Digital adoption raises productivity by 76%, enhances formal credit access: SBI
New Delhi, June 4
Greater digital adoption, better access to capital, and longer operational experience contribute to higher productivity. According to a report by the State Bank of India, the adoption of Information and Communication Technology can increase labor productivity by up to 76%.
The report noted that "one-unit increase in the ICT adoption index is associated with nearly a 76% increase in labor productivity, while firm age and capital intensity improve productivity by ~11% and 7%, respectively, holding all other factors constant."
The findings revealed that ICT is not only a productivity-enhancing technology, but also a mechanism that pushes firms towards formalisation. Digital firms are more integrated into formal systems such as payments, compliance, and visibility.
"Beyond such productivity gains, ICT adoption increases the likelihood of firm registration on average by 84 percentage points. In the sector-wise impact of ICT adoption is positive and statistically significant across manufacturing (64 percentage points, Trade 82 percentage points, and other services 86 percentage points)," the report added.
The report established that ICT adoption lowers the transaction costs associated with formalisation by improving access to digital payments, recordkeeping systems, and compliance mechanisms, while simultaneously increasing the benefits of operating within formal markets through better access to credit, markets, and institutional networks.
"Registered enterprises have 6.90 percentage points higher probability of having credit as compared to the non-registered enterprises," the report noted.
"Female proprietary enterprises have a 2.44% lower probability of accessing formal credit than male proprietary enterprises. Moreover, registered enterprises have average loan amount of ~ Rs 5 lakhs compared to just ~ Rs 75000 for unregistered enterprises," the report added.
Government-linked registration systems are associated with deeper formal business practices such as access to loans from formal sources. According to the report, Udyam Assist-registered enterprises scored 15.92 points, followed by Udyam registered enterprises at 15.45 points and GST registered enterprises at 13.51 points, as compared to unregistered enterprises.
Furthermore, the average loan amount for unregistered enterprises stands at approximately Rs 3 lakhs, while it rises to Rs 5.5 lakhs for registered enterprises, and reaches approximately Rs 10 lakhs for Udyam and Udyam Assist registrations.
"We recommend for the affordability of ICT technologies, creating a score card for Udyam registered enterprises and also the provision for maintaining audited bookkeeping as key mechanisms to formalise the enterprises," the report said.
— ANI
Reader Comments
Interesting findings from SBI. I work in fintech and we see this firsthand – digital adoption is pulling so many informal businesses into the formal economy. But I'm concerned about the gender gap mentioned: female-owned enterprises being 2.44% less likely to access formal credit. That's a real barrier. The report's recommendation for better scorecards and audited bookkeeping could help, but we also need targeted programs to support women entrepreneurs in rural areas. Good data, now let's act on it.
As someone who works in a small kirana store that recently got a Udyam registration, I can confirm the credit access story. We got a ₹6 lakh loan at 9.5% – earlier we couldn't get more than ₹50,000 from informal sources. The digital recordkeeping also helps us file GST easily. But the report should also talk about internet connectivity issues in tier-3 cities and rural areas. We still struggle with network drops that disrupt digital payments. SBI should partner with telcos to improve infrastructure. 😊
The 84 percentage point increase in firm registration probability is remarkable. India's digital transformation is truly unique – we're leapfrogging traditional formalization paths. However, I'd caution against over-reliance on the findings. The report mentions "one-unit increase in ICT adoption index" but doesn't specify what that unit means. Also, we need to ensure that digital compliance doesn't become too burdensome for micro-enterprises. Balance is key. Good to see SBI doing such research though.
One critical point that's missing – what about the digital divide? My mother runs a small tailoring business in a village near Jaipur. She doesn't have a smartphone, forget about internet. For every business that digitizes, there are thousands still in the dark. The 76% productivity boost sounds great
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