The government of India recognizes the small scale industry as an industry that is owned by single ownership and where the investment in plant or machinery is less than INR 10 crores.
Small scale industries account for almost 90% of entrepreneurs and establishments in the country. Small scale industries are the largest provider of employment for the nation.
They employ 80% of the working population of India. Still, small scale industries face challenges in their running and growing due to competition and lack of newer technology at hand.
This sector contributes about 45% of manufacturing output. Small scale industries provide more than 40% of the country’s exports. It is responsible for 28% of the nation’s GDP.
These small scale industries don’t have the essential core ability to take in revenue and secure their input and inventory. All of this is because of the unstable cash flow in this sector.
A digital economy is underway as the country goes through significant changes in the way it operates. The digitization of payments and the taxation processes have helped a lot.
The implementation of GST has proved to be a breakthrough. Filing tax returns and paying taxes to the government through an online portal has businesses flourishing. However, these industries are still very far from the modernization that they need.
Digital payment is the future. It lowers the cost of providing financial services to people who are below the poverty line. It also provides transparency and security, which, as we all know, lacks in the way small businesses transact.
Most of the people employed by small scale industries do not have the required education and awareness, which is why they stick to conventional methods of payment.
Why Digital Payments?
Digital payments have tons of advantages over classical methods of transaction. When digital payments get adopted by lots of people, the whole economy gets benefitted. Digital payments –
- Are cost-efficient
- Are safe and secure
- Are transparent
- Provide access to financial products
- Reduce tax evasion
The Government of India has taken lots of innovative steps to encourage digital payments. The introduction of UPI was one such step towards digitalization.
The government also made it mandatory for businesses who have a turnover of more than INR 40 lakhs to be compulsorily registered under GST.
The government digitalized the whole process of tax collection too.
It introduced the GST Network for GST collection through a common portal. Every firm was given its unique GSTIN for online operations to be possible.
Cashflows in Small Scale Industries – What it Used to be
Cash payment is the only way small scale industries transact generally. They do not have the awareness and the means to fulfil the requirements that digitalization demands.
These industries transact only on physical cash and have a lot of troubles that digitalization can omit. Problems faced by such small scale industries are –
- delayed payments
- lack of access to credit
- physical infrastructural bottlenecks
- absence of formalization
- absence of favours from financial institutions
There are a lot of factors that determine the favourite mode of payment for each industry. Small scale industries have vendors supplying them with raw material. These vendors do not accept digital payments.
The landowners, the informal credit lenders in villages, and several other people don’t transact digitally. If the small scale industries have to acquire raw material from a person, they will have to pay in cash.
So they usually negotiate in real money as it is easier for both of them. Another reason for not accepting digital payments is that they do not have consistent cash flow all year round. Whenever the industries do not roll out finished goods, it could be because of many reasons.
The cash payment is not delivered to the small scale industries if the customer doesn’t find the quality apt. Sometimes the buyer can not have the resources to pay for all the commodities.
He buys only a part of the products produced. Therefore, a small piece of cash gets stuck at the tail-end of production. Digital methods of payment eliminate all these shortcomings of conventional methods of payment.
Digital Payments- What Does the Future Hold?
Cash payments are anonymous and are difficult to trace. That is why a digital transaction is beneficial for the government. It also helps save a lot of time and resources.
Previously, to send money to a particular person, you first had to go to a bank to transfer the funds to another bank account. You then had to wait for 2-3 business days before your money could reach the recipient.
Digital payment has reduced all these barriers and aims to develop a more robust economy. It has also reduced the risk of corruption, theft, and bribe demands.
With the help of digital payments, employees in the small scale industries will be able to –
- enjoy the benefits of digital payment as government rewards such businesses
- have increased control over their transaction and savings
- get loans, and financial help easily
- take advantage of GST composition scheme
- get insurance done for their manufactured goods, or even for machinery and technology
- assess the risk involved with the help of different online portals
Digital payments are the future but are still obsolete to many small scale industries and manufacturing units. The government needs to implement better ideas and laws so that every person from the bottom-up knows the benefits of taking their business online.
India has crossed the target of billion digital transactions per day. Thanks to PM Jan Dhan Yojana, linking of Aadhaar Card to a bank account and PAN Card.
UPI and other services have helped small and medium businesses stand upright on their feet. People have started to accept digital payments, but still, the government has to do a lot of work.
Only 60% of the population of India has started accepting digital payments as their primary ways to receive payments. India aims to become a cashless economy, and we hope cashless it would become