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Wanted: A Joint Secretary for 'digital drive' at the Ministry of MSME

The government should encourage and fund startups that provide cloud-based solutions built with the 'MSME First' agenda, and support adoption through a digital drive for small businesses

June 09, 2021 / 10:40 AM IST

The times are tough. Small businesses are faltering in India, and in a recent survey by Dun and Bradstreet, over two-thirds of them reported that it would take them a year to recover to pre-COVID-19 demand levels.

In the survey, the top three factors reported that would help revival were access to credit, better marketing support, and technology adoption. In fact, through digitisation, technology is the game-changer, enabling more accessible credit through Fintechs, increasing the reach of business through e-commerce platforms, and improving throughput owing to IoT solutions.

Digitalisation has tremendous potential in speeding up the MSME growth. According to the CISCO India SMB Digital Maturity Study, thanks to digitalisation, Indian SMEs may add $158 to $216 billion to the GDP in the coming four years. That's about 5-7 percent of GDP today.

However, to reap this potential, we need to build on the early gains. The pandemic has certainly propelled digital adoption forward by a few years. Last November, a CRISIL survey noted that among micro enterprises, the adoption of digital sales channels jumped to 47 percent from 29 percent before the pandemic. An important factor in this journey worth highlighting is cloud-based, 'pay as you go' solutions which are built specifically for the MSMEs.

Cloud technology has levelled the playing field for the MSMEs, unlocking access to the same high-end, modern technologies that only large enterprises could access in the past. With cloud-based solutions, the MSMEs are discovering new growth opportunities, ways to improve productivity and operational efficiencies, market their products/services better and enhance customer engagement. The ‘pay as you go’ model is ensuring that these solutions are cost-effective for the MSMEs.

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Most of the technologies like the Enterprise Resource Planning (ERP) earlier were built for large firms who could afford it, and then were tweaked to make them usable for the MSMEs. Adoption was low by small firms due to lack of awareness, lack of references from the peer group, lack of budget for bullet (one-time) payments.

Today, these constraints are being removed with speed.

In the domain of operations, IoT is a game-changer. A survey by the MCCIA of about 100 small and medium size manufacturing firms concluded that most of the MSMEs have not progressed on IoT adoption thanks to lack of awareness and the high costs. These concerns are addressed by Pune-based startups such as ShopWorx with cloud-based IoT solutions built on the ‘MSME First’ agenda that cost as little as Rs 1,000-2,000 per machine per month, making these technologies affordable and accessible for the MSMEs.

In the domain of credit, digital lending has already picked up. Startups such as LendingKart, Indifi Technologies and Capital Float are serving hundreds of thousands of the MSMEs with modern fintech solutions, making use of data gathered from numerous sources and leveraging AI and ML to evaluate creditworthiness to provide flexible short-term loans.

In the domain of e-commerce, IndiaMart, Amazon and Flipkart have launched their own initiatives to onboard the MSMEs on their platforms. Also, startups such as Meesho enable millions of sellers to start their online stores via social media, through which many micro enterprises run by families or homemakers are increasing their reach.

All these examples are representative of many others in this space that are largely being built with the 'MSME First' principle, operating in the domains of accounts, credit, operations and business development.

The government's own attempt with the GeM portal has also been fairly encouraging, with the MSME sellers on the platform going up five times over the past 12 months to about 1.8 million currently.

These early successes are very encouraging, but specific efforts are needed to realise the true potential. One specific policy initiative in this direction would be to encourage startups and some older companies in this space by funding those that provide cloud-based solutions built with the 'MSME First' agenda. The ministry of MSME should be able to create a fund of about Rs 100 crore towards this goal, to begin with.

For now, technology and digital initiatives are a part of the broader portfolio of a couple of senior officers in the ministry. Can we visualise an alternative where a dedicated Joint Secretary, along with a team, is made in charge of the digital drive to promote not just the government schemes but also private sector efforts? This special digital drive can catapult the MSMEs with a growth rate that powers the much needed 'momentum' for the sector that contributes 30 percent of India’s economy.
Sumita Kale is advisor with Indicus Centre for Financial Inclusion. Views are personal.
Prashant Girbane is Director General, Mahratta Chamber of Commerce, Industries and Agriculture. Views are personal.
first published: Jun 9, 2021 10:40 am

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