Friday, April 18, 2025

Impact of Digital Literacy and E-Commerce on MSMEs

Summary: This article explores the transformative role of digital literacy and e-commerce in empowering India's micro, small, and medium enterprises by highlighting current issues and challenges.

Introduction

 

MSME stands for Micro, Small, and Medium Enterprises, which play a critical role in India's socioeconomic development. They are significant economic contributors, acting as its backbone and providing resilience against global economic challenges (Mukherjee, 2018). This sector is vital for India's GDP and exports and helps foster entrepreneurship, employing around 110 million people, particularly in semiurban and rural areas.

As of March 2024, there are 40,042,875 registered MSMEs, including 39,318,355 microenterprises (97.7%), 608,935 small enterprises (1.5%), and 55,488 medium sized enterprises (0.8%). The MSME sector consisting of 36 million units provides employment to over 80 million persons. The sector through more than 6000 products contributes about 8% to GDP besides 45% to the total manufacturing output and 40% to the exports from the country.

Micro enterprises employ fewer than 10 people, small enterprises employ 1050, and medium enterprises employ 50250. While many countries define MSMEs based on workforce size, India categorizes them according to investment in plant and machinery (Hooi L W, 200).

 

Challenges Faced by MSMEs

 

Despite a high growth rate and promising prospects, Indian MSMEs face several significant constraints. The most notable barriers include:

·       Lack of Timely Credit: Many MSMEs struggle to secure funding when needed.
·       Procurement of Raw Materials: Obtaining raw materials at competitive prices is a challenge.
·       Inadequate Infrastructure: Facilities such as power, water, and road infrastructure are often lacking.
·       Shortage of Skilled Manpower and Technological Backwardness: There is a significant shortage of skilled workers in manufacturing, services, and marketing. Many MSMEs are unaware of global technologies, highlighting the need for improved managerial and entrepreneurial skills. According to the OECD (2013), integrating external knowledge is crucial for growth, but finding and mastering new technologies can be challenging and costly (Mukherjee, 2018).
·       Lack of access and investment in technology with inadequate strategy for marketing and advertising. (Mukherjee, 2018)
·       Profitability Issues: As MSMEs expand, maintaining steady profits becomes difficult due to rising costs, competition, or price cuts.
·       Poor Cash Flow: Many businesses start with limited capital, leading to poor cash flow, which is often the norm.
·       High Competition: Standing out in today’s competitive market is challenging, as products and services can be easily replicated. Businesses need to enhance customer service, offer exclusive products, and provide convenience, such as home deliveries.
·       Ineffective Marketing: To attract new customers, SMBs must market and advertise effectively, which can be resource intensive. Utilizing word-of-mouth recommendations and smartly leveraging digital media, such as influencer partnerships, can be beneficial.
·       Regulatory Compliance: Navigating the complex regulatory landscape poses significant challenges for MSMEs in India. Compliance with labor laws, environmental regulations, and taxation norms can be time-consuming and costly.
·       Technological Advancements: Due to limited funds and expertise, many MSMEs struggle to keep up with technological advancements. This technological gap can result in operational inefficiencies, reduced competitiveness, and an inability to meet market demands.

 

Digital Literacy

Digital literacy is the ability to effectively use information and communication technology (ICT) to find, evaluate, create, and share content. It is essential for effective communication, and supporting skills such as collaboration and critical thinking. For micro, small, and medium-sized enterprises (MSMEs), digital literacy is crucial for connecting with customers and improving operations. It them compete in a rapidly changing technological landscape. However, many MSMEs struggle with managing digital platforms, affecting their marketing and financing efforts.
 
According to the Indian National Statistical Office, a digitally literate person can navigate the Internet and use social media effectively. While more than 55 percent of Indians have broadband access, only 20 percent can use the Internet effectively. This highlights the digital divide, which goes beyond access to include meaningful technology use.

Need For E-Commerce

 

  • To Increase employee satisfaction and engagement
  • To Make your business more resilient and adaptive to change
  • To Put your company on a digital-first footing
  • To Automate business processes and monitor them using a computer
  • To Attract new customers and make them spend more

 
E-Commerce

E-commerce, or electronic commerce, encompasses a variety of online business activities involving the buying and selling of products and services through the Internet. It enables transactions where parties interact electronically instead of physically, using digital communication and technology to create value among organizations and individuals (Gupta, 2014). Often called market-making, e-commerce connects sellers and buyers globally in cyberspace (Tian et al., 2018). The rise of e-commerce has significantly transformed business dynamics, diminishing the differences between traditional and electronic markets. In India, the e-commerce sector is projected to grow by 23.8% in 2024, fueled by increased online shopping and internet access. The market is expected to expand from $147.3 billion (INR 12.2 trillion) in 2024 to $292.3 billion (INR 24.1 trillion) by 2028, reflecting an 18.7% compound annual growth rate.
 
