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Multiplying reach, easing cash flow: How e-commerce is transforming MSMEs by solving two biggest issues

Technically, MSMEs cannot increase their area of presence due to wide-ranging challenges. But the paradigm is changing with their digital adoption and the rise of e-commerce segment in India.

The cash woes of the MSME units are eliminated through channel partnerships with digital lending platforms. Image: Reuters

By Saahil Goel

Indian MSME sector contributes around 45 per cent to the GDP as per MasterCard’s ‘Micro Merchant Market Sizing and Profiling Report.’ This figure is about three times what corporate India contributes. However, this growth engine for the Indian economy needs to be properly oiled for proper functioning, something that is barely the case at present. A recent report by IFC-Intellecap indicates that there is a credit gap of Rs 16.66 lakh crore ($240 billion) in India. The gravity of the situation can only be realized when we consider that the Indian economy is pegged at $2.6 trillion, and government spending is about $400 billion.

The MSME sector, hence, is far from its optimal performance. Still, it seems like the times are changing for the sector and the advent of e-commerce in India needs to be credited for this market development.

Broken Connectivity

At present, there are more than 51 million operational MSME units in India. The sector is spread sporadically throughout the vast expanse of the nation. This alone introduces a number of challenges for the sector. One of the primary challenges faced by the sector, apart from credit availability, is that of connectivity. MSMEs have meagre-to-zero digital integration. This keeps them limited to their area of physical presence. They, moreover, need to arrange and manage their own logistics, even if they are supplying to a region where the incurred costs are relatively higher. These costs could be lowered if they had access to viable channel partnerships, but this is not the case as they fall in the bulging bottom of the business pyramid.

So, technically, MSMEs cannot increase their area of presence due to wide-ranging challenges. But the paradigm is changing with their digital adoption and the rise of e-commerce segment in India — the future of our current retail market. It might be in the form of hyperlocal business, B2C (Business-to-Customer) e-commerce, B2B (Business-to-Business) e-commerce, C2C (Customer-to-Customer) e-commerce, or even a P2P (Peer-to-Peer) business model, eCommerce will be driving every retail transaction in the near future.

Digitized Reach and Payments

The change is already visible on the ground with e-commerce platforms serving as the perfect enabler of the Indian MSME segment. They are helping the MSME segment to reduce its transaction cost, approach larger untapped markets, and avoid intermediaries. Several market vendors still consider the segment as ‘unorganized’ but this leaves massive scope for technological integration to the sector. Hence, it will bring about even better opportunities for the MSME sector, technology integrators, and the market in general.

The use of Information Technology has not only enabled greater consumer participation but has also helped in mass communication along with reduced costs. For instance, a small workshop that manufactures cricket accessories in Meerut can now easily supply its bats, wickets, and other goods to cricket academies in Bangalore. It’s easy to have complete visibility of the end-to-end fulfilment process. The transportation is managed by logistics aggregators who provide complete delivery status via messages and the online platform.

On the other hand, the cash woes of the MSME units are eliminated through channel partnerships with digital lending platforms. Since cash transactions govern a majority of transactions in India (and will continue to do so in the near future), some market players are even providing features such as Early COD that ensures quick remittance for an MSME irrespective of the complications involved in the process. This ultimately minimizes the locked-in capital of MSMEs and enables them to operate with superior efficiency.

Today, the integration of ICT (Information and Communication Technology) is completely changing the relationship between the organizations, consumers, and those who act as mediators between the organizations and the consumers. With ever-increasing technological adoption in the MSME sector, India is gradually traversing towards its ultramodern future. Perhaps, greasing the ‘growth engine’ and fueling it for the long haul.

(Saahil Goel is the Co-founder and CEO at Shiprocket. Views expressed are the author’s own.)

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