{"id":901,"date":"2021-06-28T14:54:13","date_gmt":"2021-06-28T14:54:13","guid":{"rendered":"https:\/\/mydukaan.io\/blog\/?p=901"},"modified":"2022-06-27T09:06:54","modified_gmt":"2022-06-27T09:06:54","slug":"ecommerce-msme-sector-india","status":"publish","type":"post","link":"https:\/\/mydukaan.io\/blog\/ecommerce-msme-sector-india\/","title":{"rendered":"eCommerce and The MSME Sector in India – Facts & Figures"},"content":{"rendered":"

With internet usage booming in India, the Indian Ministry of Micro Small and Medium Enterprises (MSME) sector is undergoing a stellar growth phase. Thanks to eCommerce, the MSME sector has gained muscle like never before.<\/p>\n

Dukaan<\/a> strongly believes in MSMEs and their contribution to the Indian economy. In this article, we explore the Indian MSME sector in-depth; capturing a brief history, figuring out what\u2019s going on at present, and how we can contribute to advance it.<\/p>\n

We discovered some interesting statistics and patterns during our research, and we are happy to share them with you!<\/p>\n

Definition of MSME<\/h2>\n

MSME stands for Micro, Small and Medium Enterprise (MSME), introduced by the Government of India. In agreement with the Micro, Small & Medium Enterprises Development (MSMED) Act, 2006, these are entities engaged in the production, manufacturing, processing or preservation of goods and commodities. MSME was launched in 2006 to become an integral part of the supply chain for products and services; a creator of large-scale employment opportunities in rural India.<\/p>\n

Until May 2020, an enterprise with an investment of up to Rs. 25 Lakhs was called a micro-unit. A firm with an investment of Rs. 1 Crore was called a micro-unit, of Rs. 10 Crore was called a small unit, and an investment greater than Rs. 20 Crores was called a medium unit.<\/p>\n

On 13th May 2020, the centre officially revised the definition of MSME units.<\/strong> Under the new definition, a firm with a turnover of Rs. 5 Crore is called a micro-unit. A firm with up to Rs. 50 Crore will be called a small unit and turnover greater than Rs.100 Crore is called a medium unit. This new definition came into effect on 1st June 2020.<\/p>\n

(Sources – Turkish Journal of Computer and Mathematics Education<\/a>, and Indian Government<\/a>.)<\/p>\n

\"MSME<\/p>\n

\ud83d\udcc8 MSME sector in India: Facts & Figures<\/h2>\n

MSMEs are the growth engine of India\u2019s economy<\/strong><\/p>\n

The MSMEs play a pivotal role in the growth<\/a> of the Indian economy as it employs over 114 million people and contributes more than 30% of India\u2019s GDP.<\/p>\n

\"30%<\/p>\n

The MSME sector accounts<\/a> for around 45% of the total manufacturing output and 40% of India\u2019s total exports.<\/p>\n

\"\"<\/p>\n

Currently, there are approx 48 million SMEs operating<\/a> in India and they employ 40% of the country’s labour. After agriculture, MSMEs generate the highest<\/a> rate of employment in India. In addition, the number of entrants<\/a> in the SMEs sector is growing at an average of 23% in manufacturing and 31% in the services sector. The MSMEs also provide earning opportunities for people across different sections of society. It can be a great economic leveller, as nearly 50% of the MSMEs are owned<\/a> by disadvantaged groups of society. MSME is truly a growth engine for the Indian economy.<\/p>\n

Wealth + Opportunity = MSME<\/strong><\/p>\n

MSMEs play a vital role in developing the economy\u2019s infrastructure by providing employment generation, innovation, and wealth creation. Over 6000 products ranging from traditional to high-tech items are being manufactured by the MSMEs in India.<\/p>\n

The state of Uttar Pradesh had the largest number of estimated MSMEs with a share of 14.20% of MSMEs in the country in 2020. The top 10 states<\/a> accounted for a share of 74.05% of the total estimated number of MSMEs in the country.<\/p>\n

