Digital finance and MSME performance in India: evidence from World Bank Enterprise Survey data

Anil Verma, Khanindra Ch. Das and Pooja Misra

Journal of Economic Studies, 2024, vol. 52, issue 5, 887-903

Abstract: Purpose - The impact of digitalisation on smaller firms remains sparsely studied across emerging economies. The paper aims to examine the relationship between digital adoption and multiple performance parameters of micro, small and medium enterprises (MSME) in a prominent emerging economy. Design/methodology/approach - The study employs data from the World Bank Enterprise Survey (WBES) 2022, capturing 9,024 Indian MSME firms spread across the country. Performance indicators are derived from growth in sales, employment and labour productivity (LPROD). Multiple regression estimates are derived that also correct for sample selection bias using Heckman’s two-step process. Findings - Digital proliferation is found to increase as firms mature up in terms of age, size and constitution. A significant difference could also be observed in business performance across digital and non-digital businesses, with sales growth (SG) and productivity higher for digital firms. Digital financial variables are found to have a significant impact on SG but not as much in the case of employment growth and LPROD. The results are robust to correction for sample selection bias in digital adoption using inverse mills ratio (IMR). Practical implications - The study highlights digital adoption gaps across various strata of MSMEs, highlighting lower adoption when firms are younger, smaller and lacking formal constitutional setup. Digital variables indicating positive association with SG highlight the need for concerted efforts at the public policy level for building appropriate skills and infrastructure for micro and small enterprises to boost their digital adoption to promote growth. Originality/value - There is a lack of micro-level empirical evidence measuring the impact of advanced digital technology usage on multiple aspects of enterprise performance amongst micro and small firms. The study deploys unique digital variables including TReDS and use of online credit applications to assess the impact on business performance. The findings provide insights for practice and public policy, besides making the case for a higher focus on launching digital initiatives for smaller enterprises.

Keywords: MSMEs; Digital finance; Firm performance; Gender; Enterprise survey; Digitalisation; Sample selection; Emerging economy; J24; L25; O14; O33 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-12-2023-0744

DOI: 10.1108/JES-12-2023-0744

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