Need For E-Commerce


·       Lower Prices - E-commerce minimizes operating costs, resulting in lower prices and easier access to discounts for consumers.
·       Wider Customer Base - Selling online eliminates geographical barriers, allowing businesses to reach customers worldwide.[1]
·       Easier to Scale Up - Expanding an online store is more cost-effective than scaling a physical store, requiring only additional inventory.
·       Enhanced Customer Experience- E-commerce platforms improve the shopping experience, driving higher customer satisfaction and loyalty.
·       Improved Inventory Management - Real-time inventory tracking helps prevent stock issues and streamlines inventory processes.[2]



Source: MSME Act 2006

How Is Govt Helping Msmes With Digital Literacy And E-Commerce

Micro, Small, and Medium Enterprises (MSMEs) often hesitate to adopt digital technologies due to a lack of funding and insufficient skilled personnel who are well-versed in the latest platforms and technologies. Many small business owners are not fully aware of the impact that digital technology can have on their operations, which hinders their ability to attract new customers and retain existing ones. In response to this challenge, the Government of India has introduced the Digital MSME scheme to empower these enterprises digitally. This initiative aims to increase awareness and promote the adoption of information and communication technology (ICT) among MSMEs, encouraging them to integrate ICT tools into their business processes. The scheme also emphasizes the importance of e-platforms and promotes digital marketing within the MSME sector.

The Government of India is particularly encouraging these businesses to market their products on e-commerce sites, especially through government-owned platforms like the e-Marketplace (GeM), which is utilized by various ministries and public sector undertakings (PSUs) for procurement purposes.

Another important initiative is the Digital India Scheme, which aims to establish a strong digital presence for Indian MSMEs. Programs such as Jeevan PramaanMobile Seva, and BHIM by NPCI are part of the efforts to transition MSMEs to a cashless, contactless e-commerce environment.

Skill India, initiated by the National Skill Development Corporation, connects various industries with trainers who assist entrepreneurs in developing the skills necessary for their businesses.

BharatNet is another initiative aimed at boosting e-commerce growth for small businesses by providing broadband connectivity to 250,000 gram panchayats across the country. This infrastructure ensures that small business owners have access to the internet to operate their businesses online. It also facilitates e-governance, enabling access to government websites and online services like banking.[1]

Open Network for Digital Commerce (ONDC) is a public technology initiative launched by the Government of India to promote an open Network for Digital E-commerce (ONDC) and digital transformation enables rural E-commerce can lift and improve the economy and Entrepreneurship of rural areas and sustainability

Investment in plant and machinery, along with Udyam registration, is vital for accessing benefits under the MSME Development Act. This registration allows small and medium enterprises (SMEs) to obtain a Zero Defect & Zero Effect (ZED) certificate, thereby enhancing their competitiveness and sustainability. Equity infusion is available through mechanisms such as the Fund of Funds and the Production-Linked Incentive (PLI) Scheme. Initiatives like the Pradhan Mantri Kaushal Vikas Yojana (PMKVY) prioritize workforce skill development. The ONDC e-Commerce platform supports MSMEs, while the RBI fosters digital lending. Collectively, these initiatives aim to empower MSMEs in a digital and global marketplace.(Mahesh K. M, et.al ,2023)

Conclusion

Digital literacy and e-commerce hold significant promise for transforming micro, small, and medium enterprises (MSMEs), enabling them to compete more effectively in a globalized economy. Although challenges persist, the strategic adoption of digital tools can stimulate growth, enhance efficiency, and ensure resilience in our increasingly digital landscape. Mastering digital literacy and e-commerce is essential for the survival and expansion of MSMEs in today’s digital economy, providing them with the means to broaden their reach, cut operational costs, and engage customers in innovative ways.

By embracing e-commerce, MSMEs can overcome conventional geographical and logistical barriers, gaining access to global markets and competing alongside larger enterprises. Additionally, digital tools facilitate the optimization of various operations, including inventory management and targeted marketing, thereby fostering both efficiency and scalability.

However, the transition to digital platforms is fraught with challenges. Limited digital skills, financial constraints, cybersecurity risks, and infrastructure deficiencies continue to impede many MSMEs. Nonetheless, through a concerted effort involving stakeholders—such as governments, private enterprises, and industry associations—these obstacles can be surmounted. Initiatives aimed at enhancing digital literacy, providing financial support, and developing digital infrastructure are critical for leveling the playing field for MSMEs.The role of government in advancing digital literacy and e-commerce for MSMEs is pivotal in driving economic growth, job creation, and social development. By addressing infrastructure gaps, improving digital skills, and offering financial and regulatory support, governments can empower MSMEs to thrive in the digital era. A collaborative approach that engages both public and private stakeholders can cultivate a robust ecosystem where MSMEs can compete, innovate, and make significant contributions to both national and global economies.

In summary, the integration of digital literacy and e-commerce into MSMEs represents not just a path to economic growth but also a catalyst for innovation, resilience, and inclusivity. By leveraging these tools, MSMEs can unlock their full potential, significantly contribute to local and global economies, and maintain their relevance in an ever-evolving marketplace.

 


References

By

Aastha Bharal

B.A. Economics (2022-2025), DoE, SBSS, MRIIRS, Faridabad

To cite this article: Bharal, Aastha, (2025, April), "Impact of Digital Literacy and E-Commerce on MSMEs". https://ecobizzblog.blogspot.com/2025/04/impact-of-digital-literacy-and-e.html


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