Challenges Faced by Small and Medium Businesses in India

A small business operates on a small scale and requires less capital investment, fewer employees, and fewer machinery to run. Small scale industries, often known as small businesses, create goods and services on a small scale. Small businesses include grocery stores, medical stores, merchants, bakeries, and small manufacturing units. Small businesses are self-owned enterprises that require less money, employees, and little or no machinery. The four primary companies:

• Sole Proprietorship
• Partnership
• Corporation, and
• Limited Liability Company

SME stands for small and medium-sized enterprises. These enterprises have less than a specific level of investment, turnover, and staff. In India, SMEs include both manufacturing and service businesses. The most commonly utilised feature is employee count; small firms typically have less than 100 people, whereas medium corporations have 100 to 999 employees. Proprietorships, Hindu Undivided Families, Partnership Firms, Limited Liability Partnerships, Limited Companies, co-operative societies, or any other activity can register as MSME in India.

Small and medium-sized firms play an essential part in the Indian economy. In truth, SMEs are our country's backbone. In 2012, they contributed 22 per cent of the nation's GDP. Aside from that, SMEs employ 60 million people and produce over 1.3 million jobs each year. Despite their remarkable contribution to the nation's financial prosperity, they are confronted with several issues on several fronts. The most important ones are as follows:

1. Insufficient access and marketing platform

In India, SMEs have suffered from a lack of marketing connections. Because of problems such as limited government backing and a lack of proper marketing facilities, the road to promoting and selling SME products will remain challenging in the future. SMEs are usually confined by a lack of funding when promoting their products or services globally, which has hampered their growth.

2. The ease of conducting business continues to be a bottleneck

Most start-ups in India face the problem initially because of too many regulations and approvals. Even as India managed to jump places in the World Bank’s Ease of Doing Business index, several loopholes in the system keep businesses on edge and prevent them from expanding or flourishing. Often, entrepreneurs are demotivated to start up because of problems relating to MSME loans, enforcing contracts and dealing with construction permits.

Businesses’ time to enforce a contract remains lengthier, at 1,445 days, than it was 15 years ago (1,420 days). There have been significant changes in registering a new business which has come down to 30 days from 127 days, and local entrepreneurs have to wait still and clear 12 procedures to start a business in Mumbai. In contrast, globally, it takes just five approaches on average.

3. Capital constraints

Because of limited funding, the SME sector faces a high cost of starting a firm. They are constantly under pressure from their larger rivals to succeed, but the money and effort requirements are unmet. This adds to the growing complexity and impacts the SME structure.

4. Inadequate access to modern technology

Although technology has evolved in recent years due to the growth of mobile phones and the internet, SMEs’ continued lack of technology adoption has always resulted in low productivity. As a result, they are no longer competitive in the ever-expanding market. Though SMEs in urban locations have shown a strong attitude toward technological adoption, rural destinations are lagging. This will be a continuing struggle in 2023.

5. Inadequate financial knowledge

Even while entrepreneurs develop new plans and plan the development of their existing businesses, a vast majority of them lack the financial understanding to lead the firm on the proper path. Entrepreneurs that lack solid financial expertise may be unable to make critical business decisions about MSME financing. Without financial understanding, you may make bad judgments that cost your company money unless you seek outside help. Also, knowledge of money is essential because you will need to rely on an MSME loan to get through any crisis.

As a result, before taking out a loan, it is essential to grasp everything about MSME loans, learn about MSME loan interest rates, and compare them in the market.

6. Flawed marketing techniques

A lack of marketing channels hampers even the most proficient SMEs. Every small or medium-sized business needs an effective marketing plan to improve client connection, which is still a pipe dream for most. This is a lack of competence in approaching an effective marketing distribution system. Furthermore, they frequently lose against more prominent market participants due to a lack of networks. Aside from that, there are occasional buyers-sellers meetings that are ineffective.

7. Insufficient Credit

Inadequate capital and credit facilities are the most significant constraints to expanding SMEs in our nation. In the following year, SMEs will continue encountering burdensome collateral requirements from banks, lengthy sanction procedures, payment delays, and high-interest rates on SME loans. The inability to acquire simple and timely finance is a critical issue impeding SME growth.

8. Concerns about labour

Most SMEs confront everyday labour challenges, and the ongoing migration crisis has revealed itself as one of the most challenging regions for enterprises to function in such epidemic times. Aside from labour issues, firms must also prioritise talent development, training, and establishing market links to assist urban and rural micro-entrepreneurs. The emphasis on skill development may assist the industry significantly, especially in times of crisis.

9. Expansion restrictions

SMEs typically use limited resources and struggle to obtain the required skills to keep up with the rapid pace of growth. Due to significant capital requirements and a lack of exposure, they cannot expand.

10. Complicated regulatory procedures

Regulatory standards such as building licences, bankruptcy resolution, collateral securities/guarantees, and taxation, among others, will continue to be limiting considerations for many SMEs in 2018. The lack of a unified regulatory authority and poor provisions for new businesses would impede their growth.

11. A lack of faith

Banks are hesitant to issue MSME loans because the amounts remain small, and banks feel MSMEs lack the necessary repayment capabilities. In such cases, they impose tighter controls on these new businesses. Some firms also fail to maintain track of their credit rating, which makes it difficult to get loans. Furthermore, standard lending choices make it difficult for business owners to fulfill tight qualifying requirements, and the lengthy process of MSME loan approval dampens their spirits even further.

Refered By: MVIKAS | Challenges Faced by Small and Medium Businesses in India