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Digitization Key For MSMEs' Survival During the Pandemic Digital solutions can support MSMEs in the immediate short run by helping to manage transactions at a distance, deliver goods efficiently, and facilitate access to financial services

By Pankaj Sharma

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Like many other sectors, the COVID-19 pandemic has brought in challenging times for India's vast universe of micro, small and medium enterprises (MSMEs). But unlike others, this part of the industry was perhaps the worst hit due to the adverse circumstances brought forward by the pandemic.

According to a paper by the ADB, the MSME sector is more vulnerable to negative shocks to their supply chain, labour supply, and final demand for goods and services than larger firms. This is because MSMEs, when compared to large industry, do not have enough resources, especially financial and managerial, and are not prepared for such disruptions likely to go longer than expected.

According to rough estimates, the COVID-19 pandemic impacted MSME earnings by 30-50 per cent. While the main problem faced by MSMEs in India was a severe liquidity crunch, the sector faced challenges in debt repayments, payment of wages and in statutory dues. The impact of the pandemic on MSMEs was also on employment, sales revenue and cash flow. Other problems being faced by the MSMEs during these times are a decrease in demand as they could not reach customers, supply chain disruptions, cancelation of export orders, raw material shortage and transportation disruptions.

Many companies in this sector have run out of both cash and stock while many others are on the verge of a collapse.

This has serious implications for the Indian economy because after agriculture, the Indian MSME sector accounts for the largest amount of employment in the country. According to last reports, there were nine crore MSMEs in India employing approximately 11 crore people. Indian MSMEs produce more than 6,000 products for local and global consumption. According to DGCIS data, the value of MSME related products in India was $147,390.08 million during 2017-18. As of current estimates, the sector contributes approximately 29 per cent to India's GDP.

To overcome these problems and challenges, many MSMEs in India are going in for digitization which not only helps them in saving costs but also increases business in these troubled times. Digitization has proven to be beneficial as it helped increase their value and productivity. Digitization brought in many tangible benefits for the MSME. These include enhanced customer acquisition, operational efficiency, workforce enhancement, risk management, innovation and reduction in manpower requirement.

The Indian government has also pushed digitization among MSMEs and introduced the Digital MSME Scheme as early as 2017 with an aim to make the MSMEs learn how to deal with the hurdles using a digital platform. As a result of digitization, MSMEs today are also using the social media platform to further their business. They are increasingly using platforms such as Facebook or LinkedIn to communicate with customers or create brand awareness or increase their customer base. Almost all MSMEs are today using digital technology to survive during the current crisis and this digital transformation which has been forced by the pandemic, is certain to stay permanently and change the way MSMEs do business.

This digital transformation has been smooth for the MSMEs also because it does not require a large financial investment as most digital tools and technology required for this transformation are extremely cheap or are freely available, like social media platforms.

What is required now is for the government to announce some stimulus packages for the MSMEs to bring them back on the rail. This could be in terms of incentives for investment as well as tax holiday and concessional rates for MSMEs. Private sector can also step in by extending help through orders and credit lines to help the smaller companies get back in business.

One major development that has helped MSMEs is the increase in online activity. Pushed by the limitations imposed by the pandemic, more people have shopped online in that last almost two years than ever before. This mass adoption of e-commerce by consumers has further pushed digital adoption by MSMEs. According to a report titled "Global Payments Report' by Worldpay FIS, a financial technology product and services provider, India's e-commerce sector was scheduled to grow by 84 per cent to $111 billion by 2024 because of the increased demand and online shopping trends created by the pandemic. The report stated that India's e-commerce market is expected to grow by 21 per cent annually for the next four years pushed by mobile shopping. The MSMEs who are fast adopting digitization, are gearing up to take advantage of this phenomenon. Because the adoption of digital solutions will help these businesses tap new revenue streams, reduce costs and eliminate pain points.

Digital solutions can support MSMEs in the immediate short run by helping to manage transactions at a distance, deliver goods efficiently, and facilitate access to financial services.

It is certain that the pandemic has permanently changed the way the MSMEs will do business or how they will approach customers. Online activity is slated to take a quantum jump. With that MSMEs who has been smart to adopt digitization, will emerge as the net winners.

Pankaj Sharma

Chief Executive Officer, Religare Finvest Ltd

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