15 Dec 2022
The Global economy has been witnessing unprecedented changes in a post-COVID world. With the current spate of global inflationary trends, global growth has suffered considerably, but India has emerged as a stronger and more resilient global player. It is high time that the Indian MSMEs make the most out of this favourable global sentiment for India.
At present, over 63 million MSMEs in the country provide employment to 110 million people, which is only second to the agriculture sector. Interestingly, the ongoing digitalization phenomenon coincides with this scaling economic growth. New age B2B marketplaces like L&T-SuFin thus have a crucial dual role to play; First, help in the penetration of digitalization into the B2B supply chain framework, and second, help MSMEs scale growth with efficient and reliable supply chains.
Major Challenges Faced by Indian Supply Chains and MSMEs
The aforementioned roles, however, come with their share of challenges. The Indian trade and commerce system has always been trust-driven, and the supply chains are no exception to that. When it comes to trust, a large chunk of supply chains in India still function in the offline mode, where word of mouth and long-standing working relationships are the strongest tools. If we want to specifically categorise the challenges, that can be looked upon through four broad perspectives:
The main roadblock towards the formalization of the supply chain system is the lack of working capital. Not having working capital inhibits growth and chokes the business. Commercial Banks give credit in a more traditional way rather than cash flow-based assessment and hence ask for higher security in terms of properties rather than relying on the cash flow generation by the business.
Trust in dealing on credit terms with unknown entities is completely lacking due to lack of an efficient legal system. It may take several years to resolve a trade dispute in the current system. Hence, it creates a lack of confidence in expanding trade and dealing with unknown entities.
There are recurring issues related to the availability, reliability of logistics and efficient delivery with predictable turnaround times.
Lack of an omnibus digital infrastructure that creates ease of doing business, creates trust, provides support with working capital and logistics.
The first step towards creating MSMEs with global linkages is to help them in linking with each other nationally with confidence. This can be handled on a large scale with efficiency through digital platforms.
Why Digital Medium is Beneficial for Our Supply Chains?
A digital platform can bring all the critical stake holders of a supply chain together and make them interact with efficiency and transparency. It can also create support services that can take care of the trade fulfilment more efficiently than the conventional system. If the supplier, buyer, logistics provider, financier, quality certification agencies, verification agencies, payment gateways, banks, etc. come on a single platform and interact with each other through established protocols, it can scale up efficiencies in supply chains manyfold across the country.
As India gears up to become a 5 trillion-dollar economy by 2028-29, MSMEs have to look forward from hereon and embrace digitalisation fully.
This article has been contributed by Bhadresh Pathak, Business Head, L&T-SuFin.
Sources:
https://www.ibef.org/blogs/supply-chain-finance-and-msme-growth-in-india
https://www.statista.com/statistics/280914/monthly-active-whatsapp-users-in-india/
https://www.india.gov.in/spotlight/helping-msmes-grow-reviving-economy
https://timesofindia.indiatimes.com/blogs/voices/how-do-supply-chain-finance-start-ups-help-smes-to-establish-their-footprints-globally/