In an exclusive interaction with Adlin Perishya Jebaraj, Finance Outlook Magazine, Srikanth, Founder and CEO of Digital CFO, emphasized that Indian MSMEs are embracing digital financial tools for improved efficiency, cost reduction, and compliance. The impact of automation, real-time data, and India-specific solutions on decision-making and operational agility is a transformation. He sees a digitally empowered, globally competitive and sustainably MSME ecosystem in the future. Srikanth brings over 25 years of experience across auditing, bookkeeping, financial services, and MSME advisory, having worked with global firms like PricewaterhouseCoopers, in banking, and in KPO services.
Over the last few years, how have you seen MSMEs in India evolve in terms of adopting digital financial tools?
Over the past few years, there has been a significant change in the usage of digital financial tools by the Indian MSMEs. There have been several structural and technological forces that have led to the shift. Firstly, the Government of India’s regulatory programs, such as full digitalization of GST compliance, and RBIs encouragement of digital financial transactions have provided an irresistible push to get MSMEs to shift to digital platforms. There is a growing trend of reducing manual interventions and making digital processes not only preferable but also required by regulation.
Secondly, even the business atmosphere has changed. The growth of e-commerce and online business mediums has provided a platform in which the MSMEs can no longer compete using the traditional business offline means. In order to be competitive, they should adopt digital financial solutions that will enable them to conduct their more rapid transactions, expansive coverage, and smoothly integrate with online marketplaces.
Moreover, the 5G connectivity and Software-as-a-Service (SaaS) solutions used as technological enablers have allayed the previous infrastructure limitations. In the past, MSMEs also had the problem of high software and hardware buying costs, and the large IT departments. SaaS-based products of the contemporary world enable MSMEs to access applications at will, anywhere with little or no infrastructure investment and, in that way, operationally more effectively and cost-efficiently.
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How significant are the cost savings and error reductions when MSMEs switch from manual or accountant-dependent bookkeeping to automated compliance?
The operational efficiencies and cost saving realized with the digital automation are high. Conventional accounting tools, like on-premise applications like Tally, demand a basic knowledge of accounting concepts, like journal entries, debit-credit operations and tax computation. In addition, it has administrative and cost overheads of having multiple license management across various branches.
Such complexities are removed by digital CFO platforms and other such tools. They offer guided and intuitive workflows in which users can post transactions and accounting operations without having prior accounting knowledge. The system automatically calculates and executes compliance processes such as GST, TDS, among other statutory requirements. This automation does not only cut down on the human error but also increases the turnaround times in which financial reporting is done.
The effects these have on MSMEs are far-reaching. The operational costs are reduced due to reduced human resource to handle accounting and compliance functions. The possibility of error in financial accounting or records is reduced to the minimum, and the overall efficiency of the financial operations is highly improved. As a result, companies will be able to devote additional resources and time to strategic decision-making and expansion plans, instead of administrative care.
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How do automated systems change the decision-making speed and agility for business owners?
The automated financial systems change the nature of decision-making on a fundamental level, offering real-time, accurate, and consolidated information. Under the traditional models, an MSME with multiple branches would have to spend days or even weeks collating financial information at the various locations, address any discrepancies and then analyzing them.
An inability to access correct data promptly is bound to slow down the decision-making process. These bottlenecks are removed through the digital platforms. Business owners have real-time access to detailed financial data and with that, they can analyze performance, predict cash flows and assess the effectiveness of operations across all business units in real-time.
Such real-time understanding facilitates evidence-based, timely and scientifically-driven strategic decisions. Moreover, access to validated and consolidated information increases the credibility of MSMEs with the interaction with banks, investors, and other stakeholders, and enhances their operational access to financing, partnerships, or strategic programs.
Indian-built digital finance solutions claim an edge in regulatory compliance and local tax understanding. In your experience, how important is this compared to foreign alternatives?
The superiority of the financial tools of India-origin cannot be overestimated. The foreign platforms, though strong in the markets they are based in, may not be localized to deal with the complex taxation, regulation and business ecosystem in India.
Services targeting the needs of the European or North American markets often need to be customized extensively before in India before they can be effectively implemented, complicating matters and decreasing the rate of adoption. On the contrary, the Indian-built platforms are predesigned to meet the domestic regulatory requirements.
They also incorporate local tax policies, compliance requirements, and local business practice in its operations and allow MSMEs to embrace it. Moreover, India-specific solutions are customized to meet the issues and problems that are solely encountered by Indian businesses, such as compliance specific to the sector, multi-state operations, and connectivity with local financial agencies. This guarantees that the MSMEs do not incur extra configuration overheads to accomplish operational efficiency, regulatory compliance, and usability.
Despite the benefits, many MSMEs in rural or non-English speaking markets still struggle to adopt digital finance solutions. What are the core barriers you see?
Despite the availability of technological and regulatory forces, some segments adopt more than others. In the past, the availability of the internet was a major problem but with the development of 5G and other technology, the problems of connection have been largely addressed. The more intractable issues are usability and language accessibility. Most non-English-speaking and the rural MSMEs are used to the old way of working, and any solution that will entail drastic behavior change or complexity in navigation is not readily accepted.
The current platforms break these barriers with user-friendly interfaces, step-by-step workflow, and the real-time language support. Indicatively, now Indian languages such as Hindi, Gujarati, Telugu, Tamil, Malayalam and Bengali, are supported on the digital CFO platforms. The software will allow users to engage with the software in their language of preference, which will lessen friction and maximize adoption. It is important to minimize training and change management to make massive penetration in such markets.
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Looking ahead, what does the future-ready MSME powered by digital finance tools look like in the next 5–10 years?
The generation MSME is going to be digital-first and data-driven and competitive on a global level. Digital financial solutions will allow the company to engage in sustainable growth because they will offer precise, up-to-date data, streamline the cost optimization process, and enhance the efficiency of operations. Companies will have stability in their performance; it will minimize the uncertainty in the collection of income and operations.
The digital platforms will further assist MSMEs to grow geographically by combining online and offline activities to reach the wider geographies. Having improved financial management and operational flexibility means that the Indian MSMEs will be in a better place to compete on the global stage and help the government in its endeavors like Make in India for the World.
Besides, the move to digital will enable MSMEs to adopt scientific business management, make data-driven strategic decisions, optimised working capital, and increase customer engagement. In the long run, the digital ecosystems are bound to form the foundation of sustainable and resilient development, enhance competitiveness, and provide Indian MSMEs with opportunities to operate successfully in the local and international markets.
