Roadmap for growth of SMEs in India hinges on digitalization

Businesses or SMEs that are hesitant to embrace digitization may struggle with sustainability as competitors take the lead.

While large corporations all over the world are leading their countries forward with rapid innovation and expansion, small businesses too are playing a vital role in grassroots economic development. In India, small businesses provide a platform for wider employment and economic opportunity at the local level.

According to MSME ministry’s data released recently, there are around 63 million MSMEs in across the country that contribute around 29 percent of the country’s GDP. Such is the potential and contribution of this sector that provides a solution to income inequality and
offers massive employment opportunities to over 110 million people. Reeling under mini lockdowns and pandemic-induced restrictions since two years, several small and local businesses were nudged at the edge of closure. The pandemic forced several small business owners to run their businesses in a more lean and efficient manner, leading to a permanent shift in their operating landscape and increasing the demand for digital adoption. Much like it sounds, digital transformation means adopting digital technology in place of
traditional manual processes.

Despite an unprecedented year in terms of changes and challenges, several of these businesses in the country are working hard to regain their momentum and get back on track. However, the majority of this unorganized sector, unfortunately is yet to fully reap benefits of digitalization. Not limited to just sales, digital approach will also lead to them enjoying benefits like making more informed, accurate, intelligent decisions, cost savings, increased output, improved asset and inventory management and customer experience.

For instance, most small entrepreneurs maintain stocks and inventory in analog format. Part of the challenge that comes with changing the existing practices and increasing MSMEs access will require the ability to keep tabs on the supply chain and fulfill orders immediately. A robust inventory management system can streamline this process with a mix of software, hardware, mobile devices and apps, data analytics solutions and security tools, making it easier to deliver products to customers, and give workers the tools to be more productive and efficient.

The government too has consistently reiterated India’s vision to push for local production and domestic manufacturing with a focus on exports. By doing this, the government is not only encouraging manufacturing and selling of products that are ‘made in India’ by small businesses but also inspiring them to establish their presence online to sell, widen their customer reach and grow their businesses further.

One of the reasons why businesses stay small in India is because their entire focus is on making sure the business remains afloat, rather than spending time to grow the ecosystem. Not just limited to tools and technology, small businesses also need to focus on digital transformation as a whole and more about the steps that can be taken to improve the customer experience through technology. Local businesses need to re-imagine business with a social mindset.

Consumers now have new and different expectations for how they differentiate a good customer experience from a substandard one.

Businesses today need to become more consumer centric: In many ways, the balance of powerhas shifted from the business to the individual. With customers flocking online to get feedback on products, ease of payment, loyalty points and rewards; a small business relies too heavily on new-fangled online business methods. In fact, social media platforms such as WhatApp, Facebook etc. have helped to connect the dots in encouraging digital adoption among small business owners even in rural India. Digitization in the form of social media marketing has been identified as a powerful tool for businesses to increase their transactions and expand their

It can help increase sales and also improve the quality of relationships with customers since this pandemic triggered paradigm shift in their behaviour and expectations is likely to remain post-pandemic, businesses will have to continuously adapt to meet them. But for some small businesses, digitalization requires significant investment; lack of working capital remains one of the main barriers to the sector’s growth.

Formal financing institutions in the country prefer to lend to enterprises who have a higher vintage and hence MSMEs have to rely on informal sources of financing, friends and family in addition to exploitative money lenders. Assessment processes of these institutions are often manual and time consuming, require onerous documentation often not available and are subject to manual discretion and human bias, which often excludes certain marginalized groups given societal norms and divides.

Digitization can further fuel India’s entrepreneurial spirit by enabling easy access to credit for the cash-strapped businesses. It improves the approval rate for loans because lenders have more data to validate applications. India’s micro-entrepreneurial spirit can truly flourish when their financial needs are met.

Embracing the new normal, accepting the shift in consumer behaviours, and adapting to new online models are all vital aspects of such preparation. Businesses that are hesitant to embrace digitization may struggle with sustainability as competitors take the lead. In the foreseeable future, India will continue to witness further cycles of rapid technology adoption and onboarding of businesses on e-commerce platforms, with a focus on the direct-to-consumer approach to selling online. The adoption of digitalization will be key to transforming small businesses to be more competitive and resilient in the future. For India’s economy to recover from the adverse effects of this pandemic, the small businesses need to form the bulwark of the revival plan.

The blog has been authored by Debarshi Dutta, Co-founder & CEO, Ayekart. does not necessarily endorse it and will not be held liable for any direct or indirect damage made to any individual or organisation.