Digitalization and Exports : A case of Indian Manufacturing MSMEs

In this paper, we assess the digitalization of Indian manufacturing Micro, Small, and Medium Enterprises (MSMEs) by using the Centre for Monitoring Indian Economy’s Prowess database consisting of around 800 manufacturing MSMEs for the period 1990-2019. Our primary objective is to answer two questions: First, what is the role of digitalization in promoting export intensity of Indian manufacturing MSME firms? Second, whether digitalization helps in facilitating export market entry for these firms? The summary of the findings based on the robust econometric techniques such as the System Generalized Method of Moments and Dynamic Probit Regression Model, and employing three alternative definitions of digitalization, reveals that higher level of digitalization of an Indian manufacturing MSME increases its exports intensity. Additionally, greater exposure to international markets in previous periods, increased labour productivity, technical knowhow, and servicification are also associated with greater export intensity of the firm. Also, a digitalized manufacturing MSME firm is more likely to enter the export market, vis-à-vis a non-digitalized one. In fact, the likelihood further increases if digitalization is complemented with technical knowledge. The findings advocate towards an urgent need for manufacturing MSMEs to go for digitalization to sustain and strengthen their contribution to the Indian economy, specifically in the post-COVID era