Enhancing economic contribution of MSMEs in the Big Data era

The current digital platform revolution has enabled instant matching of global buyers and sellers across industries. Additionally, automation is enabling new ways of servicing clients. Dr Sunitha Raju, Professor, Indian Institute of Foreign Trade and Member, Committee for Advanced Trade Research, TPCI, emphasizes on the need for new policy tools and objectives to ensure that digitisation works to address the specific needs of MSMEs. 

Sunitha Raju IIFT

Enhancing the economic contribution of MSMEs entails developing a global outlook and rising to the challenges of digital age.  The current digital platform revolution combined with green technologies has redefined the scope of markets, business to business engagement and value creation.

In these changing operating conditions, MSME competitiveness is critically dependent on information symmetry, alternative financing models and logistics systems that covers services, hubs and platforms. Addressing these issues will enable MSMEs to emerge as ancillary units/suppliers to large units and produce diverse range of products and services to meet the demand of domestic and global markets. This complementarity between MSMEs and large companies will not only develop a conducive ecosystem, but also sustain its growth.

The MSMED Act of 2006 and the definitional changes in the classification of manufacturing and service units in 2020, brings into focus the challenge of informed interventions and support programmes that are in line with the needs of this heterogeneous group of MSMEs. Government initiatives for Formalisation of MSMEs and scaling up their activity include Udyam registration online on portal; Development of MSME databank; MyMSME (mobile app); Direct Benefit Transfer; Digital payments like Bhim, UPI and Bharat QR code; MSME Samaadhan (for delayed payments); MSME-Sambandh (procurement of Ministries’ and CPSUs); CHAMPION (for ICT-based technology for handholding small units). 

Additionally, the recent proposals of developing District Export Hubs has the potential to enhance MSME contribution to export growth. The decentralization of export promotion activity to boost local production and make districts as active stakeholders is aimed at benefitting MSMEs and small industries from export opportunities. Similarly, the DESH (Development of Enterprise and Service Hubs) bill 2022, which is an effort to reorient SEZs for making WTO complaint, also aims at boosting exports and attracting investments.

The proposals aim at providing WTO-complaint incentives for making our firms globally competitive and integrate into global value chains. This provides an opportunity for MSMEs to engage as ancillaries to lead firms and thereby effectively participate in the value chain production activities and integrate MSMEs to India’s export trajectory. 

For promoting manufacturing competitiveness and economic performance of MSMEs in the emerging global environment, the approach should be to differentiate between traditional labour intensive industries (textiles, footwear/leather, toys) and network product industries (electronics, telecommunications, automobiles, transport equipment, scientific equipment, Office machinery and photographic apparatus). This is because in traditional industries, MSMEs are engaged in the production of final good or the complete value chain whereas in network products, they have the potential for emerging as hubs for supply of parts and components. Promoting export capability would vary between these industry groups. 

For traditional product verticals, where MSMEs engage in the entire value chain, country experiences of technological upgradation, design capabilities and adoption of the platform economy will provide the necessary impetus. Support in automated processes, quality standards & regulations needs to be tailor made to MSMEs with varying digital expertise and thereby promote interoperability between digital products. Also, regulations to ensure privacy and security of the firms gain importance. Overall, the effort is to serve small firms in the age of ‘Big Data’.

The current digital platform revolution has enabled instant matching of global buyers and sellers across industries. Additionally, automation is enabling new ways of servicing clients. The information available, i.e., Big Data, provides valuable market insights that needs to be processed with speed and precision. To make Big Data work for small firms, tailored solutions have to be made accessible to SMEs, facilitate partnership with platform providers that offer digital commerce, logistics and e-payment services, accessibility to quality certifications and ICT-enabled financial services. This necessitates bringing MSMEs into formal channels, which provides dual benefits of developing database and designing support programmes/interventions in line with the special needs of MSMEs.

While the outcomes of single window system for MSMEs are varied across states, the challenges of technology adoption and high value addition brings into focus issues like cluster development, Innovation Hubs, Testing Standards for improving domestic firms’ capacity to absorb foreign technologies and thereby support firm linkages like contract manufacturing or joint ventures. Additionally, improved marketing and export promotion support can improve the MSME ecosystem.

Tools to enhance productivity

Against this background, capacity building for developing export capability of MSMEs focus on training interventions for industry verticals that aim at adopting digital technologies for enhanced productivity and competitiveness.

   Broad areas covered here will be:

  1. Leveraging E-commerce 
  2. Partnership with platform providers 
  3. Fintech solutions 
  4. New trends in logistics services 
  5. Quality certifications 
  6. Taking advantage of government schemes 
  7. Digital marketing for exports

These can vary across industries and as such industry focus is necessary. Equally important is credit financing for MSMEs. With the digitization wave, new architectures for bank lending systems is available. With the operationalization of GSTN and Account Aggregators (AA), the turnover data and borrowers’ transactions can be accessed at a single point thereby facilitating cash-flow based lending.

The significance of these developments may vary across sectors/regions and needs to be captured from the readily available data sources. Finally, the issue of information asymmetry between lending agencies and MSMEs can be addressed by Fintech companies through technologies and processes. 

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