‘Digital reforms boost MSME productivity in India’

India’s digitalisation reforms in public administration have improved productivity in micro, small and medium enterprises (MSMEs) in states that have embraced such changes, the International Monetary Fund (IMF) said in a working paper.

The authors compared the productivity of unincorporated manufacturing firms in states that have undertaken more digitalisation reforms with those having fewer such changes in public administration. “We find that states that undertake more public administration digitalisation experience higher productivity growth and lower productivity dispersion among firms,” economists Somnath Sharma and Kenichi Ueda.

MSMEs contribute around 35 per cent of manufacturing output in India, employ around 110 million workers and contribute about 45 per cent of the overall exports from India. Most MSMEs are not formally registered as companies under India’s Companies Act of 1956 and only a few studies have been done on the impact of the business environment reforms on these unincorporated enterprises.

The working paper said that the business environment reforms undertaken in India between 2010-11 and 2014-15 were mainly through digitalisation of business-related public administration. It observed that the cost of dealing with bureaucratic hurdles is likely negligible for big firms, but may be sizeable for small firms.

“Thus, these reforms can be considered to help improve the productivities of firms, in particular, small and micro-manufacturing enterprises,” the economists said.

However, the working paper also found that microenterprises were unlikely to move or expand their businesses to other states that underwent more reforms.