. Organisations that are strapped on cash reserves, have limited resources, do not have a contingency plan in an event of a crisis are facing the brunt of the situation. For a lot of businesses, digitization is the way forward as it brings agility and elasticity to the operations and helps increase their presence – expanding market size and blurring geographical boundaries. While its established that embracing digital is crucial to survive this pandemic, there are various roadblocks MSMEs have to face in their digitization journey.

The first and foremost challenge in digital transformation is the availability of tech talent. MSME’s confront problems related to access to affordable, skilled manpower to build, manage the digital infrastructure. Small businesses that are still using the brick and mortar models need experts and digital tools to help them transition their basic processes- supply chain, analytics, marketing, accounting, amongst others. Hiring is even more challenging as it involves substantial costs. One out of the box way to address this could by setting up a freelancer talent portal on a pay per use model. Indian freelancers with their excellent digital skills have already made a huge impact in the global freelancer market. In a similar way a talent portal with freelancers listing their skills will give MSMEs access to skilled and specialised talent. On other hand, Indian tech talent can make their services available to these MSME’s to generate additional income working on a part time basis. Additionally, the Government in partnership with the industry can launch an upskilling programme where rural tech talent can be trained and their services made available at an affordable cost.

The second challenge is access to timely credit. Credit is the fuel for the MSME engine and directly impacts sustainability and survival. For these businesses, getting loans from traditional banks and financial institutions is a lengthy and tedious process and a majority of them do not meet the lending criterion in spite of The Govt of India and RBI’s continuous efforts to break the vicious cycle. To overcome this barrier, the current PSB loan in 59 minutes is great move. Currently the programme includes a limited set of public sector banks. One option is to include new generation digital lenders and allow flow based lending. This might pave the way for more choice and better service to the MSME’s. Additionally, drawing parallels with countries like Germany and UK, the government can study these programme of offer grants to small businesses to uplift those who have been impacted by the pandemic and apply them locally.

MSME contribute to nearly half of the exports from India and hence need immediate attention. One impactful measure could be the extension of the MUDRA collateral free loan programme to these exporters. This will boost direct to consumer and small value exports from India benefiting the vibrant community of microenterprises, artisans, handicraft producers small services exporters, sole proprietors and women led enterprises.

Lastly, a very important aspect that I have personally experienced being a tech entrepreneur is securing the wellbeing of families and oneself. Most of the MSMEs focus and invest every available resource and personal time in their business. This at some point impacts their personal and financial health and hence needs attention. On the financial health aspect, MSMEs should take steps towards improving their financial wellness by using the services of professional financial advisors registered with various regulators and seek advice on suitable insurance and investment products. Unlike in the past, these products are now available through digital means and customised as per the requirement of an individual. At the same time, taking care of one’s personal wellbeing is equally critical. This means following a fitness routine which could include meditation, yoga or cycling. These types of routine are affordable while boosting health and overall wellness.

MSMEs have worked relentlessly to contribute to the growth of the economy and we now need to play our part by helping them sail through these difficult times. With the upcoming festive season, we have the opportunity to support local businesses by buying their products and using their services. The ideas outlined above will benefit the overall economy as it will generate employability and build a new, strong and self-reliant India.

DISCLAIMER : Views expressed above are the author's own.


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