\"estimated<\/p>\n

Micro-enterprises dominate the Indian MSMEs market share<\/strong><\/p>\n

According to data<\/a> shared by the MSME Minister Nitin Gadkari in the Rajya Sabha, the registered MSME is dominated by micro-enterprises, followed by small and mid-sized enterprises. The total registered enterprises in 2020 stood at Rs. 22.06 lakh, 2.41 lakh, and 10.99 thousand respectively for small, medium, and large MSMEs.<\/p>\n

\"total<\/p>\n

Rural India comprises the lions\u2019 share of MSMEs<\/strong><\/p>\n

Out of the 633.88 estimated number of MSMEs, 324.88 lakh MSMEs (51.25%) are in the rural area and 309 lakh MSMEs (48.75%) are based in the urban areas. The number of rural area MSMEs is expected to go up as the government is trying to promote entrepreneurship at the rural level.<\/p>\n

The Indian government is working on creating an agro MSME category to further push entrepreneurship<\/a> amidst the rural and tribal areas. This will help the manufacturing industries with generating and distributing local and raw produce. Under this category, MSME industries will be planned at a Gram Panchayat level and such industries will contribute towards the development of the respective village.<\/p>\n

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E-commerce is the way for MSMEs<\/strong><\/p>\n

A recent study<\/a> by Akkeren and Cavaye states that e-commerce improves an SME\u2019s ability to compete with larger organizations and operate on a global scale. This is a crucial time as the competition is intensifying, and customers have more options than they have ever had in the past.<\/p>\n

The Government of India has also stepped up the game to encourage eCommerce adoption for MSMEs. The MSMEs are being encouraged<\/a> to market their products on the e-commerce site, especially through Government e-Marketplace (GeM), owned and run by the Indian government, wherefrom Ministries and Public Sector Undertakings (PSU) source their procurement. The platform has recorded transactions worth INR 55,048 Crore (US$ 7.5 billion) as of September 2020.<\/p>\n

\ud83d\uded2 eCommerce in India: Facts & Figures<\/h2>\n

eCommerce to boom by 2030<\/strong><\/p>\n

The $850 billion Indian retail market is the fourth\u00a0largest<\/a>\u00a0in the world and the Indian eCommerce sector is projected to\u00a0grow<\/a> to US$ 300 billion by 2030.<\/p>\n

This is already changing the way small and medium businesses operate in India. What\u2019s more promising is the growth in the number of internet users in India. Currently ranked at number 2, worldwide, with the highest internet users ~ 560 million<\/a>, this number is expected to rise<\/a> to 1 billion by 2025. This predicted growth of internet users provides an amazing opportunity for Indian MSMEs to become digital-ready.<\/p>\n

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Source<\/a><\/p>\n

Only 43% of MSMEs participate in the eCommerce space<\/strong><\/p>\n

MSMEs in India may or may not have an online presence, but 43% of them participate in online sales. By adopting eCommerce, MSMEs can gain significant advantages<\/a> such as:<\/p>\n

    \n
  1. improved market reach<\/li>\n
  2. access to new markets<\/li>\n
  3. cost savings in marketing and customer acquisition<\/li>\n
  4. improved customer experience<\/li>\n
  5. increased revenues and margins<\/li>\n<\/ol>\n

    \"\"<\/p>\n

    Other advantages<\/a> of adopting an eCommerce approach by small and medium-sized enterprises are that it levels the playing field with the big businesses, by providing location and time independence, ease of communication, and the ability to achieve competitive advantages for their business.<\/p>\n

    \"\"<\/p>\n

    Decreased costs, and increased sales; the eCommerce way!<\/strong><\/p>\n

    The MSMEs that are selling online are of the view that eCommerce has significantly reduced costs of marketing and has improved business prospects. Web-enabled SMEs<\/a> have higher profits, have a wider customer reach, and improved employment opportunities. SMEs\u2019 using eCommerce recorded a 60%- 80% decrease<\/a> in marketing and distribution costs. 69% of SMEs reported an increase<\/a> in the number of customers due to the accessibility to the internet.<\/p>\n

