MSMEs need to be retail channel agnostic to stay afloat

February 14, 2021 9:57 AM

The regulatory framework must be rationalized so that there is one uniform and standard regulation that covers the entire retail ecosystem, irrespective of the size of the business.

MSMEs who want to take loans have to physically travel to the bank branch and complete a stockpile of paper-work amidst the pandemic.

Let us look at the statistics first. The MSME sector in India is quite akin to the nation’s population, second only to China. As per a report by CII, in FY2020, the MSME sector accounted for a staggering 63 million units, with micro enterprises more concentrated across the rural regions of the country, than in the urban parts. MSMEs today contribute 6.11% of India’s manufacturing GDP, 24.63% of the services GDP and 33.4% of India’s aggregate manufacturing output.

The sector collectively employs over 120 million persons and also contributes about 45% of the overall exports from India. Maintaining a steady growth rate of over 10%, the segment is a shining example, when it comes to promoting sustainable, inclusive development and generating large-scale employment in rural regions, where most of these are present. Therefore, given the statistics, it wouldn’t be wrong to state that the sector is nothing short of being the very backbone of India’s economic milieu, and has many a times acted as a veritable cushion against global adversities.

Having said that, the COVID-19 pandemic has wreaked havoc on the country’s economy, deeply distressing all verticals and businesses alike. Plummeting consumer sentiments, dipping demands, rising unemployment and pay cuts at jobs have all further aggravated the already faltering business ecosystem. However, on the other hand, it has also accelerated the pace of digital transformation exponentially. Companies, across scope and sizes, in order to maintain business continuity amidst these trying times are relying heavily on digitisation – be it in the domain of entertainment, education, healthcare, fitness, leisure and the like. While India’s era of digital revolution has already been underway, the COVID outbreak accelerated its pace in an unprecedented manner.

Owing to the increasing health and safety concerns in the wake of the virus outbreak, people are moving on to online platforms, at a much faster rate than ever before. More and more individuals who earlier used online channels for specific type of activities, such as apparel shopping or food ordering, are now using mobile apps and the web for a plethora of actions, such as ordering in household groceries or calling in home utility services, health essentials, etc, from the comfort and safety of their homes. Social distancing, working from home norms have further pushed this trend ahead and it is here to stay, being what we call the ‘new normal!’

Given the current circumstances, it is hard to fathom as to how any business, that refuses to ride the digital wave, can afford to stay afloat in the market. A 21st century MSME cannot depend solely on one form of trade, i.e, – online or offline. It’s the amalgamation of the two that one needs to leverage, in order to scale up their business and revive their earnings in the post COVID world. In fact, this distinction between online versus offline is a mere distraction being peddled by vested few.

To put things into the right perspective, the internet and online retail is indeed a great leveller, considering India’s humongous smartphone and internet penetration. As per industry estimates, the number of smartphone users in India is slated to reach over 760 million by 2021. Via the internet, any seller from anywhere, big or small, can sell anything, anywhere and to anyone, in India, sans geographical boundaries, using the power of online.

Online trading is also structurally organising the largely unorganised marketplace. Even the smallest merchant hailing from the remotest corner of the country, deprived of heavy distribution instruments and marketing muscle, can take advantage of the internet and get affordable access to a larger audience base, with minimal investment and risk. In an unorganized retail market like India, where much of the trade takes place in smaller towns and cities, online channels of doing business is no more a matter of choice, rather an absolute indispensability. It resonates perfectly with a statement made by the eCommerce Association of India. It states “One of the utmost important aspect which is being missed by almost everyone, is the possibility that eCommerce is probably the best way to organize the unorganized sectors in India”.

As we are all aware, over the last five years or so, the retail sector in India, particularly, has been undergoing definitive transformation in terms of structure and scale. While rapid urbanisation, economic progress and the resultant rise in purchasing power and consumerism acted as key catalysts for growth, the COVID-19 outbreak has brought in a kind of disruption in the industry. Swift digitisation of services and online platforms are in fact reached the point of no return now, hollowing out suburban shopping malls and forcing businesses to be present vociferously on both online, as well as offline platforms.

From the regulatory standpoint, even though the government of India has announced a Rs 20-lakh crore financial stimulus under the ‘AatmaNirbhar Bharat Abhiyaan’ to aid the country to wade out from the Coronavirus crisis, by being self-reliant and self-sufficient; it failed to provide much relief to the MSME sector. While the Aatmanirbhar Bharat policy requires our MSMEs to source components which are economically competitive and superior in quality, till the time India’s manufacturing ecosystem does not gear up its quality and pricing models, the true vision of Aatmanirbhar Bharat as described by our Hon’ble PM can’t be realized.

Banks are not able to deliver on the government schemes as many of the directives announced aren’t comprehensive enough. MSMEs who want to take loans have to physically travel to the bank branch and complete a stockpile of paper-work amidst the pandemic. There are no streamlined online processes in place. Also, banks can only disburse loans to those MSMEs who have an active Mudra account. It, however, does not cover other savings or current account holders. Additionally, these package does not include lower income groups and hawkers. The rate of interest charges carries a moratorium period for 12 months and they are not interest free. The regulatory framework must be rationalized so that there is one uniform and standard regulation that covers the entire retail ecosystem, irrespective of the size of the business.

(By Dr. Samir Kapur. The author is a visiting faculty to various leading management institutes, and teaches consumer behavior and marketing management)

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