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How digitalization improved MSME productivity in India: IMF study
03 May 2026

A recent working paper from the International Monetary Fund (IMF) has highlighted how India's public administration digitalization reforms have improved productivity in micro, small, and medium enterprises (MSMEs).

The study found that states that embraced these changes witnessed higher productivity growth and less variation among firms.

"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 said.

MSMEs are key to India's economy
Economic impact

MSMEs play a crucial role in India's economy, contributing around 35% of the country's manufacturing output and employing some 110 million people.

They also account for nearly 45% of India's total exports.

However, most MSMEs are not formally registered as companies under the Companies Act of 1956.

This makes it difficult to study the impact of business environment reforms on these unincorporated enterprises.

Digitalization and public administration
Reform effects

The IMF working paper noted that business environment reforms in India between 2010-11 and 2014-15 were largely through digitalization of business-related public administration.

The economists observed that while the cost of dealing with bureaucratic hurdles is negligible for big firms, it can be substantial for small ones.

"Thus, these reforms can be considered to help improve the productivity of firms, in particular, small-and micro-manufacturing enterprises," they said.

Impact on business mobility
Mobility concerns

The working paper also found that microenterprises are unlikely to move or expand their businesses to other states that have undergone 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.

This suggests that while digitalization has improved productivity in MSMEs, its impact on business mobility remains limited.

Leveling the playing field
Tool benefits

The IMF working paper also highlighted how digitalization tools have eased administrative burdens, especially for small firms.

"Digitalisation of administrative processes can significantly reduce compliance costs," the economists said.

Digitized systems such as online tax filing and automated approvals improve transparency, cut delays, 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.