    As per a survey<\/a> conducted by KPMG India, 56% of SMEs believed that the use of the internet is critical for business growth while 22% are completely ignorant about the potential of being available on the internet platform for their business.<\/p>\n

    Potential benefits of eCommerce to Indian SMEs<\/p>\n

      \n
    1. up to 51% higher revenues via sales<\/li>\n
    2. 60-80% cost reduction in sales and marketing efforts<\/li>\n
    3. up to 49% more profit due to a decrease in overhead costs<\/li>\n
    4. up to 7% wider customer reach<\/li>\n<\/ol>\n

      \"benefits<\/p>\n

      Today, 20% of the online seller base comprises women entrepreneurs<\/a> due to factors like low setup costs of business, audience reach, work-life balance, and better margins when compared to offline sales.<\/p>\n

      In order to augment sales and growth, and for capturing the market, the most widely adopted promotion<\/a> tool by MSME owners is advertising (31.30%). Whereas discount sales are preferred by (26.08%), personal selling & pamphlets constitute (21.73% & 20.86%).<\/p>\n

      \"\"<\/p>\n

      The point to be noted is that the MSME owners in India rely on more than one channel of promotion at any given point in time.<\/p>\n

      Increased number of internet users- a booming eCommerce<\/strong><\/p>\n

      Increasing the internet\u2019s<\/a> reach, along with smartphone and social media usage has driven the growth of eCommerce in India. The internet reach in India went up<\/a> to nearly 45% in 2021, from just about 4% in 2007.<\/p>\n

      \"Increased<\/p>\n

      Exorbitant real estate prices, high operational costs, and a lack of appropriate retail spaces have restricted the expansion of larger physical stores, forcing big retailers to turn to eCommerce platforms as a growth avenue. In addition to their websites and existing physical stores, the larger retailers have also benefited from adopting eCommerce to sell merchandise. In a study across Tier I and Tier II Indian cities to understand consumer<\/a> behavior and purchasing, 17 patterns emerged, and 53.3% of respondents stated that they preferred online shopping.<\/p>\n

      Lack of awareness is hurting the MSMEs<\/strong><\/p>\n

      Currently, there are over 12 million operational kiranas<\/a> across the country. Even kirana stores were impacted by the lockdown; over 600,000 are estimated to have shut down in the first two months of the lockdown in 2020. To prevent such vulnerabilities, small retailers must digitize their sales and business operations. In a 2020 survey, in midst of the lockdown, 40% of Kirana stores polled indicated<\/a> a willingness to partner with online delivery and supply platforms to help them keep the business running and growing.<\/p>\n

      \"\"<\/p>\n

      However, the Kirana store proprietors appear hesitant<\/a> to adopt digital solutions. Of India\u2019s over 12 million Kirana stores, only 15,000 have digitized their operations with mobile apps. A study<\/a> found out the reasons for not adopting internet marketing and eCommerce was lack of awareness (40%) as the most significant problem, followed by the perception that e-marketing tools are not required (31.30%) to spread the word. Lack of skill and experience (28.69%) was also accounted as a hurdle in the adoption of these marketing channels.<\/p>\n

      \"\"<\/p>\n

      eCommerce has already made its way to more than 95% of pin codes<\/strong><\/p>\n

      E-retail has already democratized the shopping<\/a> landscape, with access to more than 95% of India\u2019s pin-codes, and empowering India\u2019s small sellers while breaking go-to-market barriers for insurgent and incumbent brands.<\/p>\n

      \"\"<\/p>\n

      A microcosm of the pan-Indian retail market, the online shopping landscape<\/a> comprises a diverse mix of city tiers and income ranges. Online shoppers in tier-2 and smaller towns make up nearly half of all shoppers and contribute to three out of five orders for leading e-retail platforms. These customers from tier-2 and smaller towns buy similar categories of products as customers from metro cities or tier-1 towns with only a marginal difference in average selling price.<\/p>\n

      How do Indians shop online?<\/strong><\/p>\n

      A recent report<\/a> by Bain and Flipkart pointed out interesting insights:<\/p>\n

      \"\"<\/p>\n