Overview – MSMEs Sector in India
Micro, Small and Medium Enterprises (MSMEs) in India play a pivotal role in generating employment opportunities at lower capital cost, reducing regional imbalances and promoting industrialisation in rural areas. Almost all sectors in India including MSMEs are undergoing significant transformation owing to digital initiatives brought about by new-age technologies such as artificial intelligence, data analytics, machine learning and financial & accounting intelligence. New-age technologies are also spurring new business models in MSMEs such as the following: Brego—provides real-time insights from a firm’s financial data; LendenClub—connects lenders and verified borrowers through its platforms; and Meesho—enables small businesses to sell products online through social media channels. Most of these technologies are designed to help MSMEs automate and generate intelligence from their daily operations or connect with stakeholders (such as financial institutions, buyers or suppliers) to help them increase productivity and innovate further.
The pandemic has also pushed this sector to uptake newer technologies and innovate for growth and survival. In the last quarter of 2020, Dun & Bradstreet surveyed 250 small business owners to understand the impact of COVID-19 on their operations. 54% respondents stated that they have managed to reduce operational costs through digitisation of daily activities and 51% revealed that adoption of new technologies/digitisation has enhanced their competitive positioning. The advent of competitive services, multichannel distribution models, involvement of multiple stakeholders and multimodal needs have made it crucial for MSMEs to have greater visibility of their operations, while monitoring the quality and delivery of goods, to avoid any hiccups.
Key Stats of MSMEs in India
India has ~63 million MSMEs. The 73rd National Sample Survey (NSS)—conducted between 2015 and 2016—revealed that the MSME sector has generated 11.10 crore jobs across the country, contributing to ~22% jobs in India. Among states, Uttar Pradesh and West Bengal are the largest contributors to the MSME sector (with 14% each), followed by Tamil Nadu and Maharashtra at 8% each.
Estimated Number of MSMEs (by Activity)
About 36% MSMEs operate in the Trade sector, followed by Other Services (33%) and Manufacturing (31%). MSMEs contribute significantly to India’s Gross Domestic Product (GDP) growth. As reported by the Ministry of Statistics & Programme Implementation (MOSPI), the sector’s contribution to the GDP at current prices (for 2014-15 to 2018-19) stood as the following:
Share of MSME Sector in India’s GDP (%)
Liberalised FDI Policies & Government Schemes Uplifting MSMEs
India has liberalised FDI policies that now permit 100% FDI under the automatic route in most sectors including MSMEs. The FDI policy on ‘Single Brand Product Retail Trading’ has lent a major boost to the MSME landscape in India. The policy mandates sourcing 30% goods from India, especially MSMEs in village & cottage industries, artisans and craftsmen. Acknowledging the significant contribution of MSMEs to India’s economic growth, the government also supports the sector with timely business loan schemes and relief packages.
For instance, in May 2020, Rs. 20 crore (US$ 2.66 million) economic relief package was announced for MSMEs. In June 2020, a credit guarantee scheme called the ‘Distressed Assets Fund – Subordinate Debt for Stressed MSMEs’ was announced to extend credit facility through lending institutions to stressed MSMEs. This scheme (earlier valid until March 2021) has now been extended until March 2022. Various other loans (specific to MSMEs) such as Micro Units Development and Refinance Agency (MUDRA) Loans and National Small Industries Corporation (NSIC) subsidies are facilitated by the Government of India since 2015. Nationalised banks such as Kotak Mahindra, ICICI and SBI are also offering specialised loans for the development of MSMEs since many years.
Contribution of Tech-based Platforms in the MSME Growth Trajectory
Government intervention in the MSME landscape is generally limited to dealing with the financing issues of MSMEs. And, this is precisely why the new-age start-ups have stepped in. Emerging tech-based platforms are now helping MSMEs upscale and integrate their operational capabilities. Most tech-based platforms specialise in various domains, helping them cater to various facets of MSME operations such as planning supply chain & logistics, channelising workflow among interlinked departments and monitoring product quality.
Numerous start-ups and technology firms focused on providing new-age technology solutions—such as providing data insights, artificial intelligence, augmented reality (AR), machine learning and the Internet of Things (IoT)—are now helping MSMEs harness the full potential of tech deployment in their operations. More than 50% MSMEs in India are in rural areas and it is imperative for tech solutions to meet their existing requirements despite challenges such as limited internet reach, and lack of adequate capital, technology and innovation. Some prominent tech enablers empowering MSMEs in financial & operational services are listed below.
