How Digital Transformation is Revolutionising the Indian MSME Sector

Here is an exclusive conversation between Jaepy Kurian Head of Delivery, India at Orion Innovation and Faiz Askari, Founder and Editor of SMEStreet. In this exclusive interview, the pivotal role of digital transformation in reshaping India's MSME landscape is explained.  Also, explore the impact on sales, customer experience, productivity, innovation, and access to finance, propelled by initiatives like ONDC and ECLGS in this interview. Learn why digital evolution is imperative for MSME success, driven by innovation, government support, and collaborative efforts.

Here are the edited excerpts:

Digital Transformation Impact on Indian MSMEs

Q1. How is Digital Transformation likely to influence the Indian MSME sector?

The MSME sector relies heavily on digital transformation and the speed of adoption to thrive. Within this sector, there is a clear need for:

• Increased sales: E-commerce platforms play a crucial role in facilitating direct sales to consumers, while online marketplaces provide extensive access to buyers. For instance, the Government of India’s ONDC (Open Network for Digital Commerce) fosters open interchange and connections among shoppers, technology platforms, and retailers.

• Enhanced customer experience: Leveraging data analytics and insights enables the customization of offers and recommendations based on customer behaviour. Additionally, maximizing digital channels such as chatbots and social media avenues contributes to an improved customer experience.

• Increased work productivity and improved efficiency: Cloud-based solutions offer easy access to various CRM, accounting applications, and software, facilitating the automation of mundane and repetitive tasks, thereby enhancing productivity.

• Innovation: Innovative problem-solving approaches through data analytics and collaboration tools drive creativity within the MSME sector. For example, digital lending platforms leverage businesses' digital footprint to facilitate credit access and uninterrupted growth.

• Easier access to finance: Streamlining loan applications and approvals is critical for MSMEs. Initiatives such as the Government scheme ECLGS (Emergency Credit Line Guarantee Scheme) provide additional loans, while the surge in digital payment adoption post-demonetization and COVID has streamlined transactions and cash flow for MSMEs.

Digitization is not merely an option but a necessity for the success of MSMEs in India. While government initiatives and digital innovations are instrumental in driving growth, further adoption is essential in terms of infrastructure development, capacity building, skill enhancement, regulatory framework improvement, and fostering partnerships for sustained competitiveness.

GoI's Efforts on Digital Transformation

Q2.  According to you, in what form, should government boost digital transformation (Digital India)? 

Under the Digital India initiative, the Government of India has made significant progress, as evidenced by its extension until 2026, signaling a commitment to digital advancement. However, as highlighted in my previous conclusion, there remains scope for further support and enhancement.

Continued acceleration and expansion are imperative, focusing on the following areas:

• Infrastructure: This entails the expansion of 5G networks, high-speed internet availability, and accessible cloud technology. Additionally, efforts should be directed towards providing technology training, including reskilling and upskilling initiatives, particularly in smaller towns and rural areas.

• Financial Support for MSMEs: There is a pressing need to bolster digital payment platforms and facilitate easier access to loans, funding, and financial incentives. Subsidies and tax concessions aimed at promoting the adoption of digital tools and technologies among MSMEs are crucial for their growth and sustainability.

• Building Trust: Strengthening data security and privacy laws, enforcing robust intellectual property regulations, and enhancing e-governance practices are essential for fostering trust in digital platforms. Encouraging the adoption of open-source tools can further enhance collaboration and transparency.

• Collaboration: Leveraging public-private partnerships to drive digital innovation and solutions is vital. Educational institutions should play a role in providing necessary skills training, while community programs can help increase awareness and digital literacy among the population.

By focusing on these key areas, the Digital India initiative can continue its momentum towards comprehensive digital transformation, ensuring inclusivity and sustainable progress across all sectors of society.

Q3. How has the lag in adopting cloud technology affected Indian businesses' competitiveness globally?

The delayed adoption of cloud technology in India isn't a myth. While many large enterprises and startups have readily adopted cloud solutions, the MSME sector faces significant challenges in this regard, primarily due to cost constraints and skill shortages. According to a recent NASSCOM report, India could potentially lose $118 billion in GDP contribution and five million job opportunities by 2026 if both businesses and the government fail to expedite cloud adoption. This threat stems from factors such as a limited understanding of cloud functionalities and benefits, integration complexities with existing legacy systems, and a lack of in-house expertise to drive transformative initiatives across industries.

