Based on the largest active data set on Indian MSMEs, Khatabook did an analysis of the impact of lockdown across all Indian states and major business categories. Reaching out to retail merchants across business segments and different industry verticals, present in over 700 out of 729 Indian districts, an analysis performed over a period of 18 months shows that they have massively given their full support to digitization.

During the lockdown period from March 24 to May 17, 2020, retail businesses have been the worst hit across all regions and categories. It's observed that there is an overall drop of ~50% in DAUs (Daily active users) during the first week. However drop was comparatively lower for grocery(-9%), mobile(-12%), health(-10%) and agriculture(-9%).

Khatabook logo
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Post relaxation in lockdown from May 18 to June 10, 2020, there has been a noted increase in transactions, comparatively higher for automobiles(73%) and textile(76%). These are the two categories that were badly hit by the lockdown.

Ravish Naresh, CEO and Co-founder of Khatabook says, "Engagement on Khatabook is back to pre COVID level engagement and 90% of transaction value has returned. Shopkeepers are still returning to the app after 3 months. Post lockdown recovery has been very encouraging."

Covid-19 impact on the MSMEs and retail 

Ravish predicts, "For many small businesses, this year is going to be probably the hardest one in their lives and a lot of them may not survive if the crisis prolongs and more disruptions happen."

Many local retailers who used to give credit to its regular customers pre-COVID have now stopped giving credit to their regular customers since the lockdown has opened due to cash flow issues.

As a part of the Indian government's relief efforts to survive the economic crisis caused by the pandemic, the Atmanirbhar Bharat Abhiyan there was an upward revision of the definition of MSMEs. The Micromanufacturing and services units were increased to Rs. 1 crore of investment and Rs. 5 crores of turnover. The limit of the small unit was increased to Rs. 10 crores of investment and Rs 50 crore of turnover.

Existing and Revised Definition of MSMEs

Similarly, the limit of the medium unit was increased to Rs. 20 crores of investment and Rs. 100 crore turnover. For medium enterprises, now it will be Rs. 50 crore of investment and Rs. 250 crore of turnover. According to the new definition announced, there will be no difference between the manufacturing and service sectors.

Ministry officials believe that "The new definition will pave the way for strengthening and growth of the MSMEs. Particularly, the provision of excluding the exports from the counting of turnover will encourage the MSMEs to export more and more without fearing to lose the benefits of an MSME unit. This is expected to exponentially add to exports from the country leading to more growth and economic activity and creation of jobs."

Looking beyond into the future of Indian retail

Considering 90% of Indian retail trade still flows through small merchants, Ravish Naresh, Co-founder, and CEO of Khatabook states, "If life during lockdown did not come to a standstill inside our homes, it was because these heroes were putting our needs first. Now is the time they need us to stand by them."

India retail market

EY report on resilient strategies for Indian retail suggests, "To mitigate the disruption caused by this crisis, Indian retailers will need to devise strategies for the "now", "next" and "beyond". While they need to manage their costs through operational improvement and by evaluating the store portfolio, they also need to invest in service, experience, and omnichannel to serve the new consumer. As retailers react to the fluidity of the "now" they also need to build resilience for the "next" when demand starts getting restored and think "beyond". They should map a strategic journey to financial resilience, while at the same time plan for longer-term implications on their operating model owing to shifts in the external environment."

Thriving in an environment of uncertainty in the current Covid-19 times, it is required of Indian retailers to adopt a cross-functional swift response system that is competent to handle any and all kinds of events. It is required of them to be flexible and adaptable to alter operating models and product assortment to meet the critical need of the hour.

"They will also have to repurpose their supply chain to meet demand fluctuations within their categories amidst supply constraints. They must develop the capability to plan inventory and logistics across stores in a highly dynamic way until business returns to normalcy."

Digitization will help retailers to reimagine company operations and meet consumer demand as the market moves towards more omnichannel and delivery-based models. Adequate steps towards health and safety should be taken by retailers in their stores, which requires a heightened level of regulatory scrutiny and passing of multiple directives to build consumer trust and consistent communication is a must to nurture relationships during the crisis period.

EY findings state, "This pandemic should serve as a reminder for retailers to quickly build a flexible and agile business and operational model to take care of disruptions in the future."