Micro, small and medium enterprises (MSME), despite being among the leading sectors driving the Indian economy, are marred with the slowdown across sectors. The growing incidence of sickness of the sector apart from non-availability of authentic financial data, vulnerability on account of delayed payments by buyers, technological challenges due to low awareness, absence of single MSME data repository, low awareness about various government initiatives and lack of compliance to statutory, legal, environmental norms are some of the issues that MSMEs are struggling with these days. The role of MSMEs in employment generation, entrepreneurship, exports and innovation is well understood. Only problem is, in most parts, it ‘only’ remains understood. Prime issues ailing the MSMEs in India largely remain unappreciated and unattended. And therein lies the problem!
Challenges faced by MSME sector:
1. The sector is always fund starved. Banks are often unwilling to lend. Besides, whatever bank finance these sectors get, comes at far higher interest costs than what large enterprises can negotiate.
2. Long receivables cycles make a mess of working capital management.
3. Little access to trained labour, technical progress and management support limit their growth.
4. Other common problems faced by small enterprises are related to availability of technology, infrastructure and managerial competence, and limitations posed by labour laws, taxation policy, market uncertainty and imperfect competition.
Given the shape and type of MSMEs, it isn’t difficult to visualize the sort of issues they would confront. In the first place, the greater part of them are not enlisted anyplace. Being out of the conventional system, they don’t need to look after records, cover duties or cling to administrative standards and so forth. This cuts down their expenses. However, as it is clear in a period of emergency, it additionally obliges an administration’s capacity to support them. As indicated by a 2018 report by the International Finance Corporation, the conventional financial framework supplies short of what 33% of the credit MSME credit need that it can possibly support.
At the end of the day, the majority of the MSME subsidizing originates from casual sources and this reality is vital in light of the fact that it clarifies why the Reserve Bank of India’s endeavors to push greater liquidity towards the MSMEs have had a restricted effect.
Are our MSMEs Make In India Ready?
The government needs to realise that while the schemes are good on paper, if they are to produce results on the ground, creating awareness about the schemes and making them user friendly will be key to success. The government needs to do more to bring them into the fold to truly realise the dream of making India a manufacturing hub. There is a wide asymmetry predominant in the business area in India which continues blocking the MSMEs development commitment in country fabricating and giving or doing their part towards GDP commitment.
Further, SMEs in India contribute just about 8% to the nation’s GDP not normal for a portion of its worldwide companions where their commitment to the nation’s GDP remain above half – while SMEs in Taiwan contribute 85% to the nation’s GDP, a lot of commitment to GDP in Singapore remains at half. Without government mediation, the MSMEs endeavors are thinking that it’s hard to grow up to turn out to be little and medium ventures, and in this way stay going down regarding efficiency, seriousness and productivity. Moreover, our MSMEs, all things considered, are still not viewed as a power to deal with in the international business sectors. Absence of capacity to develop and enhance the merchandise and enterprises are the significant downsides of our organizations in India.
Other than infrastructure, driving labour reforms and ease of doing business can extraordinarily improve a domain that encourages producing focused turn of events. All endeavors must be subsequently made to increase worldwide intensity. Strategy changes focused on disentanglement of the common expense system and working of a vigorous monetary framework could likewise go far to make our MSMEs more grounded.
At present, the exertion and time taken in India for beginning a business, managing development licenses, accessing power, enlisting property, covering charges and implementing contracts is higher than in numerous different nations, in any event, creating ones. As India attempts to change its MSMEs, business people additionally should be urged to adopt a more drawn out term strategy to their ventures and build up an ‘Indian’ method of assembling.
Financial inability to sustain the long periods between marketing the product and realising payments is another reason for the MSMEs being in poor financial health. As per RBI, the number of sick micro, small and medium enterprises in India was 5.17 lakh until March last year and the incidence of NPAs in these MSMEs was sizeable. This systemic lack of a process at the policymaking level however does not reflect on the competencies of this high-potential sector.
Another region of worry for our MSMEs identifies with their powerlessness to viably exploit innovation for their advantage. This is in spite of the reality, that India has the third biggest pool of innovatively prepared labour in the world. At present, India has one-fifth the quantities of analysts per million when contrasted with China and a significantly lesser extent when contrasted with created nations. This could be the motivation behind why high-innovation trades from India right now structure under 7% of the complete fares, while this number is in mid-twenties for the vast majority of different nations that India rivals. Indian MSMEs, throughout the long term, have generally overlooked R&D necessities and have not left on new item advancement or innovative upgradation at the essential pace. The strategy to help along these lines forward for the MSMEs hasn’t been one novel arrangement either. Cover plans don’t do MSMEs much good as others.
It’s been 10 years since the government has not acknowledged significant requests of the business like an amendment in inverted duty structure prevailing since long, a decrease of excise on man-made strands, putting material industry under need segment loaning, and giving credit to industry at 7%. Inside the nation, issues like absence of innovation upgradation in the Indian building industry and little and medium ventures confronting infrastructural bottlenecks are hampering both creation and fares. There have been occurrences where ‘Made in India’ items were declined passage in the significant fare showcases because of absence of orchestrated guidelines.
Credits to MSMEs are generally given against property (as security)- in light of the fact that regularly there is certainly not a vigorous income investigation accessible- yet in the midst of pandemic, property value falls and that represses the augmentation of new advances. A credit guarantee by the administration helps as it guarantees the bank that its advance will be reimbursed by the legislature on the off chance that the MSME wavers. To the degree such defaults occur, acknowledge ensures are appeared as a departmental cost in the Budget.
How has Covid-19 exacerbated the situation for MSMEs?
1. The MSMEs were at that point battling — regarding declining incomes and limit use — in the number one spot up to the Covid-19 emergency.
2. The complete lockdown has brought up an issue blemish on laborers installment essentially on the grounds that these organizations generally execute on money. That clarifies the activity misfortunes.
3. As per an ongoing review he accomplished for “little and medium” firms in assembling, just 7% said they will have the option to get by for over a quarter of a year with their money close by if their business stays shut.
4. A major obstacle to restarting presently is the absence of work accessibility.
MSMEs are the backbone of our nation. They happens to be the torchbearer of our nation’s business environment. But, the challenges and the serious bottlenecks being faced by MSMEs have been there always, and persistently increased with time, with the introduction of new laws but poor implementation, and also the increased competitiveness in the domestic and international market have hampered or slowed down the process of growth for our MSMEs. The challenges or the ailments faced ranges from finance trouble to lack of marketing to lack of quality & innovation in the products or services delivered by these businesses. The COVID-19 pandemic has also played its part in further cutting the options to sustain and grow in these times. The cash-crunched SMEs have fought, and till today are fighting for just sustaining in the market and surviving through these tough times.