MSMEs and E-commerce Propelling India into Becoming a $5 Trillion Economy
MSMEs and E-commerce Propelling India into Becoming a $5 Trillion Economy

India is home to approximately 6.3 crore MSMEs, forming the backbone of the economy. With the pandemic and the subsequent lockdowns, however, MSMEs that were gradually on their way to recovery from the economic shocks caused by the first wave of the global pandemic was caught off guard by the second wave. Now with the impending third wave, it has become more important than ever to help sustain them. 

The pandemic has led to a significant increase in the adoption of digital channels by consumers as well as sellers. In this regard, e-commerce, although still at a nascent stage, with only 2-3 percent of e-commerce penetration in India, has played a critical role for MSMEs to help stay afloat during the pandemic. It has enabled MSMEs to leverage their online platforms and digitize rapidly. This has not only helped them expand their business capabilities and scope but has also created a means of livelihood. 

According to a recent SME survey by FedEx Express, 30 percent of small businesses and 40 percent of medium businesses are seeing a rise in e-commerce sales since the lockdowns began. With a shift in consumer behavior, 35 percent of small businesses and 54 percent of medium businesses believe that e-commerce sales will improve their financial growth following COVID-19. 

As e-commerce continues to create employment opportunities, increase exports, and enable local MSMEs to restart their businesses amid the pandemic and scale up to a global level, it becomes of particular importance if India faces another wave. However, abrupt policy changes and regulatory impediments are disrupting this progress. 

Without conducive policies supporting MSMEs, their recovery will become increasingly difficult. Removing regulatory hurdles and prioritizing a stable policy environment that enables ease of doing business are some of the ways in which the government can provide an inflection point for MSMEs to retain and scale their businesses. 

Some of the key policy recommendations include:
- Create an ecosystem where MSMEs should be able to start and close a business in one day
- Create awareness for technology by making it simple and affordable
- Help MSMEs identify the right businesses to grant loans and credit
- Educate MSMEs to imbibe skills like sales, etc. 
- Provide training programs to the top management of businesses to streamline processes 
- Policy committees for MSMEs should be set up with one-third representation from MSMEs
- E-commerce platforms must be seen as the real backbone for MSMEs 
- Need to relook the skilling ecosystem and pay direct attention towards MSMEs

Alka Arora, JS - SME, Ministry of MSME, highlighted, “E-commerce is an enabler for MSMEs. While MSME has become a buzzword in the last 4-5 years, there is a long way to go for them to overcome the hurdles in India. There is an urgent need to reinvent and innovate in order for them to sustain and be successful. The Ministry is trying to support global value chains and enable exports for MSMEs. Platforms like Amazon have also opened up great opportunities for these businesses to expand their reach to the global marketplace.”

B. B. Swain, IAS, Secretary, MSME, Govt. of India, said, “MSMEs are an integral part of the value chain, offering diversified products and delivering intermediate goods to large scale industries. They are not only the backbone of the economy but also serve as the largest employment generator for the economy. The key to their sustenance during the pandemic has been the rapid adoption of technology and innovation that enhanced the outreach and penetration of the MSMEs across geographies. The Ministry is focused on meeting the financial and technological needs for the revival of MSMEs attuned with simple and transparent policies, and intensive stakeholder consultations.”

Vinod Kumar, President, India SME Forum, stated, “E-commerce has become a lifeline for MSMEs. In order to support MSMEs to survive and revive, it is essential for the government to rethink certain policies that enable e-commerce, and in turn, allow MSMEs to flourish. On the occasion of International MSME Day, we take this opportunity to recommend a consistent, predictable, and uniform policy that guides all e-commerce platforms, providing greater opportunities for the MSME sector to prosper. The central and state governments should work together to bring policies that support e-commerce companies to become more active in capacity building among MSMEs.”

Nirupama Soundarajan, Senior Fellow & Head of Research at Pahle India Foundation, stated, “There is an urgent need for differentiated policies for different businesses. The Ministry of Consumer Affairs is overreaching beyond its need by mandating regulations on e-commerce rather than protecting the consumers’ rights and addressing their issues. Platforms like e-commerce are making the global market accessible to small businesses and tapping the urgency for MSMEs to experiment with brand creation.”

Dinesh Advani, Co-founder, Playshifu, stressed, “E-commerce is a low-barrier channel facilitated with diversified demands that really come in handy for start-ups and small businesses to grow and accelerate innovation. During the pandemic, MSMEs were able to scale up by shifting to digital platforms and experience an uptake in volumes and exports thereby, contributing to balanced economic growth. Diversified business avenues like e-commerce helped PlayShifu to grow by 150 percent even during the pandemic.”

Dr. Rene Van Berkel, Representative & Head, Regional Office, India, UNIDO, said, “The MSME sector is suffering losses in terms of sales, profit, and employment. However, MSMEs that have been more proactive in embracing change and accelerating their transition to e-commerce have been able to cushion the adverse impact of the pandemic to some extent.”

Vincent Van Noord, Director Europe, European Business & Technology Centre, said, “There is a huge potential for the MSME sector in India. They can play a pivotal role in addressing the gap between the talent market of India and skills requirement from global players, and tapping the foreign direct investment. It is important for the government to execute capacity-building workshops, consultation sessions, and demonstrate successful innovation stories for MSMEs to help them realize their potential.”

Nilaya Verma, Co-founder & CEO, Primus Partners, said, “In order to address the challenges of MSMEs, we need to be very structured in our intervention. We need to recognize that we cannot achieve a $5 trillion economy without MSMEs substantially scaling up. The entire policy-making exercise should include representatives of MSMEs as part of the committee. Moreover, we need to leverage e-commerce platforms significantly for MSMEs as they are the biggest beneficiaries for MSMEs.”

Hemendra Mathur, Venture Partner, Bharat Innovation Fund, said, “MSMEs are the backbone of the economy. In order to recover from the economic shocks of the pandemic, it is essential for MSMEs to fundamentally change their business models to focus more on value models. It is also important for MSMEs to be integrated with the digital economy and focus on supply chain integration as a whole. MSMEs should work with e-commerce platforms that support the direct-to-consumer (D2C) opportunity or develop their own platforms.”
 

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