Micro, small and medium enterprises (MSMEs) have a big role to play for India to realise its goal of becoming a $7 trillion economy by 2030. The segment, which accounted for ~29% of the country’s gross domestic product as of fiscal 2022, has been unable to realise its potential owing to persistent challenges.
Lack of adequate and timely access to finance and market have been major challenges.
Most of the ~6.5 crore MSMEs are micro and small enterprises that operate in the informal sector and lack assets for collateral or financial accounting to establish a business track record, or the necessary infrastructure to tap into lucrative markets.
Digitalisation — in finance and commerce — can help these entities break the vicious cycle. Today, online financial transactions have increased at a rapid pace in India, powered by 116.7 crore smartphone users, as per the Telecom Regulatory Authority of India.
In fiscal 2024, there were 13,440 crore transactions via the Unified Payments Interface (UPI), clocking a 50% compound annual growth rate from 2731.7 crore transactions in fiscal 2021.
MSMEs need to harness this increased digitalisation of the financial scape for their growth.
The government is facilitating the union of digitalisation and finance through various initiatives. Union Budget 2025 emphasised using digital footprint data to establish the credit eligibility of borrowers and increasingly provide them easier access to funds under MUDRA or the Credit Guarantee Scheme for purchase of capital equipment.
To be fair, MSMEs across India are increasingly embracing digitalisation. Take, for example, the government’s e-commerce platform, Open Network for Digital Commerce, which clocked 1.2 crore transactions in July 2024, the highest since its inception a year ago. More than 80% of the sellers on the platform are MSMEs.
The Government e Marketplace (GeM) crossed gross merchandise value (GMV) of Rs 4 lakh crore in fiscal 2024 from Rs 38,573 crore in fiscal 2021. This sharp growth has given a strong push to the MSME segment, which contributed to 49.37% of the total orders in fiscal 2024.
The private sector is also playing a role in this effort. Post Covid, digitalisation among MSMEs has increased, with many of them following a hybrid model of sales.
E-commerce companies have started several schemes and programmes to help MSMEs get on board their platforms. As per the Economic Survey 2024, MSMEs accounted for nearly 70% of total e-commerce sales in India as of fiscal 2021. The survey also pegged India’s e-commerce industry would cross $350 billion by fiscal 2030. Despite the rising share of MSMEs in e-commerce, there is a lot of scope for MSMEs who are yet to adopt digital technologies.
A survey done by CRISIL of ~540 respondents to gauge the impact of digital transformation after the pandemic showed ~65% of the respondent micro and small enterprises (MSEs) had taken to the digital landscape. As many as ~55% of micro enterprises moved or were moving to the digital space compared with ~45% of small enterprises. And ~52% of the respondents used social media to market their products.
Enterprises had sharper focus on financial transactions, with ~68% extensively adopting payment wallets and net banking, whereas procurement/inventory management accounted for only ~4%.
The government has championed adoption of digital technology by MSMEs through several schemes such as the Trade Enablement & Marketing Scheme (TEAM), which focuses on educating and supporting MSEs to have an online presence on ONDC, and the Digital MSME Scheme, which provides financial assistance, training and support to enable digitalisation.
Having some form of digital track record, be it with UPI, e-commerce or social media can help these entities not only get easier access to credit but also to widen their market reach and, thereby, grow.
(The authors are Binaifer Jehani, Business Head, Risk Solutions – Assessments & Social Sector Consulting, CRISIL Market Intelligence and Analytics and Manasi Kulkarni,Associate Director, Risk Solutions – Assessments & Social Sector Consulting, CRISIL Market Intelligence and Analytics.)