Forvis Mazars in India Report Highlights Crucial Digital Transformation for MSMEs: Over 99% Micro-Enterprises Contributing 30% to GDP and 45% to Exports

Chandigarh – June 29, 2024: Micro, small, and medium enterprises (MSMEs) are indispensable drivers of the Indian economy, fueling production, employment, and growth across various sectors. The latest report from Forvis Mazars in India, “Designing a Digi-Ready Docket for MSMEs,” underscores the critical need for digital transformation among these enterprises. Despite their crucial economic role in contributing 30% to GDP and 45% to exports, MSMEs remain significantly under-digitised. The COVID-19 pandemic accelerated their digital leap, particularly in e-commerce, with MSMEs’ share in online sales surging from 12% in 2018-2019 to 27% in 2020-2021. This surge underscores the growing digital readiness among MSMEs, as evidenced by increased seller registrations on major e-commerce platforms and heightened activity on Government e-Marketplace (GeM).

The report emphasises that MSMEs must adopt comprehensive digitalisation strategies to remain competitive in a technology-driven world, necessitating a strategic overhaul of business operations to seamlessly integrate technology into every aspect of their functions.

It delves into the promising opportunities and critical challenges associated with digitising MSMEs. MSMEs in India are considerably under-digitised, with only around 12% (7.7 million) having achieved digital maturity, despite their economic significance. The majority are still navigating various stages of the digital journey. This underscores the urgent need for digitalisation to help MSMEs maintain competitiveness in an increasingly technology-driven landscape. The report emphasises that digitalisation goes beyond mere digitisation; it involves a comprehensive overhaul of business and operational frameworks to align with contemporary technological standards. Unlike digitisation, which focuses on converting analog processes into digital formats, digitalisation necessitates a strategic paradigm shift, integrating technology seamlessly into every facet of enterprise operations.

Dr Sanjay Bhardwaj, Associate Partner, Government, Infrastructure, Development sector Advisory Service, Forvis Mazars in India, stated, “Despite the challenges, MSMEs continue to be the backbone of the Indian economy, contributing significantly to GDP and exports. Our report highlights the urgent need for a comprehensive digital strategy to empower these enterprises. By prioritising education, encouraging targeted investments, and fostering regulatory understanding, we can create an environment where MSMEs not only survive but thrive in the digital age.”

Timing and approach are paramount in digitalisation efforts for MSMEs, as rushed or excessive adoption can lead to inefficiencies and operational hurdles. The report advocates for a phased and strategic approach to digital transformation, highlighting key areas such as enhancing digital literacy and skills, strategic investment planning, streamlining regulations, and fostering collaborative initiatives between the public and private sectors.

Key Government initiatives supporting digitalisation

The digitalisation of MSMEs in India has been significantly bolstered by key government initiatives. The National Payments Corporation of India (NPCI)’s interoperable Unified Payments Interface (UPI) system, the Account Aggregator (AA) model institutionalised by the RBI, and the Trade Receivables Discounting System (TReDS) launched by the RBI are instrumental in this digital push. Additionally, the Open Network for Digital Commerce (ONDC) provides a substantial boost, highlighting how integral digitalisation has become for MSMEs and the steps the government is taking to simplify their transition.

The Ministry of MSME has introduced various programs and schemes to enhance digital proficiency within small-scale enterprises, streamlining processes from initial registration to expansion. These initiatives, particularly in skill development, have led to enhanced efficiency and data-driven decision-making, with a strong focus on digital education and complete digital literacy central to the digitalisation efforts.

Through the “Designing a Digi-Ready Docket for MSMEs” report, Forvis Mazars in India recommends a comprehensive digital transformation strategy. This strategy emphasises setting education as a priority, encouraging targeted investments, and channelising Lendtech innovation into MSMEs. Additionally, it advocates for building a comprehensive regulatory understanding, fostering greater inclusivity of medium-sized units, and maintaining a gradual rather than a binary approach to digitalisation. By following this Digi-Docket, MSMEs can effectively navigate the complexities of digital transformation, ensuring sustained growth and competitiveness in an increasingly digital economy.

Forvis Mazars in India’s report encapsulates a pivotal moment in the digital transformation journey of Micro, Small, and Medium Enterprises (MSMEs) in India. It emphasises the importance of a holistic and well-structured digital strategy tailored to the unique needs of MSMEs. The report stresses the significance of digital literacy, targeted investments, regulatory clarity, and public-private partnerships in facilitating a smooth and effective digital transition for MSMEs, ensuring their sustained growth and competitiveness in today’s dynamic business environment.