Local to Global: Empowering MSMEs with Open Network for Digital Commerce
The Micro, Small, and Medium-Sized Enterprises (MSME) sector is crucial to the development of any nation. It has become one of the most dynamic and lively sectors of the Indian economy. Second only to agriculture, it creates a great deal of employment opportunities at relatively modest capital costs and encourages entrepreneurship, both of which have a major positive impact on the nation's economic and social development.
The MSME sector comprises nearly 63 million enterprises, which contribute more than 30 per cent to India's GDP, 45 per cent to manufacturing output, 40 per cent to exports, and provides employment to over 113 million people, as per Annual Report of Ministry of Micro Small and Medium Enterprises way back in 2017-18. Still the sector face many challenges, some of which are timely and adequate finance at reasonable rate from formal sector, technology adoption, regulatory compliances, lack of innovation, non-awareness of various government schemes, delayed payment from customers, skilled manpower, market access and many more.
MSME Classification
Earlier only Manufacturing and Service sectors were covered under the definition of MSME based on investment in plant and machinery or equipment. The definition was changed with effect from July 01, 2020, based on the composite criteria of investment and turnover, with the criteria now common for both manufacturing and service sector enterprises. Retail and wholesale trades were also allowed to register with effect from July 2021, restricted to Priority Sector Lending.
Existing MSME Classification
| Classification | Micro | Small | Medium |
|---|---|---|---|
| Mfg. Enterprises | Investment < Rs. 20 lac | Investment < Rs. 5 cr. | Investment < Rs. 10 cr. |
| Services Enterprise | Investment < Rs. 10 lac | Investment < Rs. 2 cr. | Investment < Rs. 5 cr. |
Revised MSME Classification
| Classification | Micro | Small | Medium |
|---|---|---|---|
| Manufacturing & Services | Investment < Rs. 1 cr. and Turnover < Rs. 5 cr. | Investment < Rs. 10 cr. and Turnover < Rs. 50 cr. | Investment < Rs. 50 cr. and Turnover < Rs. 250 cr. |
The data of Udyam Registrations including Udyam Assist Platform as on May 16, 2024 is as under:
| Total Registration | Total classified | Micro Enterprise | Small Enterprise | Medium Enterprise | Total Employment |
|---|---|---|---|---|---|
| 4,42,22,789 | 4,41,63,125 | 4,33,94,217 | 7,01,819 | 67,089 | 19,17,02,070 |
The above data shows that more than 98% MSMEs are working as Micro enterprises, which are doing their businesses in traditional manner.
Challenges in E-Commerce Adoption
Currently only a small fraction of the MSME enterprises engage in e-commerce due to various barriers:
- Technological Barriers: Lack of digital skills among micro sector MSMEs, hindering their ability to set up online stores and use digital marketing.
- High Cost of Technology: Difficulties in accessing necessary technology due to high costs and rapid advancements.
- Cybersecurity: Micro enterprises are largely unprepared to defend against cyber-attacks.
- Transaction Costs: High transaction fees charged by large e-commerce platforms reduce profit margins.
- Logistics and Supply Chain: Poor infrastructure leads to high shipping costs and unreliable delivery services.
- Warehousing and Inventory Management: Inadequate resources and technology for effective warehousing.
- Payment Gateway Integration: Non-integration impacts the ability to accept online payments securely.
- Return & Exchange Policy: Stringent buyer-centric return and exchange policies of large platforms are harsh for MSME sellers.
Open Network for Digital Commerce (ONDC)
The introduction of ONDC by the Indian government aims to transform the digital commerce landscape, providing MSMEs with tools and infrastructure to expand their reach from local markets to a global audience. ONDC aims to democratize digital commerce by creating an open, inclusive, and decentralized network that allows seamless interaction between buyers and sellers across different platforms.
Benefits of Onboarding through ONDC
- Simplified Access to Digital Markets: Open network architecture allows MSMEs to access multiple digital marketplaces without being tied to a single platform.
- Empowerment of MSME Businesses: Provides tools and platforms to compete on an equal footing with large e-commerce giants.
- Enhanced Consumer Choice: Consumers gain access to a wider range of products and services, leading to better prices and greater innovation.
- Innovation and Efficiency: Encourages a competitive environment where businesses are motivated to innovate and improve operations.
- Regional Economic Growth: Contributes to regional economic development, helping bridge the urban-rural divide.
- Data Sovereignty and Privacy: Decentralized architecture allows for greater control and ownership of data by businesses and consumers.
- Enhanced Visibility and Reach: Greater exposure to potential customers both domestically and internationally.
- Reduced Costs: Standardization helps streamline operations and avoid high fees charged by dominant platforms.
- Improved Access to Resources: Access to technology tools, financial services, and logistical support.
- Cash Flow Based Financing: Enables MSMEs to avail cash flow based financing from the formal sector based on GST and bank statements.
Chamber of Indian Micro Small and Medium Enterprises is organizing comprehensive awareness campaigns and educational programs through initiatives like MSME MITRA and the YouTube channel "MSME HELPLINE" to help businesses leverage ONDC.
Conclusion
The Open Network for Digital Commerce represents a transformative opportunity for MSMEs in India. By breaking down barriers and providing equitable access to digital markets, ONDC can help small businesses scale their operations from local to global levels. India has been a world leader in demonstrating successful adoption of digital infrastructures at the population scale, such as UPI, AADHAAR, and ONDC is yet another tech-based initiative to transform e-commerce.