WASHINGTON, May 2: 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.
“We can, thus, assume no direct spillover effects across different states, except for potential arbitrageurs if prices vary due to reforms,” it said.
The reforms were part of a broader effort to improve the business climate.
In 2014, states agreed to a “98-point action plan” aimed at simplifying regulations and expanding digital systems.
The paper lists reforms into six areas: tax systems, construction permits, environment and labour compliance, inspections, commercial disputes and single-window clearances.
States that implemented more of these reforms recorded higher total factor productivity. Digital tools reduced administrative burdens, especially for small firms.
“Digitalisation of administrative processes can significantly reduce compliance costs,” the economists said.
The working paper says digitised systems – including online tax filing and automated approvals – improve transparency and cut delays. They also reduce informal costs and limit discretionary decision-making.
“By automating and making processes more transparent, digitalisation levels the playing field for all businesses,” the working paper said. (PTI)
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