Digitization: Its Impact on Economic Development & Trade

TLDR

Digitisation automates products and processes, boosting quality and production, and it helps MSMEs overcome financing barriers by offering alternative funding options, thereby enhancing their performance. This study discusses the impact of digitisation on India’s services sector and MSME segments. The study finds that digitisation has driven a significant rise in growth, performance, and profitability of India’s services sector and MSMEs since 2000, largely through increased access to alternative finance, thereby boosting overall trade and inclusive economic growth.

Abstract

This study discusses the impact of digitisation on India's two most vibrant and high potential segments for future growth: services sector and MSME segments. We find that there is a significant rise in growth rate for the India's services sector and MSME segment since 2000. This was majorly due to digitisation. Digitisation automates the product and process as a result of which both quality and production increases. Despite having a high potential for future growth, India's MSMEs segment has suffered due to less 'access to finance'. Digitisation improves the performances of MSMEs and helps in reducing financial obstacles by providing alternative financing options to MSME. Increasing access to alternative finance has resulted in the significant rise in MSMEs operating performance, profitability and productivity. The high performance of the India's services sector and MSME segment contribute significantly to the overall trade growth. This paper finds that there is a high impact of digitisation on the inclusive growth of the overall Indian economy and trade.