How small businesses can power India’s $5 tn economy ambition

Recently, we completed five years of the Digital India program and the vision. In these five years, the impact of digitization on the day-to-day life of Indians has been nothing but revolutionary. In 2016, Indians tracked MBs of data consumed every day. At the end of last year, an average Indian mobile user was consuming 13 GB data a month, at the cheapest access price anywhere in the world. 

An India without smartphones and apps for everything in our daily life is unthinkable today. While the convenience of digital is well recognized, there is a much broader role for digitization in our economy. The benefits of digitized businesses, automatically formalized as they embrace technology, will accrue to India’s $5 trillion GDP ambition. 

With the rapid digital adoption for individuals sorted out, India now needs to expeditiously move to the next phase of being a truly digital nation. This phase will involve unleashing the innate, time-tested and proven entrepreneurial energy of India, coupled with the scaling benefits of digitization.  

Small businesses as well as individual businesspeople have a wonderful opportunity ahead of them in using the power of digital to reach out to a huge market within the country and even spot and service market opportunity outside the country. The real power of digital lies in shrink-wrapping non-local, non-proximate markets for small businesses and thus enabling them to punch above the weight of their limited physical access. 

Digital MSMEs is the next stop for Digital India. The definition of Micro, Small and Medium Enterprises is quite wide. In fact, recently, the ubiquitous wholesale and retail traders have also been included in this definition. Accounting for all entities, there are close to 65 crore MSMEs in India. At present, barely 10 lakh of them are leveraging digital in some form. This is a huge opportunity, which can be shaped through enabling law making, facilitative interpretation and application of rules and norms and better financial inclusion and capital access. India now needs to adopt a Digital First mindset when it comes to regulating and encouraging MSMEs. 

The benefits of Digital MSMEs are immense, but there are three digital gaps, which this premise will immediately bridge.  

Firstly, the digital gap of geography – while urban clusters and metro cities will remain the engine of growth, the hinterlands should get an opportunity of market access. Digital MSMEs can help those wanting to be physically away from cities but yet with a window to the buying power of these cities to realize their ambition.  

Secondly, the digital gap of gender – there is no better way to bring hundreds of millions of women in the economic productivity mainstream than by enabling them to run their own businesses. Digitization presents an opportunity for improving workforce as well as economic participation rates for women around India, flexing their time and effort in a way of their own choosing.  

Thirdly, the digital gap of skills – upward mobility on the economic ladder requires constant reskilling and upskilling of India’s vast working age population. By opening doors to business opportunities and markets, this workforce gets a call option on their own career as well as social and economic mobility.  

This dream of Digital MSMEs requires some specific interventions on part of the government. Most of them centre around the real as well as perceived compliance burden of digitization and the ensuing formalization. MSMEs feel the pinch of regular filings and calendarized events, which are either time-consuming and hence take away productive business time or resource-intensive if outsourced to taxation and secretarial professionals. MSMEs do recognize the benefits of formalization and would gladly register for Goods and Services Tax (GST) with vigour but remain sceptical of the process complexity. 

Then there is the issue of level playing field too. Today, a physical economy small business with turnover less than Rs 40 lakh does not have to register for GST, but every seller in the digital space, even if the revenue is zero, is required to ab initio have a GST registration. There are additional complications. There is a 2% burden on account of withholding under the GST and Income Tax Act which can be only claimed while filing tax returns and is a huge burden for small businesses. 

All of this is against the Digital First premise. The rules should promote, not hinder the use of technology. These issues can be resolved by creating equitable playing fields irrespective of the channel of commerce, simplifying the 25 GST filings a year compliance process and by regular change management with MSMEs addressing their apprehensions and issues. 

The pandemic induced lockdowns already showcased the power of digital commerce. When buyers and sellers could not meet, the wheels of the trade kept running via the Internet. Online commerce helped millions of sellers stay afloat in trying times. What if many more millions were online? What if shuttered shops did not equate with business losses? What if new entrepreneurs were enlisted rapidly creating digital storefronts? 

There is no dearth of use cases for a light-touch compliance regime for MSMEs and encouraging them to digitize. The government has taken various steps to create enabling business environment for the MSMEs over the years. However, a singular focus on augmenting the offline MSME businesses with online distribution could be a game-changing economic transformation opportunity, not just for the businesses but also for India as a whole. 

Digital MSMEs is the future of Digital India – it is time to build a spectacular edifice on an already strong digital foundation that has been laid. 

Vidit Aatrey

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Vidit Aatrey is the founder and CEO of Meesho. The views in this article are his own.