Tech-based Financial Solutions
LendenClub – Founded in 2015, LenDenClub is a peer-to-peer platform that connects lenders and verified borrowers. It facilitates small-ticket loans through its platform Instamoney to MSMEs that have limited financial support from banks. So far, the company has serviced 2 million clients and disbursed >Rs. 10 billion (US$ 132.8 thousand).
Brego – Established in 2019, Mumbai-based Brego is helping MSMEs get real-time insights from their financial data through a mobile-based SaaS application. The app provides easy access (via mobile phones and even web browsers) to key financial parameters such as sales, receivables, profit & loss and cash flow to stakeholders, providing visibility of their financial operations. The app also enables business owners to share real-time reports with team members, clients and vendors through WhatsApp or email.
PayNearBy – Launched in April 2016, PayNearBy provides a variety of financial and non-financial digital services to local retailers. The firm currently serves 15 lakh+ retailers and plans to expand this base to 5 million stores across Tier I & II cities and rural towns in the near future. Retailers can avail various facilities such as cash deposit & withdrawal, money transfer, savings, insurance, travel, digital payments and government benefits.
Numerous other players such as MSwipe, RazorpayX, RXIL, Algo360, Cashinvoice and Happy Loans are empowering the MSME sector with their fintech offerings.
Tech-based Operational Solutions
Meesho – Founded in 2015 and headquartered in Bengaluru, Meesho enables small businesses and individuals to sell products online through social media channels such as WhatsApp, Facebook and Instagram. In August 2020, Meesho also partnered with fintech start-up Klub to provide financing solutions for MSMEs. Interestingly, Meesho recorded 750% growth in user base last year during its flagship festive sale event alone, with 60% demand driven by tier 4+ markets including remote locations in the country.
Alignbooks – Established in September 2016, Alignbooks is a cloud-based accounting software designed to help MSMEs automate their invoicing system. So far, the firm has serviced over 30,000 MSMEs in India and processed over 15 lakh invoices for customers. Alignbooks has also released an offline version of its software to cater to the population with limited internet in rural areas.
Tradeindia – Set up in 1996, with a mission to help SMEs go digital, Tradeindia is India’s largest online B2B platform that connects buyers and suppliers. The company also provides payment protection plans (TI Pay), Collateral Free Loans (TI Lending) and Logistics (TI Logistics) and is the first company in the country to provide e-commerce and solutions for booking domains, SSL, Adword, SMO and FB Promotion to SMEs.
Locus – Founded in 2015, Locus uses machine learning & proprietary algorithms to automate complex supply chain decisions. In April 2020, the firm launched a free tool ‘QuickStart,’ which is a self-serve lite version of the product suite designed to help MSMEs improve their supply chain during the pandemic.
Tech giants such as Amazon and Flipkart are also empowering MSMEs with their tech offerings. For example, Flipkart has launched several initiatives to support MSMEs—the Samarth Programme, which is onboarding Indian artisans, weavers and handicraft producers onto e-commerce; and partnership with the Federation of Indian Chambers of Commerce & Industry (FICCI) through which it launched a series of workshops for MSMEs. Similarly, in July 2021, Amazon launched ‘Digital Kendras’ to boost MSME business owners and educate them on the benefits of digitising their operations. As of April 2021, Amazon has digitised 2.5 million SMEs in India. Tech giant Dell frequently addresses MSME challenges and supports the sector through its technology advisors. The company has been organising ‘MSMEs Day’ on its platform every year since 2019. Other giants such Walmart and Google have also joined the initiative of empowering the MSME community.
The Road Ahead…
A survey conducted in 2020 by Endurance International Group, an IT services company, revealed that 30% MSMEs have launched their business websites or tied up with e-commerce platforms and >50% MSMEs have adopted video conferencing tools to ensure business continuity since the pandemic-induced disruptions. MSME is one of the most crucial sectors in the Indian economy, accounting for 48% annual exports, contributing 30% to the GDP and being a major employer. Tech-based solutions have immense potential to enrich MSME businesses. According to the Cisco India SMB Digital Maturity Study 2020, digital adoption will enable SMEs to add US$ 158–216 billion to India’s GDP by 2024. Interestingly, India’s technology start-up ecosystem is also fuelled to revolutionise the entire business system backed by favourable government policy, ever-growing consumer base and increased technology skillset among the educated young population. India has about 7,000+ technology start-ups and their numbers are spiralling every year (by 35-40%). Uptake/adoption of tech-based solutions is expected to accelerate the MSME outreach to a wider customer base that can be accessed only through digital marketing and AI solutions.