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The Digital Future of MSMEs in India

A decade ago, entrepreneurship was primarily limited to family run businesses, but the system has favorably transformed to promote new-generation enterprises and start-ups. With India housing the third-largest ecosystem of entrepreneurs globally, it is evidently moving towards an ‘innovation-driven’ landscape. Today, India is indeed the ‘Land of Rising Entrepreneurship’ with 76 million entrepreneurs, contributing to the economic growth of the country. Entrepreneurs across micro, small, and medium enterprises (MSME) have proven to be the drivers of business development.

As per the 2020-2021 annual report of the MSME Ministry a total number of 5,37,677 enterprises have registered under the manufacturing category whereas 8,65,058 enterprises registered under the service sector. Food products, textile, apparel, fabricated metal products and machinery & equipments are the top five categories which have seen an increased registration. While the Indian MSME sector started witnessing growth from 2018, the business faced numerous challenges including access to finance, digitisation, GST, infrastructure, and skilled workforce.

Though overcoming these challenges was not an easy task, with the support of a single resolution, businesses started taking into consideration ways that can easily transform and simplify their daily business operations, which can help them focus more on expanding business. One such way is to streamline their operations by leveraging technology to not only help ease prevailing issues but also build newer business models, tap emerging markets, automate processes, and reach potential customers.

Currently, MSME contributes to nearly 33% of GDP, 38% of manufacturing sector, more than 62% of the total exports and provide employment to over 130 million people making India fortify its title as the hub of entrepreneurs. However, the three defining developments that acted as a turning point for businesses across sectors include the introduction of GST, the Make in India initiative and later the onset of COVID-19.


Accelerating growth through GST implementation

The journey for MSMEs in India has not always been an easy one. Before GST, running a business in India was quite complicated and expansion across state borders even more so, given the multiplicity of state taxes and local compliance. The advent of GST completely transformed the way businesses managed their taxes. It is the biggest tax reform since India’s Independence with a uniformed taxation system across the country as 17 taxes including VAT, octroi, service tax got subsumed under the GST ambit when it was rolled out. According to the GST Network Statistical report, there are 1.29 crore registered taxpayers under GST and 69 crores crore GST returns have been filed as on June 2021. Moreover, the GST revenue collection for April ’22 has been the highest ever with 1.68 lakh crores.

The ‘One Nation, One Tax’ approach enabled businesses to centralize the taxation process and ensured they stay compliant with simple tax structure. It made it easier for MSMEs to operate across different states, making India become one market and pushed the first wave of digitization with MSMEs needing to automate to make compliance simpler for themselves. It also laid down a platform for more digital efforts to pay off in future.

Businesses that automated solutions were able to file returns much easily, track invoices and remain compliant. With more businesses becoming compliant, opportunities to take loans for expanding the business became much easier and seamless. It also eliminated the complexity in the cross-border goods movement and transactions, making it easier for business to grow. It widened the base of MSMEs that are a part of the formal economy. The subsequent implementation of e-invoicing and e-way bill has also benefitted MSMEs in many ways. E-invoicing aids in bridging the gap in data reconciliation and promotes further digitization of business operations and e-way billing has reduced logistical costs and hassle. This to a great extent, enabled businesses to get into the stream of trackable history of credible transactions, making them eligible to have access to formal credit.


Supporting the entrepreneurial wave

The ‘Make in India’ strategy further pushed the spirit of local entrepreneurship, making it easier for entrepreneurs to operate in India. The timely intervention of this policy strengthened the country’s manufacturing infrastructure by facilitating investment, fostering innovation to build a sustainable system. This resulted in raising the confidence amongst the entrepreneurs and rendering Indian MSMEs to be competitive, globally. Through Make in India initiative, the Indian manufacturing sector is expected to contribute an increased GDP of 25% by 2025. This strategy also assures advanced process and technological advancements to help businesses deliver quality product through “Zero Defect, Zero Effect” approach. The consistent increase in local entrepreneurship has further strengthened India’s economy, ensuring its potential to achieve $5 trillion economic value by 2025, making India one of the leading economies in the world. With the progress, this movement will initiate the much-needed support for the MSME sector to expedite investments, enhance skill development, propel employment, and foster a sustainable environment in India.  The manufacturing sector in India has noticed a 210% surge in FY 2022, which is 460% jump as compared to 2019-2020.  The initiative also has proposed ‘Production-Linked-Incentive (PLI) scheme for industry sectors.


Digital urgency powered by COVID-19

The Government is providing continuous support as these businesses are grappling to stay afloat, even today. The announcement of ‘Make in India 2.0’ backed with a concrete plan and necessary resources, ensures the growth of the economy as well as get closer to a new vision based on the principle of self-reliant India or ‘Atmanirbhar Bharat’. The ‘vocal for local’ sentiment has pushed the focus on local entrepreneurship empowering business owners of all scales and sizes. From a local ‘kirana’ adopting digital payments to a manufacturing unit digitizing their entire operation, to a small business seamlessly managing to work remotely, the urgency of driving sustenance through technology has also been reinforced and is on top-of-mind for all business owners.

However, the decision to automate business has been extremely challenging for MSMEs as it pulls them out of their comfort zone to become more technically disciplined. Choosing solutions that adapt to the way a business runs, rather than the business having to adapt to the technology can work wonders in the long run. It is important to understand that only the right kind of digitization will help a business unlock growth by bringing in transparency, efficiency, and speed into the business. The journey has been quite eventful for the MSMEs in the country and several efforts are being taken to bring in the underlying shift in the way these businesses operate to make it easier for them to sustain and grow.

These resilient entrepreneurs are powered by their appetite for sustained growth, who, even in unforeseeable conditions continue to stay optimistic. And with efforts being taken on several key aspects to empower them, their future looks brighter and stronger, and technology will play a substantial role in bringing this shift. Along with the support from external ecosystem including technology and software providers to provide them with necessary digital tools and awareness, they will ultimately be at the forefront of India’s technology-led transformation.


(The author Mr.Joyce Ray, Business Head- India, Tally Solutions and the views expressed in this article are his own)

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