Indian MSMEs roar back: Digital revolution drives post-pandemic success, bottom line shows marked improvement, study claims

Contrary to the common perception that MSMEs are generally vulnerable and distressed units, post Covid-19, Indian MSMEs have demonstrated remarkable resilience, reveals the findings of an  ‘Annual Survey of Micro, Small and Medium Enterprises (MSMEs), carried out by Delhi-based think tank Indian Council for Research on International Economic Relations (ICRIER).

The survey results published in a report titled “Annual Survey of MSMEs in India: The Role of Digitalisation in Enterprise Development” says that since 2021, a majority of surveyed firms have seen that sales growth and, profit margins have improved, and hiring has increased—showcasing enterprise growth and development.

The report finds digitalisation to be a key driver of accelerated growth for MSMEs.

“Firms that have integrated with e-commerce platforms have outperformed non-integrated ones, benefiting from faster expansion and many more opportunities opening up. About 25% of integrated firms reported turnover exceeding Rs 1 crore, compared to 20% of non-integrated enterprises in 2021-22. This increased to 38% for integrated and 25% for non-integrated ones in 2023-24. Same is the case for profit margins. Integrated firms also reported greater hiring. In 2021-22, 60% of integrated enterprises employed more than 10 workers, compared to 50% of non-integrated enterprises. By 2023-24, this proportion rose to 77% for integrated and 64% for non-integrated enterprises," the report said.

Access to finance remains a persistent challenge, the report said. The study finds that as firms grow, financial constraints ease. “E-commerce integration helps mitigate financial barriers by fostering business expansion and creating a stronger information ecosystem for MSMEs that helps them overcome lack of credit and the digital footprint created serves to enhance credit worthiness. The average rate of interest and the credit gap decreases as the firm size grows and it is also lower for integrated enterprises," it notes.

The report presents comprehensive inter-temporal and cross-sectional insights based on a survey of 2,365 MSMEs, spread over 12 states and over 20 clusters. It examines the year-on-year performance of firms and compares firms which are integrated on e-commerce platforms with the non-integrated firms, focusing on business metrics and well as other parameters like the firms’ ability to access finance and international markets. The findings suggest that what began as a post-pandemic necessity, is now becoming a strategic choice to address some structural bottlenecks that the MSMEs faces.