India’s e-commerce boom offers vast opportunities for MSMEs, but outdated supply chains, fragmented logistics, and digital gaps threaten to leave small sellers behind in the race for online growth.
India's e-commerce boom has transformed retail, unlocking major opportunities for Micro, Small, and Medium Enterprises (MSMEs). With over 800 million internet users as of early 2025, the digital economy is expected to grow nearly twice as fast as the overall economy and contribute one-fifth of national income by 2029–30, according to the Ministry of Electronics and IT. However, despite this growth, Indian MSMEs continue to grapple with supply chain challenges that hinder their full participation in the e-commerce surge.
The MSME sector is a cornerstone of the Indian economy, contributing more than 30% to the country's GDP and providing employment to over 111 million people. These businesses now find themselves at a critical juncture where digital adaptation is no longer optional but essential for survival.
The Covid-19 pandemic significantly accelerated e-commerce adoption across India. According to data from the India Brand Equity Foundation (IBEF), online retail penetration is projected to rise to 14% by 2028, up from 8% in 2024.
This digital shift has been especially transformative for MSMEs, which have long depended on physical markets and intermediaries. Yet, moving online has exposed deep-rooted supply chain weaknesses that risk sidelining many smaller businesses. From inventory management to last-mile delivery, MSMEs are struggling to align their operations with the demands of the digital marketplace.
The digital divide in Indian MSME operations
The digital transformation of supply chains represents perhaps the most significant hurdle for Indian MSMEs entering the e-commerce space.
As Vineet Malik, CCO and Co-founder of Hexalog, observes: "Most MSMEs struggle with a disjointed logistics ecosystem, where freight forwarders, customs brokers, last-mile agents, and warehouse providers operate in silos. This lack of coordination leads to inefficiencies, higher costs, and shipment delays that can derail international deals.”
This problem is particularly acute in the e-commerce context, where coordination failures result in customer dissatisfaction and lost sales.
“Scalability is a pressing concern. Without flexible logistics support and integrated multi-channel systems, MSMEs find it difficult to scale operations during peak periods.”
Ajay Rao, Emiza
For many traditional MSMEs, supply chain operations remain largely manual and paper-based. Order processing, inventory tracking, and fulfilment management often rely on outdated methods that cannot scale to meet e-commerce demands. Emiza, a third-party logistics and supply chain service provider, highlights key MSME challenges. Ajay Rao, Founder & CEO of Emiza, notes, “MSMEs often rely on manual processes that slow down operations. Moreover, integrating backend systems with major marketplaces like Amazon and Flipkart can be complex and resource-intensive.”
This manual approach makes it hard to keep accurate inventory across multiple online marketplaces, causing stockouts or overselling that harm customer trust and brand reputation.
According to a 2025 report published by the Small Industries Development Bank of India (SIDBI), 18% of MSME respondents have availed digital lending platforms. However, a large emerging opportunity remains in the MSME digital lending space, as 90% of respondents reported accepting digital payments, reflecting significant progress in digitalisation.
The financial burden of digital transformation is a major hurdle for MSMEs. E-commerce-ready Enterprise resource planning (ERP) systems can cost ₹80,000–1.5 million, with ongoing maintenance adding to the strain. High implementation costs remain the top barrier to supply chain digitisation, trapping MSMEs in a cycle where inefficiencies cut into margins and limit funds for tech upgrades.
Inventory management and warehousing challenges
For MSMEs, e-commerce makes inventory management far more challenging. Unpredictable online demand requires flexible strategies, but higher forecasting errors often lead to excess costs and missed sales.
“Indian MSMEs face several hurdles while integrating into the e-commerce ecosystem. A lack of real-time visibility across multiple sales channels leads to overstocking or stockouts. Many MSMEs also struggle with limited access to scalable warehousing, which hampers their ability to handle surges in demand during festive or sales periods,” mentions Rao of Emiza.
The challenge is amplified by what Ravi Goel, Chief Business Officer, RapidShyp, describes as “time-consuming shipping processes and operational inefficiencies.” According to their research, “most businesses continue to rely on single couriers and decentralised systems, resulting in inefficiencies, errors, and delays in dispatching and tracking.”
Without integrated systems, MSMEs struggle to track inventory across multiple sales channels. Warehousing is another critical challenge, as most MSMEs lack access to strategically located facilities essential for rapid order fulfilment across India.
According to a report by the Ministry of MSMEs, logistics costs in India make up 13–14% of the GDP, considerably higher than the global average of 8–10%. This disparity is even more pronounced for enterprises in Tier-2 and Tier-3 cities, where warehousing infrastructure remains underdeveloped.
Nikhil Agarwal, President, CJ Darcl Logistics, notes, “For MSMEs, the challenges stem from three key areas: scale, cost, and visibility. Unlike large enterprises, MSMEs don’t have the shipment volumes to negotiate preferential rates or secure dedicated trucking capacities. MSMEs often seek partners who can offer scalability and flexibility.”
