While online retail overall is anticipated to grow at a CAGR of 25 per cent through FY27, MSMEs will outgrow online retail substantially at a CAGR of 60-70 per cent, adding $50 billion to the online retail market in India.
E-commerce MSME sellers: Internet penetration along with the growing use of online payments are among the benefits expected to drive more MSMEs towards online retail, according to a report by consultancy firm RedSeer on Wednesday. Currently, the penetration rate of MSMEs selling goods online is 2-3 per cent with 1.5-2.5 million online sellers. This is likely to double to 5-6 per cent by 2027, reaching 5.5-6 million online MSME sellers.
“Multiple benefits, which are likely to increase in the future years, are luring more and more MSMEs online. 70 per cent of the 85 million MSME sellers are connected to the internet. By 2027, internet penetration is anticipated to reach 80 per cent. 60 per cent of MSMEs have adopted e-payments, such as net banking and UPI. By 2027, e-payment penetration is projected to reach 70 per cent,” the report said.
As a result, the additional around 4 million digital sellers are anticipated to generate more than 35 million additional jobs by FY27.
“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,” said Mohit Rana, Partner, Redseer Strategy Consultants.
Importantly, the estimated number of online MSMEs could potentially be at least 20-25 per cent higher once the suggested changes to the GST Act and Rules are implemented, which will allow e-commerce 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.
Consequent to the growing base of MSME sellers online, MSMEs are expected to be the primary driver of growth for online retail, the RedSeer report noted.
While online retail overall is anticipated to grow at a compound annual growth rate (CAGR) of 25 per cent through FY27, MSMEs will outgrow online retail substantially at a CAGR of 60-70 per cent, adding $50 billion to the online retail market in India.
“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,” the report said.
Overall, the retail market in India is projected to burgeon to $1.4 trillion by 2027 and MSMEs are poised to account for an impressive 65-75 per cent of this market share amounting to around $900 billion. However, offline MSMEs face challenges such as intense competition and financial burdens and hence online channels has emerged as a viable solution.
Currently, among SME sellers on e-commerce portals, medium sellers, which are typically manufacturers or distributors, generate Rs 2-7 crore revenue. On the other hand, small sellers, which are wholesalers and retailers, generate less than Rs 2 crore revenue. Medium sellers are 15-25 per cent and small sellers are 70-75 per cent of total e-commerce sellers with a 10-18 per cent share and 5-10 per cent share respectively in Indian e-commerce gross merchandise value (GMV).