The repercussions of lagging in cloud adoption are manifold:

• Difficulty in attracting global partners who prefer organizations with modern, cloud-based infrastructure for enhanced data security and collaboration.

• Challenges in attracting and retaining top talent, as professionals increasingly seek opportunities in cloud-based technologies.

• Impediments in gaining a competitive edge in the market, as organizations slow down in innovation, scalability, and responsiveness to evolving market demands.

Despite these challenges, the Indian cloud market has demonstrated remarkable growth rates surpassing the global average. This positive trajectory can be attributed to favorable government policies, the expanding digital population, increased investments, and ongoing digitization efforts, all of which are propelling India towards a more digitally empowered future. 

Q4. What are the main security risks in the cloud versus traditional setups, and how can organizations proactively protect their data? 

Also, how do challenges like infrastructure limits, digital literacy, and socio-economic disparities hinder digital transformation in India, and what strategies are used to overcome them? 

Addressing the first part, it's essential to recognize that both cloud-based and traditional setups face security risks, albeit with distinct characteristics and potential impacts.

Cloud security risks primarily revolve around vulnerabilities and unauthorized access stemming from improper configurations, shared responsibilities between organizations and cloud providers, data breaches through cloud storage, unauthorized access via hijacking, and limited visibility into the physical security of cloud provider data centers.

Conversely, traditional setups are vulnerable to physical security breaches, legacy infrastructure vulnerabilities, human errors, and insider threats.

To safeguard data in the cloud, robust strategies are imperative, including the implementation of stringent access controls like multifactor authentication, data encryption, employee education on security best practices, continuous security monitoring, regular data backups, and frequent review and updating of security policies. Additionally, selecting the right cloud provider is crucial for ensuring optimal security measures.

Turning to the second part, overcoming infrastructure limitations, digital literacy challenges, and socio-economic disparities that impede digital transformation in India requires multifaceted approaches.

Infrastructure limitations, encompassing connectivity, power supply, and digital device accessibility, can be addressed through initiatives such as Bharatnet, promoting alternate power sources like solar energy, and incentivizing the production of affordable devices through the "Make in India" campaign.

Enhancing digital literacy necessitates the establishment of more technology training centers or hubs catering to all communities, including disadvantaged groups. Overcoming language barriers can be achieved by promoting digital content and services in regional languages and integrating digital literacy into educational curricula. Government initiatives like the Digital India program and the Pradhan Mantri Gramin Digital Saksharta Abhiyan are steps in the right direction.

Addressing socio-economic disparities involves targeted digital programs for marginalized communities, rural populations, and women. Encouraging NGO and business participation, along with providing financial support schemes for MSMEs to embrace digital technologies, is vital for bridging these divides and fostering inclusive growth.

Q5. How are emerging technologies like AI, blockchain, and IoT driving digital transformation in India, and what opportunities and risks do they entail? What role does Orion play in this transformation?

When discussing the impact of AI in India, it encompasses various sectors, including manufacturing and customer services, where process automation improves efficiency. Additionally, predictive analytics enhances decision-making in government services and businesses, while AI-based chatbots personalize experiences in ecommerce, education, and healthcare. Blockchain technology facilitates efficient supply chains and secure payment systems, benefiting unbanked populations. It also ensures tamper-proof storage of sensitive documents like legal ownership and medical records. IoT contributes to Smart Cities by optimizing traffic and waste management, and aids the agriculture sector through soil monitoring and weather prediction for improved crop health.

These advancements offer opportunities for global competitiveness, enhanced public services, and overall economic growth. However, they also pose risks such as increased cybersecurity threats with the proliferation of smart devices and ethical concerns regarding transparency, bias, and data misuse. Furthermore, there's the potential for job displacement as routine tasks become automated through IoT integration.

As for Orion Innovation, we've been a trusted partner in digital transformation for over three decades, delivering innovative solutions to drive business progress. Our expertise spans various industries, including telecom, professional services, finance, consumer tech, healthcare, education, and sports. With a strong presence in India, we serve both global and local clients from our centers in Chennai, Kochi, Coimbatore, Hyderabad, and Mumbai, supported by a skilled workforce of 2400 AI professionals. Our track record includes developing cutting-edge solutions tailored to the needs of financial organizations, educational institutions, and sports associations, contributing significantly to India's digital evolution.