Over 300 million people utilise the internet, and this expanding user base is propositional to the expansion of trade in India. Along with the mass presence of physical retail stores, Indian business owners began opening internet stores. In order to get a foothold in the Indian market, many SMEs are turning to e-commerce. These businesses are using the internet not just for marketing purposes but also to determine whether a certain product would be in great demand.
The MSME sector in India is probably going to increase its market share in online retail by double. According to industry experts, with 1.5–2.5 million online retailers, the percentage of MSMEs selling goods online is likely to triple to 5-6% by 2027, reaching 5.5–6 million online MSME retailers.
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India’s Medium, Small and Micro Enterprise or MSME sector is expanding like never before, thanks to digitization and online sales. Yet its potential to dominate the e-commerce space is limited. However, according to the latest industry analysis, the MSME industry of the country is likely to double its presence in the online retail segment.
According to a recent report published by the RedSeer, the CAGR for online retail as a whole is predicted to be 25% through Financial Year 2027, wherein MSMEs would outgrow it significantly at a CAGR of 60–70%, contributing $50 billion to the Indian online retail sector. The report further says that with 1.5–2.5 million online merchants, the penetration rate of MSMEs selling goods online is currently between 2 and 3%. By 2027, this is probably going to treble to 5–6%, reaching 5.5–6 million online MSME merchants.
Catching up to shifting market demands
Though the COVID-19 period demanded the retail market to shift to the online mode, experts say that several small businesses in India recognised the potential of online sales 5 years ago. Looking back at its growth since the past decade, government policies such as ‘Digital India’ and ‘Skill India’ are accelerating the process of new-age technology to go virtual.
The RedSeer report mentions, “Multiple benefits, which are likely to increase in the future years, are luring more and more MSMEs online. 70% of the 85 million MSME sellers are connected to the internet. By 2027, internet penetration is anticipated to reach 80 per cent. 60% of MSMEs have adopted e-payments, such as net banking and UPI. By 2027, e-payment penetration is projected to reach 70%.”
The finding would imply that by FY2027, an additional 4 million digital vendors may create over 35 million new jobs. MSMEs are anticipated to be the main engine of growth for online retail, according to the RedSeer analysis, as a result of the expanding base of MSME sellers online. While the CAGR for online retail as a whole is predicted to be 25% through FY27, MSMEs would significantly outgrow online retail at a CAGR of 60–70%, contributing $50 billion to the Indian online retail sector.
The report also says, “The advantages that larger brands enjoy by selling online will be reciprocated for MSME sellers. This also allows e-commerce platforms to consider their vendor policies and, if necessary, redesign them for MSME platforms.”
Overcoming the challenges!
Overall, it is anticipated that India’s retail sector will grow to $1.4 trillion by 2027, with MSMEs expected to hold an outstanding 65-75% of this market share, or around $900 billion. However, the difficulties that offline MSMEs confront, such as fierce rivalry and financial burdens, have led to the emergence of online channels as a workable option.
But it is rather a struggle to go digital. There are practical obstacles that must be overcome if the industry is to have the desired impact on the country’s economy. Internet connectivity issues caused by inadequate infrastructure, a widespread lack of knowledge about the advantages that e-commerce offers and a lack of trust among firms thinking about going online are the main hurdles that the sector must overcome.
Currently, medium sellers, who are primarily manufacturers or distributors among SME sellers on e-commerce portals, produce between Rs. 2 and Rs. 7 crore in income. The revenue produced by small sellers, which include wholesalers and retailers, is less than Rs. 2 crore. Small sellers make up 70–75% of all e-commerce merchants, while medium sellers make up 15–25% of that total. Their respective shares of the gross merchandise value (GMV) of Indian e-commerce are 10–18% and 5–10%.
