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ICRIER Report: Leveraging E-commerce for the Growth of MSMEs

GS Paper 3

 Syllabus: Manufacturing Sector

  

Source: ICRIER

Context: The report titled “Annual Survey of Micro, Small, and Medium Enterprises (MSMEs) In India: Leveraging E-commerce for the Growth of MSMEs” conducted a comprehensive survey of MSMEs in India to explore the potential of e-commerce in enhancing their growth.

 

What are MSMEs? 

Micro, Small and Medium Enterprises [“MSMEs”] are small to medium-sized businesses that typically have a limited number of employees and generate moderate levels of revenue.

MSMEs are defined or classified in accordance with the MSME Development Act of 2006.

 MicroSmallMedium
Manufacturing and ServicesInvestment: < 1 crore

Turnover: < 5 crore

Investment: < 10 crore

Turnover: < 50 crore

Investment: < 50 crore

Turnover: < 250 crore

 

Status of MSMEs in India:

  • Around 19 million MSMEs which employ over 131 million (over 13 crore) individuals are registered on the Udyam portal of which about 96 % are classified as micro, about 3 % as small, and 0.4% as medium enterprises.
  • 27% of the MSMEs are engaged in manufacturing and 73% are in services

 

Significance of E-Commerce integration:

  • Successful integration with the E-commerce platform has reported an increase in sales. Integrated firms report higher turnovers and profitability.
  • Integrated firms have a higher share of permanent employees

 

Significance of MSMEs

 

Economic transformation:

Key Benefits Description
Employment generationMSMEs create significant job opportunities, especially for unemployed youth, due to low start-up costs.
Economic stability and export growthThey contribute significantly to India’s GDP and play a crucial role in the country’s exports, contributing about 40% to overall exports.
Reducing regional imbalanceMSMEs promote industrialization in rural and backward areas, reducing regional disparities and ensuring a more equitable distribution of income and wealth.
Complementary to large industriesThey often serve as ancillary units, supplying semi-finished and auxiliary products to larger companies, fostering a linkage between MSMEs and big corporations.
DiversityIndia’s MSME sector is highly diverse in terms of size, technology use, product range, and target markets.
InnovationMSMEs encourage innovation by providing opportunities for entrepreneurs to develop creative products, fostering competition and growth.
Poverty AlleviationMSMEs have played a significant role in reducing poverty by providing employment to disadvantaged sections of society.

 

Social transformation:

Key BenefitsDescription
Female empowermentAbout 20% of MSMEs in India are women-owned, providing a platform for female participation and development.
Income distributionMSMEs, as a labour-intensive sector employing both genders, increase purchasing power and contribute to income redistribution.
Demographic dividendIndia’s large number of graduates and engineers benefit from MSMEs, which can absorb a significant portion of fresh talent each year.
Inclusive growthMSMEs contribute to infrastructural development, reducing income gaps between rural and urban areas. They also help prevent rural-to-urban migration by creating jobs in rural regions.
Better incomeEvidence suggests that small enterprises, including MSMEs, offer better job stability, higher wages, and improved benefits, particularly for unskilled labour, leading to increased income and savings for the workforce.
Social inclusionMSMEs enhance socio-economic conditions, support the national economy, and provide employment, fostering social inclusion and community development.

 

Challenges to MSMEs

ChallengesDescription
Challenges in integrating with E-Commerce sitesLack of knowledge and digital illiteracy; Lack of digital infrastructure; Lack of access to skilled labour
Financial challengesLess than 5% of MSMEs have access to institutional credits.
Lack of creditworthiness among MSMEs.
The bias of investors towards service-based MSMEs
Financial distress due to events like demonetization, GST, and COVID-19
Higher operating costs due to low economies of scale, affecting competitiveness
LabourDifficulty in attracting skilled labour
Lack of social security net for over 90% of unorganized MSMEs employees
Infrastructure and Technology ConcernsChallenges in access to basic amenities, like a constant power supply for semi-urban and rural MSMEs
High land and labour costs for urban MSMEs
Use of outdated technology or slow technology adoption.
Government PolicyWithdrawal of incentives when MSMEs outgrow the prescribed limits in the MSME Act, leading to ‘dwarfism.’
Complex entry and exit norms
Challenges in tax and legal compliance and clearance
MarketLow competitiveness of Indian MSMEs and competition from multinational corporations
Delayed payments from customers
Continued reliance on middlemen for marketing.

 

Government Initiatives

  • MSME Definition Revision: Expanded to promote growth without losing incentives.
  • CHAMPIONS Portal: Provides information, grievance redressal, and integration.
  • RAMP: COVID resilience and recovery support.
  • Finance: Emergency Credit Line, PM Mudra Yojana, equity infusion.
  • Technology Upgradation: Credit Linked Capital Subsidy Scheme.
  • Udyam portal provides MSMEs with a permanent registration and basic identification number.

 

 

For 72% of MSMEs stagnant since past 5 years: Survey: Click Here

 

Conclusion

In pursuit of MSME sustainability, RBI’s UK Sinha-led committee suggests key measures:

  • Periodic MSME definition updates
  • Tackling delayed payments
  • Mandating government procurement from MSMEs
  • Offering marketing, technical, and financial support
  • Promoting cluster-based approaches
  • Implementing an easy exit policy.

 

Prelims Link:

Which of the following can aid in furthering the Government’s objective of inclusive growth? (UPSC 2012)

  1. Promoting Self-Help Groups
  2. Promoting Micro, Small, and Medium Enterprises
  3. Implementing the Right to Education Act

 

Select the correct answer using the codes given below:

(a) 1 only

(b) 1 and 2 only

(c) 2 and 3 only

(d) 1, 2 and 3

 

Answer: D