A 2021 Small Industries Development Bank of India (Sidbi) survey showed that about 67% of MSMEs were closed for three months during FY2020-21. An estimate by the UN’s trade and development wing estimates that as many as 47% of MSMEs in India were either temporary or permanently closed in 2020-21.
Aatrey is founder-CEO, Meesho
Contraction of profits, lack of working capital and inability to expand beyond their local markets are some of the most daunting challenges for India‘s micro, small and medium enterprises (MSMEs). Take the weavers of Kanchipuram, Tamil Nadu. Thousands of resplendent Kanjeevaram sarees are woven by weavers and, in turn, sold by other small retailers. For them, the last two years of Covid-instigated restrictions have been nothing short of a nightmare. Inflationary trends and the global economic slowdown have only exacerbated this challenge further.
A 2021 Small Industries Development
(Sidbi) survey showed that about 67% of MSMEs were closed for three months during FY2020-21. An estimate by the UN’s trade and development wing estimates that as many as 47% of MSMEs in India were either temporary or permanently closed in 2020-21.
While ecommerce could have aided their growth, lack of parity under the GST framework created disadvantage for online sellers. For instance, offline sellers having a turnover of less than ₹40 lakh did not have to register for GST. But every online seller had to obtain GST registration right from the start, irrespective of its turnover. Small businesses lacking the wherewithal and resources to do this simply chose not to sell online. It is against this backdrop that GoI‘s recent decision to exempt small online businesses from mandatory GST registration can be a game changer that should likely bring MSMEs into the digital fold far more efficiently and seamlessly.
On June 29, the GST Council said online businesses with a turnover of less than ₹40 lakh will no longer need to register under the GST regime, unless their turnover crosses the prescribed threshold. The change, which is set to come into effect from the start of next year, removes the single-biggest bottleneck that had held up their digital transformation and hamstrung growth.
MSMEs account for nearly 90% of all enterprises in the country and contribute 30% to its annual GDP. But, so far, their role as a catalyst for socioeconomic transformation has been underestimated and underserved. It is a known fact that small businesses that operate online can grow twice as fast as their offline peers.
Many small businesses that wanted to go online couldn’t make it online because of mandatory GST registration. But in the wake of the GST Council’s decision, that’s set to change. MSMEs – and, by extension, the economy – are set for a windfall.
A home-grown enterprise in Ludhiana that had been making knitwear for children for years had convinced itself that a mom-and-pop shop format was its only option. It didn’t dare to think of expanding online. Now that the relaxation is in place, such businesses can jump on the ecommerce bandwagon and reap its benefits.
For starters, small enterprises will now have access to a much larger customer base. This will, in turn, boost these MSMEs’ earning potential, making them truly national players and resilient to local economic shocks. They will be now on a much sounder financial footing, gaining scale, and allowing them access to much-needed capital, thanks to their improved economic viability and transparency that comes with having a digital footprint. The digital transformation will also drive job creation and entrepreneurship. Drawn by the potential of going online, more and more entrepreneurs will be incentivised to set up their own businesses.
The move will also be beneficial for self-help groups under the National Rural Livelihood Mission (NRLM), as their products can now be listed on an online marketplace without the hassle of GST registration. This will boost their earning capacity and
women from remote areas who could not sell beyond their immediate geographies. New businesses will create new jobs. At the same time, it will also boost employment in ancillary sectors like logistics and across the ecommerce supply chain. The promise of prosperity will drive diversification of the rural economy, which is still largely agriculture-based.
Given that this will lead to greater intra-state sales, the uptick in ecommerce activity will lead to much higher tax revenues for state governments, which can then be reinvested to improve logistics and supply chain infrastructure. This, in turn, will make the ecommerce ecosystem even more efficient, unlocking further gains.