Revolutionizing India’s Economy: The Digital Transformation of MSMEs
08 July, 2023
In the robust and dynamic Indian economy, the Micro, Small, and Medium Enterprises (MSMEs) sector is undeniably a key player. They are the backbone of the nation’s economic fabric, driving innovation, creating job opportunities, and contributing significantly to the GDP. However, despite their critical role, MSMEs in India face a multitude of challenges, particularly regulatory burdens that hamper their growth and sustainability. As we observe International MSME Day, it is incumbent upon us to highlight these issues and explore potential solutions to foster an environment conducive to the growth and success of these enterprises.
One key hurdle that Indian MSMEs often grapple with is access to adequate financing. High-interest rates and stringent collateral requirements often stifle their ability to scale up operations. Moreover, limited technological adoption, insufficient infrastructure, restricted market access, and a dearth of skilled labour also pose significant challenges.
Navigating the complex regulatory landscape is another major obstacle for MSMEs. Indian businesses are governed by a staggering 1,536 acts and rules, resulting in a web of 69,233 compliance obligations spanning across various categories like taxation, labour laws, environmental regulations and more. These compliance requirements exist at multiple levels – central, state, and municipal – and vary in type from licenses to statutory payments. The sheer volume of regulations is overwhelming for small businesses with limited resources. In FY 2023 alone, over 5,900 regulatory changes were published across more than 2,000 government websites.
Non-compliance can lead to severe penalties, including hefty fines and even imprisonment. For instance, setting up a manufacturing facility in Maharashtra requires an MSME to obtain nearly 24 licenses under different central and state statutes. Additionally, there are numerous permissions related to construction, electricity, and sewage that must be secured. Once operational, an MSME has to adhere to over 360 compliance obligations periodically. The cost of managing these obligations can exceed INR 10 Lakhs per year.
In this context, technology can offer a lifeline. Many MSMEs have successfully adopted ERP packages, accounting software and payroll systems to streamline their operations. However, when it comes to compliance tracking, many still rely on outdated manual methods like Excel spreadsheets. This approach often leads to inadvertent errors or delays.
Fortunately, Regulatory Technology (RegTech) has emerged as a viable solution in recent years. Several RegTech companies have developed platforms that offer comprehensive compliance management features such as centralized compliance repositories, real-time regulatory updates, reminders, alerts, and regular reporting. By adopting these platforms, MSMEs can transition from ad-hoc, manual processes to more efficient, transparent systems.
In the context of gym marketing or advertising for gyms – sectors that fall under the MSME umbrella – leveraging such technology can be instrumental in ensuring regulatory compliance while focusing on core activities like gym lead generation or creating more engaging Facebook ads to attract more gym members.
India has showcased its potential as the ‘pharmacy of the world’ during the COVID-19 pandemic. With continuous improvements in the ease of doing business and the government’s ‘Make in India’ initiative, the country is poised to become the ‘factory of the world’. The vision for India@2047 is a $40 billion economy powered by digital transformation. To realize this vision and unlock India’s ‘demographic dividend’, it is crucial that we empower our MSMEs to overcome their challenges and embrace digitization.