Effects of Demonetization, GST & Covid-19 Pandemic in the Adoption of Digitalization by Rural MSMEs in India

Abstract

Purpose: The turbulent times created by the recent uncertain events give only two solutions – either surrender or fight-out. It has been the story so far for the MSMEs in India. Three events that changed the business scenario include the implementation of demonetization & GST and the pandemic-related restrictions. Survival became the only viable factor for businesses. This study dwells deeper into these three events and their influence on the adoption of digitalization by MSMEs in rural India. Methodology: Responses of the rural MSME owners were collected through a structured questionnaire containing multiple-choice questions on a 5-point Likert scale. To have better clarity, responses of 274 rural MSME owners were finally considered for the data analysis. For factor analysis of the data, the process of Principal Component Analysis (PCA) was adopted with the help of IBM SPSS 25.0. To find out the validity of the model, Structural Equation Modelling (SEM) was performed by using IBM AMOS 21.0. Findings: It is found that the pandemic effect has the strongest significance followed by the demonetization effect on MSME owners towards the adoption of digitalization for their business. GST was implemented within a year of demonetization, so its effect is found to be non-significant. Practical Implications: The results of the study will help the government as well as IT solution providers to chalk out their strategies, products, or reforms taking into consideration the particular problems faced by MSMEs related to demonetization and pandemic closure. The outcome will also help in better implementation of the ‘Vocal for Local’ initiative. Originality: The results of the proposed study indicate that during all the three major events, the importance of digitalization has been witnessed by the MSMEs. These uncertain times have prioritized the use of digitalization not only for their survival but also to match the consumers’ demands during those periods. This study shows the importance of digitalization and will help the cup to reach the lip and both the economy and the MSME owners will be benefitted from it.