Opinion | Covid and its impact on economy and MSMEs5 min read . Updated: 25 Oct 2020, 11:37 AM IST
- Capacity building and technical support through extensive training and upskilling programmes will generate employment, which is needed urgently amid this crisis
The covid-19 pandemic is the most significant economic event in our lifetime. The pandemic that halted social and economic life for the spring and summer of 2020, has impacted and continues to impact nations and citizens alike.
The crisis has a multi-sector impact, and according to the International Labour Organization, has already transformed into an economic and labour market shock, impacting not only supply (production of goods and services) but also demand (consumption and investment).
Business, as we know, it has changed, perhaps irrevocably, and the biggest impact is on people and livelihoods. According to the ILO, about 400 million people (76.2% of the total workforce) working in the informal economy in India were said to be at risk of poverty, because of the unknown duration and severe economic impact of the coronavirus, with particular vulnerabilities in the realm of low-paid, low-skilled jobs where income loss can have a particularly severe effect.
With the coronavirus impacting their cash cycles, MSMEs, who are the backbone of India’s inclusive growth story, have felt a significant impact and faced severe disruptions. As an important part of the domestic and global value chains, the plight of MSMEs is of deep concern.
But for small businesses, as for other sectors, the crisis has called for an approach that necessitates enhanced efficiencies and accelerates modernization. In a way, covid-19 is a watershed moment, that may lend itself to accelerated business transition for India’s vast MSME sector. While this is no silver lining, the reality of the situation has forced businesses to look at any means necessary to adapt to grow. And for India, the pandemic has sounded a clarion call to accelerate reform and growth. In fact, according to McKinsey, a program of targeted reforms can significantly shore up economic fundamentals by enabling greater productivity in several sectors, and creating the 90 million nonfarm jobs India needs to create by 2030.
But to prime businesses for this path, the acceleration of digital adoption in various sectors cannot be understated. Many organizations have had to reimagine what their businesses will look like in the future, and the Micro, small and medium enterprises (MSMEs) sector is no exception, yet digitization has been an important impetus for the sector’s growth for many years. And, according to experts, over the years, many more MSMEs have evolved core selling from traditional platforms to digital infrastructure, which has become more important than ever.
But several of them have lagged behind on the expected growth curve of digital adoption, simply underestimating the importance of adoption and adaption of the digital ways of working. Having said that, during the lockdown a number of MSME business have realized how important going digital is and hence have either started a website or expanded their offering on to e-commerce. A survey by Endurance International Group shows that around 50 percent2 of them embraced video conferencing and WhatsApp for business purposes. It also indicates a close to 50 percent increase in revenue contribution from e-commerce in the early months of the lockdown.
Apart from using digital platforms as a channel to market their products and services, digital tools can also be useful in helping MSMEs in various ways. This is a great opportunity for them to reimagine their business and their scope of reach, modernize, and update their enterprises with new business processes and aid their marketing efforts for business growth.
What this growth looks like
As many businesses are seeing today, digital adoption (with the necessary enabling tools) can be a short-term solution to aid business continuity, but many are yet to see this as a long-term solution to build business resilience. Through digital adoption and technology access, MSMEs can modernize not only route to market and audience access, but streamline payments, obtain financing, and expert advice, all aiding their growth, and necessary to match the Government’s vision of enabling this key sector. In fact, a Cisco India SMB Digital Maturity Study 2020 also reveals that the digitization of SMEs could add up to $158-216 billion to India’s GDP by 2024.3
Driving up exports is one of the many visions of the government for the betterment of MSMEs in India. Preparing for their integration into global supply chain becomes a key priority. Meeting this vast vision in a time-bound manner will need a systematic and collaborative approach inclusive of policy enablement, capacity building, and private sector partnerships, all involving solutions at unprecedented scale. Digital adoption will be at the core of this approach. Digitally, gaining exposure to global markets will also add a new benchmark for MSMEs based on quality, offering them an opportunity to embrace innovations and global best practices. Thus, becoming an important stepping stone in fulfilling the Government’s vision of transforming India into a manufacturing hub.
Digital transformation has its own set of challenges and it is crucial to address the complexities that come with it. First is the pressing and inevitable issue of cybersecurity and data privacy concerns. Partnerships with mature and well-established digital supply chains can help MSMEs modernize without this threat looming large, and also help them understand the essentials involved in marketplace linkage. Understanding how businesses navigate consumer demand, inventory management, pricing and marketing, are invaluable skills that can help MSMEs really tailor their product for the market, and move forward in their growth journey.
The second is addressing the lack of expertise or digital skills in its workforce. To get the newly adopted digital framework moving further, business owners will have to upskill employees to keep the business on track and drive this change from within.
The third and final challenge is addressing the persistent digital divide and infrastructure-related issues to streamline the new operational environment. In the current context, since managing cash flow and IT expansion are to be addressed together, enterprises will have to make a smart investment in quality solutions to ensure a balance in capacity building and financial safety of the business.
Toward a resilient future
As we surge to live in a post covid-19 world, it is crucial to facilitate MSMEs in their quest to scale up adoption of digital interventions. Capacity building and technical support through extensive training and upskilling programmes will generate employment, which is needed urgently amid this crisis. Programmes that foster the growth of these enterprises to engage successfully in global supply chains not only drive job growth but provide broad economic benefit and value. Given their capacity to drive economic development and job creation, as well as to foster innovation, assisting them to expand through global supply chains should be a top priority. Afterall, a resilient MSME sector, will automatically translate into a sound economic future for the country.
(The author is senior director, Walmart and head of Walmart Vriddhi. Views expressed are personal and do not reflect Mint's.)