The Challenges faced by MSME in India

Ashish M. Shaji

15 Sep, 2020

The MSME sector has grown tremendously in the last few years in India, and it has enormous potential for growth in the future years while eliminating poverty and unemployment, which are two of the biggest bottlenecks for growth. Despite the potential it possesses, the Micro, Small, and Medium Enterprises are not free of challenges. In this article, we will take a look at some of these challenges faced by MSME in India.

An Overview on Indian MSME

MSME in India is recognized as a major contributor to the economic growth of the country. The spine of the Indian economy, it has provided resilience to thwart global economic shocks. The essence of MSMEs in this country can be deduced by the fact that it provides employment opportunities to close to 40% of India’s labour force.

As per the Reserve Bank of India^[1], in the year 2015-16, the MSME sector comprised of over 51 million enterprises employing more than 117 million persons. The MSMEs manufacture more than 8000 products, which vary from traditional to sophisticated products.

As per the report on MSMEs’ growth for the 12^th 5-year plan from 2012-17, this sector accounts for 45 percent of manufacturing output and 40 percent of the total exports in the country. The Ministry of MSME highlighted that MSMEs accounted for 30.74% of GDP in the year 2014-15. Therefore the development and growth of MSME are critical as it is the backbone of the Indian economy. 

Main Challenges faced by MSME in India

In spite of the high growth rate and good prospects, the MSMEs have faced certain constraints that have obstructed its way of achieving its true potential. In this segment, we will discuss some of the challenges faced by them.

• Technological backwardness

This is one of the biggest constraints faced by MSMEs till date. The MSME in India lacks up to date information and are often unaware of the latest technological developments in the global market. Sometimes they lack managerial skills, knowledge, and technology-intensive education to run a competent MSME. This challenge is most prevalent in rural parts of India. It is believed that technology can play a pivotal role for MSMEs because of the competition it faces from neighbouring countries. Therefore MSMEs must look into this matter very seriously. Technological up-gradation is a must if Indian MSMEs are to become competitive lest it makes them obsolete, and their existence is put under threat.

• High cost of credit

Another challenge that haunts this sector is their inability to access adequate and timely credit at a reasonable cost. Quite a few researchers have indicated that MSME in India are hindered by poor credit availability. Now, if we look to understand the reason behind this, we know that there is a high-risk perception among the banks regarding this sector, and the transaction costs are also high for loan appraisal. The players of MSME are not in a great position to provide collateral to get loans from banks.

• Procurement of raw materials

The availability of economic resources is critical for any business development. It has been one of the growing concerns of this sector as procurement of raw materials is done within local territory due to their financial limitations.

• Inadequate infrastructure facilities

Having good infrastructure facilities is essential to the growth of a business, and lack of infrastructure facilities such as electricity infrastructures negatively affect the productivity and the profitability of manufacturing SMEs. The availability of infrastructure and skilled manpower will ensure the competitiveness of MSMEs. MSMEs are either located in industrial estates or are operational in urban areas or have come up in an unorganized manner in rural areas of the country. The infrastructure facilities in such areas are poor and not reliable.

• Lack of skilled manpower

Although India is having a big pool of human resources, the industry still faces a deficit in manpower with the skills set required for manufacturing, marketing, etc. A set of skilled personnel will save time and effort as they use their expertise and talent, and knowledge in their respective fields.

• Inadequate access to market

In India, MSMEs have struggled to have access to the market due to a number of reasons like inadequate capital, inadequate use of marketing tools, etc. Thus it makes it difficult for MSMEs to sell products to government agencies.

The way forward for MSME in India

The government is required to play its part in the growth and development of MSMEs going forward. The government can play a crucial role in creating domestic manufacturing capabilities by the leverage of proposed public procurements and projects. For instance, public projects such as Sagarmala, Bharatmala, industrial corridors can stimulate domestic manufacturing activities.

A greater connection between government industry-academia is required to identify the evolving requirements in manufacturing and prepare an employable workforce, and also the industrial revolution 4.0 will boost the industrial supply chains in India.

In order to conquer the challenges mentioned above, investment in better technology in the future is one of the viable solutions. The Indian Government has taken numerous steps for the technological development of Indian MSMEs with a view to improving its competitiveness in the international market, but it’s not just the technological aspect that requires attention; other key areas of challenge are also required to be addressed simultaneously.

Conclusion

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