Multi-channel inventory synchronisation presents additional complexity. As MSMEs list products across various marketplaces, including Amazon, Flipkart, Meesho, and their own websites, maintaining inventory accuracy becomes increasingly difficult.
“During peak seasons or promotional periods, such as Diwali, Christmas, Black Friday, or export surges, can severely strain their logistics and supply chain operations. Unlike larger players with scalable infrastructure and pre-negotiated freight contracts, MSMEs often lack the flexibility and buffer capacity to handle sudden order spikes. The result? Stockouts, missed delivery timelines, and inflated shipping costs, says Malik of Hexalog.
Logistics network fragmentation
India’s complex geography and uneven infrastructure pose major logistics challenges for MSMEs. The fragmented logistics sector, with numerous freight forwarders, regional transporters, and last-mile providers, limits small businesses’ ability to secure competitive shipping rates or build reliable delivery networks beyond their local areas.
“As 60% of India's MSMEs are making their presence online, logistical constraints are a giant hurdle to the long-term expansion of e-commerce. Excessive shipping charges penalise small merchants disproportionately, particularly when order volumes are low. The charges tend to eat into margins, and MSMEs cannot compete with their larger counterparts, who benefit from bulk shipping discounts,” says Goel of RapidShyp.
The economic disparities between urban and rural areas further complicate logistics planning. “With e-commerce businesses thriving in the country, MSMEs surely have built a wide base of customers from multiple regions in the country. And, while there have been significant developments in the Indian logistics infrastructure, which have enhanced connectivity across most parts of India, there are certain regions that still lack efficient last-mile connectivity,” says Agarwal of CJ Darcl Logistics.
“Smaller businesses looking to serve a wider customer base across regions, proximity to high-demand zones significantly reduces delivery time, transportation costs, and the risk of stockouts.”
Vineet Malik, Hexalog
While major cities benefit from sophisticated delivery infrastructure with same-day or next-day delivery capabilities, rural areas representing over 65% of India's population often face delivery times extending to 5-10 days.
The lack of reliable logistics options in Tier 2 and Tier 3 cities presents additional challenges. “Most Tier 2 and Tier 3 cities do not have trustworthy courier partners, and hence, there is late delivery, return to origin (RTO), and poor customer experience, which erodes trust and dissuades repeat business,” adds Goel of RapidShyp.
The cost implications are equally challenging. MSME e-commerce sellers typically pay higher shipping costs than larger competitors who benefit from volume-based discounts. These higher logistics expenses directly impact pricing strategy, forcing many small businesses to either reduce profit margins or set higher prices that diminish competitiveness.
Working capital constraints and payment cycles
Most major e-commerce platforms operate on settlement periods ranging from 7-15 days, with some extending to 30 days during promotional periods. These delayed payments create significant liquidity pressures for small businesses already operating with limited capital reserves.
The working capital crunch is further exacerbated by the inventory requirements of online selling. To maintain competitive service levels, MSMEs must stock sufficient inventory for immediate dispatch, often 45-60 days' worth compared to the 30-day norm in traditional retail. This expanded inventory requirement, combined with delayed payment receipts, creates a substantial funding gap.
Financing options remain limited despite various government initiatives. Traditional banks typically require collateral and extensive documentation that many smaller enterprises struggle to provide. While specialised fintech lenders have emerged offering inventory and invoice financing solutions, their coverage remains limited to MSMEs with established digital footprints and transaction histories. “To address these challenges, MSMEs require flexible financing solutions including microloans, invoice factoring, and credit lines tied to sales performance to ease cash flow strain,” says Rao of Emiza.
Cross-border e-commerce challenges
For MSMEs with global ambitions, cross-border e-commerce presents additional supply chain complexities. As Indian small businesses increasingly look to expand internationally, they face a distinct set of barriers that complicate their global market entry. Malik of Hexalog identifies customs clearance as “One of the most persistent challenges for Indian MSMEs in cross-border trade,” noting that the process “remains complex, fragmented, and deeply opaque. For smaller businesses, there is no standardised or scalable roadmap. Navigating licensing requirements, documentation protocols, and ever-evolving compliance regulations often feels like walking a minefield. The available support is scattered across a maze of brokers, agents, and government portals, all offering inconsistent guidance and little accountability.”
“Our commitment to providing end-to-end supply chain management solutions with transportation and warehousing & distribution services across the country, regardless of location, empowers MSMEs to continue creating what they do.”
Nikhil Agarwal, CJ Darcl Logistics
Documentation management presents a particularly significant hurdle. “From commercial invoices and packing lists to bills of lading, certificate of origin (COO), and customs declarations—any error or omission can delay shipments, incur penalties, or even cause cargo rejections,” explains Malik. “Indian MSMEs often lack digital tools or expert support to handle this accurately.” The stakes are high, with errors potentially leading to shipment delays, customs penalties, or even product seizures that can devastate a small business's finances and reputation.
“Navigating GST requirements and managing documentation for inter-state shipments can be cumbersome, while frequent policy updates from marketplaces can disrupt operational planning,” says Rao of Emiza.
