MSMEs can Drive India’s Digital Push

Syllabus: GS2/Government Policies & Interventions, GS3/ Indian Economy &
Related Issues

In Context

• Micro, Small and Medium Enterprises’ (MSME) adoption of digital technologies is critical for their competitiveness.
  
  MSME & Digital Technologies
  
• About MSME sector in India:
  – Micro, Small and Medium Enterprises (MSME), are small-sized business enterprises defined in terms of their investment.
  – MSMEs contribute about 30 per cent to the GDP.
  – MSMEs sector is a major contributor to the socio-economic development of the country.
  – The sector has also contributed immensely with respect to entrepreneurship development especially in semi-urban and rural areas of India.
  
• India’s global digital share:
  – On the pace and scale of digital transformations, India has stolen a march over advanced economies, both domestically and in terms of exports.
  – An UNCTAD 2018 report indicated that India had exported $89 billion in 2016-17 in the digitally delivered services segment.
  – The OECD found that India’s share of global estimated digital trade exports grew by roughly 400 percent — from 1 percent in 1995 to nearly 4 percent in 2018.
  
• MSMEs & digital services:
  – With the number of internet subscribers in India now projected to touch 800 million by end-2023, small businesses have also begun incorporating digital services into their operations.
  – Examples of common B2B services imports include e-commerce platforms, social media for marketing and communication, and digital payment applications, among others.
  – On the import side, Indian MSMEs have also begun to integrate digital services inputs, such as smartphone-based marketing and communications services, into their business operations.
• Typical goals include expanding market reach and deepening their connection with customers.
  
  Challenges
  
• Duty moratorium:
  – In 1998 the World Trade Organisation adopted a Declaration on global electronic commerce.
  – This included a two-year moratorium on custom duties on cross-border electronic transmissions. Since then, the moratorium (or duty cap) has been renewed every two years.
  – WTO members have allowed the moratorium to continue with the present moratorium lasting only till March 31st, 2024.
• This moratorium has actually benefited India’s services exports and imports.
• If the moratorium ceases to exist, however, the resulting disruptions would impact a wide range of routine cross-border data transmissions, which range from transfers of semiconductor design information to R&D. software-as-a-service, and digitised music, movies, books and entertainment.
• In addition, allowing a range of new tariffs to be levied on digital services would distort supply chains and stunt MSME growth.
  
• Mounting NPAs of MSMEs:
  – According to the RBI, bad loans of MSMEs now account for 9.6 percent of gross advances of Rs 17.33 lakh crore as against 8.2 percent in 2020.
  – The MSME sector was among the most pandemic afflicted sectors.
• Thousands of MSMEs either shut down or became sick after the government announced a nationwide strict lockdown.
  
• Non-availability/Delays of Funds:
  – Mounting losses and debts, non-availability of proper financial help and delays from the government, reluctance from the banks for the funding, etc.
  – MSMEs in India typically rely on NBFCs for their financing needs, which in itself has been enduring a liquidity crunch since September 2018.
  
• Lack of Formalization:
  – Almost 86% of the manufacturing MSMEs operating in the country are unregistered. Out of the 6.3 crore MSMEs, only about 1.1 crores are registered with the Goods and Services Tax (GST) regime and the number of income tax filers are even less.
  
  Government Initiatives for MSMEs in India:
  
• Pradhan Mantri MUDRA Yojana (PMMY):
  – Under PMMY loans are provided up to Rs. 10 Lakh through Member Lending Institutions (MLIs) viz; Banks, Non-Banking Financial Companies (NBFCs), Micro Financial Institutions (MFIs), other financial intermediaries, in three categories namely, ‘Shishu’, ‘Kishore’ and ‘Tarun’ which signifies the stage of growth or development and funding needs of the borrowers.
  – Shishu: covering loans up to Rs. 50,000/-
  – Kishore: covering loans above Rs. 50,000/- and up to Rs. 5 lakh
  – Tarun: covering loans above Rs. 5 lakh and up to Rs. 10 lakh
• Objectives:
  – To signify the stage of growth/development and funding needs of the beneficiary micro unit/entrepreneur and also provide a reference point for the next phase of graduation/growth.
  
• Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE):
  – This scheme provides collateral-free credit to micro and small enterprises through a credit guarantee mechanism.
• Stand Up India:
  – The scheme provides financial assistance to scheduled caste (SC), scheduled tribe (ST) and women entrepreneurs for setting up new enterprises.
• Harmonizing value chain:
  – Government to focus on integrating India’s value chains with the rest of the world and creating logistics that are easier and faster is crucial to make it easier for international companies to include India in their value chains.
• Quality assurance:
  – Government to focus on creating Quality as the most important factor in the success story of India through steps including- setting global benchmarks, harmonizing Indian standards with global standards, and consumers becoming more demanding of quality.
• Comprehensive Economic Partnership Agreement (CEPA):
  – It will help MSMEs of both India and UAE to leverage benefits of the District as export hub initiative of the government.
  – Under this initiative, every district for their unique products and identify the specialty of districts by knowing which district exports which products.
  – This initiative is expected to help in promoting local products and in turn, boost the local economy.
  
  Way Ahead
• To help Indian small businesses expand and reach new customers, policymakers should implement policies that make it easier — not harder and more costly — to access digital services inputs, including those from abroad.
• Acting on the External Affairs Minister’s pitch at B20 Summit for a “more diversified and more democratic” re-globalisation, the moratorium will help in the emergence of Global South countries as producers.