Digitization In the Post-Pandemic World: A Unique Combination Of Factors Is Helping the Indian MSME Sector Become 'Atmanirbhar' With the push of technology, small and medium businesses can make a significant contribution to India's economic recovery post the pandemic

The growth engines of India's economy, MSMEs are finally in the spotlight. Being the second largest employer after the agriculture sector, and contributing to 30 per cent of India's GDP, this sector plays a prominent role in the country's development and has become the focus of India's progress story. With the push of technology, small and medium businesses can make a significant contribution to India's economic recovery post the pandemic. According to the Cisco India SMB Digital Maturity Study 2020, digitization efforts in the sector could add $158-216 billion to India's GDP by 2024.

In fact, the COVID-19 pandemic has accelerated the shift to digital platforms, resulting in the massive shift of Indian consumerism to e-commerce practices. A recent McKinsey survey reports that the past year has seen a net 25 per cent increase in Indian's intent to spend online, and a promising 70 per cent increase in consumers who are shifting completely to digital platforms to satisfy all their needs for utilities, food and discretionary goods. Such trends, coupled with the availability of low-cost data, are creating new opportunities for MSMEs to digitize and transform.

For many years, MSMEs faced various challenges in their adoption of latest technology owing to a lack of awareness about the "how-tos" of digitization, the unavailability of tools customized to their needs and cost factors. Do-it-yourself SAAS platforms for MSMEs were almost non-existent, but in the past five to six years, the landscape has drastically changed. A unique combination of factors- from availability of public clouds, open APIs and a thriving startup ecosystem unlocking various innovations for this sector to deeper penetration of low-cost smart phone and data for easier delivery of these solutions are helping it become truly "Atmanirbhar'. Today, according to a study by McKinsey, low-income states are showing the fastest growth in Internet infrastructure and deep mobile penetration is enabling inclusive digital development.

In many instances of crises, technology has emerged as the lifeboat for MSMEs that operate largely by the brick-and-mortar model with little to no digitization. The pandemic has accelerated this shift resulting in millions of new users entering the digital ecosystem, using apps such as Instamojo or Zoho Commerce, or for that matter innovative payment solutions integrated with commerce from players such as RazorPay, where small businesses can build digital storefronts and integrate payment gateways in less than a couple of minutes. Such innovations help MSMEs become self-reliant by empowering them operationally, increasing their efficiency, reducing costs and expanding market reach at both the domestic and international level.

Adopting digital technology provides the best opportunity for MSMEs to catch up to Industry 4.0, cement their position in the Indian economy and become globally competitive. Advanced tools such as artificial intelligence, machine learning, blockchain technology are also being implemented to revamp their existing business models. Studies today say that more than 30 per cent of MSMEs have started a business website or engaged in e-commerce since the lockdown and more than 50 per cent of the MSMEs adopted video conferencing tools and WhatsApp to ensure business continuity. It is of importance to mention here that not only consumer tech but B2B tech has played a pivotal role in ensuring that supply chains of MSMEs function in an uninterrupted manner especially when the pandemic forced the nation to shutdown in an unprecedented manner.

For growth to be inclusive, it is key for the technological innovations to be indigenous and suitable to the diversity of Indian consumer base. In India, 50 per cent of user base of large mobile fintech players is from tier II and III cities, with 25 per cent of the users preferring to use the app in their regional language. This is a true illustration of the acceptance of homegrown technologies and their ability to penetrate the market with ease. The power behind integrating existing digital solutions into everyday operations today are public cloud platforms like Open Clouds (AWS, Azure, GCP) which make FOSS (Free Open-Source-Software) available as PAAS (platform as a service), for example Elastic Search, Kubernetes, Spark, Hadoop, etc., that have empowered Indian development community significantly to leverage existing resources and create customized culture-sensitive products with faster go-to-market. Public clouds are democratizing many lab innovations with their simple pay-as-you-go model which allows for seasonal scaling as well as data sovereignty, ultimately working in favour of making innovative yet secure technology products affordable for the masses including the bottom of the pyramid, today.

India Stack—a term used to refer to the universal biometric identity programme, Aadhaar, along with a suite of open APIs linked to it—has played a catalytic role in Digital India's foundation and evolution. This unique technology stack is giving businesses the power to re-imagine their systems and processes. API-based, public, societal platforms are playing a critical role in triggering and enabling solutions from start-ups and digital innovators. India will need to create several such catalytic platforms to accelerate capturing the value of the digital economy. Platforms that facilitate digital authentication and data integration of MSMEs are crucial examples. All such platforms would need to be created on an open API basis, allowing innovators to create digital apps and solutions that plug into the underlying data in the platform.

These solutions have laid down the building blocks of the government's goal of introducing next-generation financial services. Today, on many consumer fintech platforms, more than 90 per cent of KYC data authentication is Aadhaar based, covering those MSME owners who had till now been kept out of the banking net due to issues with documents and verifiable identities. Of course, with fintechs, banking services have become accessible to countless small businesses in the last five-six years. The next leg of inclusion of MSMEs will come from B2B commerce platform, which are helping them in last-mile financial inclusion and easing their integration into the formal economy, by allowing for alternate credit scoring of new-to-credit customers basis their transaction and behavioural data, hitherto unavailable.

According to a report by the ministry of electronics and information technology, flow-based lending could fill 60-80 per cent of the credit gap faced by MSMEs which could generate $90-120 billion of additional economic value by 2025. Advanced credit underwriting can deliver value to MSMEs by improving their access to credit despite the absence of a conventional financial history. It may also help lower interest rates for some borrowers due to data-backed risk pricing and a shift from high-interest informal money lenders. SOLV is working on one such solution called "SOLV SCORE'.

A large part of the MSME sector is still an untapped opportunity. Availability of a thriving ecosystem—data trails, public clouds and growth attracted by start-ups, coupled with the government of India's progressive policies—will strongly drive inclusion in Industry 4.0 for MSMEs in India. It is worth watching this space closely and leveraging our collective potential to help MSMEs become truly Atmanirbhar.