Country-specific regulations create additional complexity. “Navigating country-specific Regulations—like product certifications (e.g., CE, FDA), packaging standards, restricted items, or import duties—can be overwhelming for MSMEs, especially since these rules vary widely across markets and are constantly evolving. Most MSMEs don’t have dedicated compliance teams, so they either rely on trial and error or inconsistent advice from intermediaries,” Malik of Hexalog adds.
He further mentions that “AI-powered compliance platforms can now automatically validate documentation, flag missing or incorrect entries, and ensure that export or import filings align with destination-country regulations. This drastically reduces the manual burden on MSMEs and lowers the risk of non-compliance. Tools like automated HS code classification and real-time tariff calculators further simplify the process of determining duties, taxes, and applicable trade benefits—areas that often confuse small business owners.”
Digital documentation systems are also reducing dependency on physical paperwork, streamlining the export process, and enabling MSMEs to manage international shipments more effectively.
Solutions and path forward
Despite these challenges, innovative solutions are emerging to help Indian MSMEs overcome supply chain barriers in e-commerce. Technology democratisation stands at the forefront of these solutions. Cloud-based supply chain management systems with pay-as-you-go pricing models are reducing the financial barriers to digitisation.
Platforms like Unicommerce, EasyEcom, and Shiprocket offer MSME-focused solutions that streamline inventory management across multiple marketplaces, a major improvement over traditional enterprise systems.
RapidShyp exemplifies this approach by offering “integration with 15+ carriers for extensive coverage and service reliability” alongside “economical shipping rates with no minimum order volume,” and a “tech-enabled, easy-to-use platform with zero sign-up fee.”
Their AI-driven SmartSelect feature offers courier recommendations by considering shipping price, speed, and deliverability, enabling MSMEs to make optimal logistics decisions without specialised knowledge.
“Our association with India Post takes our reach to more than 19,000 pin codes across the country, with assured last-mile delivery even in the remotest of locations. This association also reinforces our commitment to making logistics efficient and accessible to MSMEs in the nation,” says Goel of RapidShyp.
Similarly, Emiza enables MSMEs by “offering a comprehensive plug-and-play warehousing network across India, Emiza allows MSMEs to access storage and fulfilment infrastructure without heavy upfront investments. This flexibility helps them manage both seasonal and regional demand more efficiently.”
“For ease of use, RapidShyp offers seamless integration with popular e-commerce platforms like Shopify and WooCommerce. The integration offers auto-order processing, real-time tracking, and label printing, reducing manual intervention and errors.”
Ravi Goel, RapidShyp
“Emiza simplifies the backend complexity of selling on platforms like Amazon and Flipkart. Its pan-India delivery network ensures faster, reliable last-mile services to Tier 2 and Tier 3 cities and even to remote areas, helping MSMEs broaden their reach,” says Rao of Emiza.
CJ Darcl Logistics illustrates this approach with its “pan-India presence with over 180 + branches, an asset-right model, encompassing a fleet of over 1,600 owned vehicles and access to a large fleet through our trusted vendor partner base, customised containers provide MSMEs with adaptable transportation solutions.”
“Our multimodal capabilities, including rail and coastal shipping, ensure cost-effective and reliable long-haul and inter-city movements, empowering MSMEs to meet their e-commerce demands efficiently. Our multi-user warehousing facilities are equipped with advanced capabilities such as shelf-life maintenance, product mixing, packaging, cross-docking, barcode scanning, and order fulfilment. These services are designed to accommodate varying volumes and frequencies, ” says Agarwal of CJ Darcl Logistics.
For MSMEs ready to explore international markets, companies like Hexalog are simplifying cross-border logistics. Hexalog's “its integrated, end-to-end logistics platform” brings together “origin warehousing to freight booking, customs clearance, and final delivery” in a unified system that reduces the complexity of international trade. This vertical integration is particularly valuable for MSMEs lacking specialised expertise in areas like customs compliance and documentation.
Further Government initiatives have also expanded to address specific MSME e-commerce challenges. The Open Network for Digital Commerce (ONDC), launched nationwide in 2023, aims to create a standardised e-commerce protocol that reduces marketplace dependency and promotes interoperability. The Ministry of MSME launched the “MSME Trade Enablement and Marketing Initiative” (MSME-TEAM) to help half a million MSMEs join the ONDC platform. The scheme offers awareness workshops, onboarding support, and financial aid to micro and small enterprises via seller network participants for catalogue creation, account management, logistics, and packaging. According to the Ministry of Commerce & Industry, the scheme will be in effect from 2024 to 2027.
The path forward requires a multi-stakeholder approach. Policy initiatives must continue to address structural barriers while promoting digital infrastructure development in underserved regions. Technology providers must further adapt their solutions to meet the specific needs and resource constraints of micro and small enterprises. Marketplaces must recognise their dependence on MSME participation and develop more inclusive policies that consider the operational realities of smaller sellers. As India's e-commerce market continues its rapid expansion, the MSMEs that successfully overcome today's supply chain challenges will be positioned not just to participate in the digital economy but to thrive within it.