Atmanirbhar Program To Rescue SMEs In Digital World
Small and Medium Enterprises (MSMEs) play a major role in most economies, particularly in developing countries where a large share of the workforce is engaged in this sector. The pandemic made things even harder for MSMEs all over the world, but a few businesses responded to the challenge by speeding up their journey toward digitization to improve operational agility and resilience, which allowed them to reach more people. The Indian government too on its part responded with the Prime Minister coming up with a special comprehensive economic package to address the stressed economy. Under the Atman Bharat Abhiyaan scheme, the focus was on 5 pillars Economy, Infrastructure, System, and Vibrant Demography and Demand. The rallying cry “It is time to become vocal for our local products and make them global”. Realising that access to finance is the key constraint to MSME growth, banks too have started to accelerate their digitisation programmes. The overall objective is for financial institutions to leverage the data to assess their creditworthiness for fulfilling the working capital needs of MSME
MSMEs need digitisation
In the first two months of the lockdown in 2020, around 600,000 Kirana stores, in India, are estimated to have closed. As a result of the pandemic, businesses and supply networks were severely disrupted, and this intensified the obstacles faced by the Indian and worldwide economies. The price increase of raw materials, global trade disruptions, etc., had a cascading effect on the recovery of the Indian MSME community.
The Indian retail market is valued at $500 billion and is expanding at a rate of approximately 20% per year and is the second largest employer. Organized retailing refers to the type of commercial transactions conducted by retailers who are registered for sales tax, income tax, etc. Unorganized retailing consists primarily of local Kirana shops, proprietor-operated general stores, street vendors, etc. Despite the introduction of supermarkets and hypermarkets and the growth of online grocery stores, the majority of Indians continue to shop at Kirana’s, which is at the "heart of hyper-local." However, the expanding organised grocery retail sector poses a threat to Kirana’s in terms of both volume and revenues. To compete with the e-commerce and quick commerce segment, these Kirana retailers require enhanced access to e-platforms, efficient payments, and delivery services, along with tools to engage their loyal consumer base. Payments being the stepping stone to SME digitisation, the government, and the regulator, in the recent years have aggressively endeavoured to increase adoption.
India is at the forefront of innovation in the digital payment ecosystem
Progressive regulatory rules, digital advances, and rising mobile internet usage are driving the payment industry's digital revolution in the country. During FY 2021-2022, the volume of digital payments in India climbed by 33% annually. According to the Ministry of Electronics and IT, a total of 7,422 billion digital payment transactions were registered during this period, up from 5,554 billion transactions during the previous fiscal year (MeitY).
Unified Payments Interface (UPI) has become the uncontested champion of payment modes. Continuing to be the most popular platform for digital transactions, it accounted for 628 crore transactions worth 10.62 lakh crores in Jul’22 alone. The UPI revolution has put India on the world map as one of the leading countries in digital payments and financial infrastructure
ONDC – Democratising digital commerce for the future
The digitisation of Kirana outlets is also an integral part of the 'Digital India' initiative. It has fostered manufacturing, e-governance, improved service delivery, connectivity, and job creation. India accounts for about forty per cent of the world's digital transactions. One more step in this direction by the government is the launch of, the Open Network for Digital Commerce (ONDC) which aims to support MSMEs and is touted to be the UPI of e-commerce. The idea is to create an equal level-playing field for the Kirana stores, supermarkets, and the large e-commerce players in the market. This will also help in promoting an open network for brands to directly sell to a large consumer base The freely accessible online network connects buyers, sellers, payment and logistics providers. Discoverability, Inclusivity and Interoperability will be the key driving principles for all stakeholders participating in ONDC. Digital payments will be the foundation and hence core to the success of ONDC.
Banks are amongst the most reliable financial ecosystem components. They have a pre-existing relationship and the much-needed trust factor with the local Kirana merchants. This trust is a function of the banks' physical network and their role as custodians of SME deposits through the current account relationship. The importance of utility, trustworthiness and fraud-free and error-free transactions cannot be overemphasised.
Digitisation will significantly accelerate the access to credit for MSMEs. 85% of the Indian MSMEs remain underserved in terms of credit. They contribute to over 30 per cent of the nation's GDP but are still to be made a significant part of the formal lending ecosystem. While credit is imperative for the economy to grow, banks are most favourable to addressing the credit needs of businesses. They're now empowering merchants to accept digital payments seamlessly and gradually enable credit lines at scale. Not only does this allow business expansion but also helps in achieving greater financial inclusion in the MSME sector.
India has been at the forefront of enabling MSMEs to accept digital payments in the last few years. With over 40% of the world's digital transactions taking place in India at nearly 2,200 transactions per second, UPI has most definitely been India's case study for the global payment ecosystem. It is anticipated that the offline segment will account for approximately 75 per cent of all digital merchant payments, principally due to a rise in QR-based POS payments.
The offline unorganised segment will be the primary driver for the digitization of merchant payments with QR codes. In addition, the increased expense of accepting cash may drive merchants to switch to digital payments. The minimal cost of QR code installation and maintenance will encourage merchant adoption. Integrated POS solutions could enable merchants to manage their activities and payments on a single platform.
The Indian digital payments ecosystem is a case study for the world and is set to revolutionise the detail commerce in India. Two factors, internet and smartphone penetration have both increased the reach of digital platforms and enablement of consumer-buyer interaction at scale.
