MSMEs are the lifeblood of India's economy, providing livelihood for millions
India’s Micro, Small, and Medium Enterprises (MSMEs) have played a critical role in the country’s growth story. These businesses, providing employment to over 110 million people, represent the backbone of the nation’s workforce, second only to agriculture. However, they are disproportionately impacted by macroeconomic challenges, especially since the COVID pandemic proved to be the toughest, leaving many MSMEs struggling to survive.
Amid this turbulence, digitalization emerged as a lifeline for MSMEs. Digitalization refers to the use of digital technologies to transform business models, creating new revenue opportunities and optimizing existing processes. The number of SMEs registered on Government e-Marketplace (GeM) increased from 1 lakh in May 2020 to 8.5 lakh in March 2023. An ICRIER study on 1,500 enterprises found that post-Covid, nearly 64% of MSMEs sold their products through online channels, achieving higher sales than in previous years. This rapid adoption of digital technologies couldn’t have been possible without India’s expanding digital connectivity, driven by the government’s Digital India program.
The Digital India initiative was launched to transform India into a digitally empowered society. It encompasses various projects undertaken by Central Ministries, Departments, States, and Union Territories. Under this umbrella, biometric identification through Aadhar became a reality, an increasing number of government services went online, and the digital divide between rural and urban India narrowed significantly. Initiatives like the Pradhan Mantri Gramin Digital Saksharta Abhiyaan (PMGDISHA) played a pivotal role by training millions of candidates in rural India on digital literacy. Additionally, the Unified Payment Interface (UPI) emerged as the leading payment platform, facilitating digital transactions.
This digital ecosystem created by the government was instrumental in enabling MSMEs to embrace digitalization. Digitalization ushered in numerous benefits for MSMEs, enabling them to survive and thrive in an evolving landscape. Digital platforms have allowed MSMEs to reach a wider audience, breaking geographical boundaries and expanding their customer base. Other benefits include improved operational efficiency and risk management and reduced manpower requirements.
However, despite these benefits, many MSMEs are unable to embark on digital transformation initiatives due to limited access to capital. Banks often hesitate to finance newer businesses lacking a substantial credit history, posing a significant obstacle to their digitalization efforts.
Recognizing the importance of fostering digital transformation among MSMEs, the Indian government has introduced several initiatives. The Credit Linked Capital Subsidy Scheme (CLCSS) offers a subsidy for technology upgradation in MSMEs, providing a 15% upfront subsidy on institutional credit up to Rs.1 crore for technology upgradation. It encourages MSMEs to embrace cutting-edge technology. SIDBI Make in India Loan for Enterprises (SMILE) is another successful program. SMILE supports MSMEs in participating in the ‘Make in India’ campaign by providing soft loans, especially for new enterprises in the manufacturing and service sectors. Existing enterprises seeking modernization or expansion also benefit from this scheme. Similarly, the Credit Guarantee Scheme for MSE Micro and Small Enterprises (CGS) offers collateral-free credit of up to INR 2 crore to micro and small businesses, providing lenders with assurance in case of default. This scheme reduces the risk associated with lending to MSMEs. Pradhan Mantri Mudra Yojana (PMMY) was launched in 2015 and has proven to be a solid support system for MSMEs. PMMY offers loans up to INR 10 lakh to micro-enterprises. These loans, classified as MUDRA loans, empower MSMEs to access much-needed capital for growth and innovation.
CEO, TIW Capital
Financial support from the government not only aids MSMEs in their digital transformation journey but also fosters innovation. This innovation can lead to the development of new products and services, granting MSMEs a competitive edge in the market. Furthermore, investing in technology can significantly improve worker productivity, a crucial aspect of inclusive growth. Technology levels the competitive gap to a large extent between large and small companies but it requires significant investments in the initial stages, which the MSMEs can’t do without government support. The businesses integrated with technology experience increased sales, turnover, profits, and expanded hiring.
MSMEs are the lifeblood of India’s economy, providing livelihood for millions. For the nation’s growth to be inclusive and sustainable, it’s imperative that MSMEs embrace digital transformation and innovation. The government’s financial support through various schemes is a vital step in ensuring that MSMEs have the resources they need to thrive in the digital age, ultimately shaping the destiny of these enterprises and the nation itself.
