Redseer Strategy Consultants unveils a report on MSME growth and potential amidst India’s economic transformation where e-commerce platforms are propelling MSMEs with better understanding of customers, targeted reach, seamless service delivery and higher net margins.
- Indian economy projected to grow at a CAGR of 8% per year from USD 3.6 trillion in 2023 to USD 4.9 trillion in 2027
- Economy formalization increased from 48% in 2017 to 60% in 2023, expected to reach 80-85% in 2027
- MSMEs expected to contribute between 35-40% of India’s economy by 2027
- Around 70% of 85 million MSME sellers are connected to the internet
- The number of MSMEs selling online is expected to increase to 5.5-6 Mn by 2027, up from 1.5- 2.5 Mn currently
- E-commerce friendly policies like zero/lower commissions, better pricing on logistics, seamless onboarding, effective marketing tools, powerful seller dashboards, etc. are some key factors in moving MSMEs to sell online.
- The majority of MSMEs experience disproportional increase in the share of revenue from eCommerce with their vintage on the platform and across few categories like Fashion and Beauty & Personal Care, MSME sellers witnessed an increase net profits after adopting online sales channels
- MSMEs selling online anticipated to generate >35 million additional jobs by 2027
Bengaluru, 22 Aug 2023: Redseer Strategy Consultants, a leading consulting and advisory firm, has released a comprehensive report shedding light on the remarkable growth and potential of Micro, Small, and Medium Enterprises (MSMEs) in India. The report, titled “MSMEs – The Next Growth Engine for Indian E-commerce,” explores how the Indian economy’s robust expansion and ongoing formalization are creating a fertile ground for MSMEs to flourish.
Rapid Economic Growth and Formalization:
The report highlights that the Indian economy is poised to achieve a CAGR of 8% per year, propelling it from USD 3.6 trillion in 2023 to USD 4.9 trillion in 2027. This impressive growth trajectory positions India as one of the world’s fastest-growing economies. Factors such as a burgeoning youthful population, income ladder ascent aided by infrastructure investments, and a favorable regulatory environment have collectively contributed to this economic surge. Furthermore, the transition to a paperless economy driven by digital transformation initiatives has led to formalization, with the proportion of formalized economy growing from 48% in 2017 to 60% in 2023, projected to reach 80-85% by 2027.
Capitalizing on the Massive MSME Opportunity:
Redseer’s report underscores the pivotal role MSMEs play in India’s economic landscape, contributing around 30% of the nation’s GDP. These enterprises, spanning across sectors such as manufacturing, trade, services, and more, have become a cornerstone of India’s economic fabric. Initiatives like the China+1 policy has enabled MSMEs to emerge as original equipment manufacturers, fostering their scalability and efficiency. “Additionally, digitization has expedited payments and reduced costs, leading to the rapid growth of MSMEs compared to larger counterparts. Our analysis projects that by 2027, MSMEs will contribute a significant 35-40% to India’s economy”, says, Mohit Rana, Partner, Redseer Strategy Consultants.
MSMEs Transforming Retail and Online Market:
The retail market in India is projected to burgeon to USD 1.4 trillion by 2027, and MSMEs are poised to account for an impressive 65-75% of this market share. While offline MSMEs face challenges such as intense competition and financial burdens, the adoption of online channels has emerged as a viable solution. The integration of e-commerce platforms has unlocked new avenues for MSMEs, allowing them to tap into a global consumer base.
Empowering MSMEs through Digitalization:
As India’s internet penetration reaches an anticipated 80% by 2027, MSMEs are embracing e-payments and online sales channels. The number of MSMEs selling online is anticipated to increase to 5.5-6 million by 2027 up from 1.5-2 million currently. It is worth noting here that these base case estimates of the number of online sellers could potentially be at least 20-25% higher once the suggested changes to the GST Act and Rules are implemented, which will allow eCommerce sellers supplying goods with a turnover of up to Rs. 40 Lakhs per annum and services with a turnover of up to Rs. 20 Lakhs per annum but unregistered under the Central Goods and Services (CGST) Act, to make intrastate supplies. These MSMEs selling online are projected to create more than 35 million additional job opportunities by 2027.
The report further adds that, by adopting online distribution and sales channels, MSMEs are capitalizing on the benefits of increased revenues, better customer understanding, and reduced costs. Redseer’s survey of ~250 non-grocery sellers further indicated that in the first year of these sellers’ operations on eCommerce platforms, online revenue accounted for one-third of total sales, but by the third year, the share of online sales exceeded fifty percent of the total sales. Further, MSME sellers in a few prominent online categories such as fashion, beauty, and personal care saw an increase in net profits after they began selling online. ~96% of the MSMEs surveyed across these categories reported an increase in their total net profit after implementing an online sales channel, and more than 55% of the sellers across these categories, with a turnover of more than Rs. 1 crore per annum, reported a net profit increase of more than 15%. “Online sales has helped me scale up significantly because of higher female customers on the platform and has improved my profits with cheaper sourcing. Moreover, it has a strong seller support system, resolving my claims timely, in the most efficient manner” says a Meesho seller whose annual turnover is INR 16 crores and sells women’s sarees on the platform, on being asked about his experience selling online.
This rapid increase in revenue resulting from the adoption of online channels of distribution and sales enables MSMEs to sell online rapidly.
MSMEs at the Heart of Future E-Retail Growth:
Redseer’s report predicts that MSMEs will drive an estimated USD 50 billion in eTailing sales by FY 2027, outpacing the projected 25% CAGR growth of e-Tailing. This growth underscores MSMEs’ ability to effectively harness the potential of online platforms. E-commerce companies are adapting policies to support MSMEs, offering zero/lower commissions, larger user bases, better pricing on logistics, seamless onboarding, effective marketing tools, and powerful seller dashboards.
The report establishes that MSMEs are at the forefront of India’s economic transformation and digitalization journey. By embracing online platforms and capitalizing on policy support, MSMEs are poised to contribute significantly to India’s future economic growth and retail evolution.
For more information and to access the full report, please visit link.