Why Indian MSMEs must prioritise digital maturity for growth

Hindustan Times

3 hours ago

India's long-term economic vision rests on sustaining a high-growth momentum. A World Bank analysis indicates that India's economy must expand at an average annual rate of 7.8% over the next two decades to achieve high-income status by 2047. The fulcrum of this growth is its 63 million micro, small, and medium enterprises (MSMEs), which make up nearly 30% of GDP and drive 50% of exports. Yet, their potential remains underutilised. The sector remains bifurcated between those leveraging digital infrastructure to scale and compete globally and those falling behind in an increasingly tech-driven marketplace. Digital growth (Representational image)
Only 12% of MSMEs use digital tools for strategic decision-making, while most face capital shortages, policy unawareness, and skill gaps. This directly impacts India's growth prospects as these firms operate at lower productivity, struggle with financing, and remain locked out of high-margin, global value chains. While in clear contrast, firms that have embraced digital transformation report sales growth of up to 80%, productivity gains of 40% and greater resilience against economic downturns. The question thus arises: how can India bridge the digital divide for its MSMEs as they seek to integrate into global markets?
Globally industrialised economies are putting a pertinent focus on their MSMEs to go digital; Singapore's Productivity Solutions Grant (PSG) covers up to 50% of digital adoption costs for SMEs. Similarly, its SMEs Go Digital initiative offers subsidised access to Artificial Intelligence (AI)-driven tools and training. South Korea raised research and development (R&D) support for strategic technologies from 38% to 50%. Meanwhile, China has aggressively digitised its SME sector through its e-commerce policies, expanding global trade among SMEs by 68%. These examples underscore how digitisation enhances operational scale, cross-border competitiveness, and long-term cost-efficiency.
In India, digitally mature MSMEs report a 65% increase in turnover, with 54% seeing higher profits. A Google-KPMG study shows digitally enabled businesses grow at twice the rate of offline firms. More importantly, digitisation reduces overheads, optimises inventory and logistics, improves visibility into customer data, and shortens sales cycles—driving both revenue and resilience. Digital platforms facilitate access to credit, and fintech-backed loans help MSMEs with working capital. Yet, despite these demonstrable benefits, only 57% of small businesses view AI as an opportunity, and fewer have the skills to implement it effectively. Digital platforms reduce paperwork, lower credit processing time, and help MSMEs comply with tax and regulatory norms. Despite the clear value in cost savings, faster turnaround, improved compliance, and expanded customer outreach, structural barriers persist.
Cost remains the most cited deterrent to digital adoption, as 30% of MSMEs report high infrastructure costs as a limiting factor, while another 36% cite resistance to adopting new technology. The larger issue is workforce inertia—India's MSME sector has a digital skills deficit, making the transition to technology-driven operations slower. A study by NASSCOM and Meta shows that 65% MSMEs don't adopt technology due to a lack of skills and limited awareness about available tools and resources and an absence of structured support systems that could mentor them.
Cybersecurity risks affect 40% of MSMEs, exposing them to fraud and financial threats. Meanwhile, policy awareness remains low—despite multiple government-led digitisation incentives and support. The result is a sector struggling to keep pace in an economy that is increasingly dictated by digital efficiencies.
The structural shift required to bridge India's digital divide will demand coordinated intervention. India must implement targeted credit instruments that focus on digital upgradation for these MSMEs and reduce their technological costs, the government is already working towards it with TEAM (Trade Enablement & Marketing Scheme) and Technology Upgradation Schemes. However, to bridge the skill gaps the government should leverage their partnerships with private firms to provide structured training and hands-on tech support. Further the government can absorb ex-practitioners and industry experts in their business facilitation hubs, where MSMEs can receive customized, sector-specific guidance from former entrepreneurs, technology specialists, and financial advisors. Cybersecurity frameworks and awareness campaigns around existing digitalisation incentives must be amplified to bridge the policy communication gap.
India's economic future is inextricably tied to the digital evolution of its MSME sector. Those embracing digital transformation will lead India's next wave of economic expansion. The need for proactive, policy-driven intervention has never been more urgent.
This article is authored by Anup Wadhawan, former commerce secretary, Government of India and Arvind Singh, founder & chief executive officer, Quest OntheFRONTIER.