Top 10 problems faced by MSME in India

Posted on Wednesday, December 21st, 2022 | By IndusInd Bank

The MSME, or the micro, small and medium enterprises are vital constituents of the Indian industrial sector. They contribute significantly to the GDP and export earnings besides meeting the social objectives of developing backward areas, reducing regional disparities, and providing employment opportunities to millions of people across the country.  Despite this, MSMEs in India suffer from the problems of financial assistance, lack of business expertise, and technological obsolescence. Indian SMEs are also facing tough competition from their global counterparts due to liberalization, redundant manufacturing strategies and uncertain market scenarios.

Let’s take a look at the top 10 problems faced by MSMEs in India :-

1. Financial assistance – The most common problem that all small-scale businesses have faced, and are still facing is of credit. MSMEs struggle to obtain financial assistance due to several factors like absence of collateral, lengthy paperwork, and lack of trust in loan repayment capabilities. These obstacles remain despite the government’s conscious effort to provide easy credit line to MSMEs. To help your business overcome this, IndusInd Bank offers hassle-free MSME loans at attractive interest rates. Entrepreneurs can enjoy doorstep banking, customized product, comfortable repayment tenure, and much more.  

2. Marketing – Increasing marketability of productsis a difficult task not just for MSMEs, but for large-scale businesses as well. Inconsistence and sporadic marketing efforts yield no results. When it comes to small-scale businesses, the lack of resources – time, money, and skilled employees make it impossible to increase visibility and generate quality leads. To help MSMEs overcome this, the NSIC (National Small Industries Corporation (NSIC) under the Ministry of MSME organizes frequent workshops to train enterprises in online and offline marketing of their products and services.

3. Technology – Majority of the MSMEs in India operate on stale and obsolete technology which obstructs them from keeping up with the new age world. This is despite the fact, that India is said to have the third largest pool of technologically trained manpower. Adoption of new technology and training employees with these technological upgradations is not only difficult, but also costly – especially for manufacturing businesses where the scope is not just in terms of software, but also in terms of production units. While lack of access to IT education is partly responsible for the technological gap, the biggest factor is lack of awareness which reduces willingness to investment in advanced tech solutions.

4. Upskilling – Skilled employees are essential for growth of businesses. Multi-national companies (MNCs) understand this and keep on-the-job training at the centre of their functioning. Unfortunately, small-scale enterprises fail in upskilling their manpower, unknowingly taking a hit.

5. Business expertise – While entrepreneurs may have subject matter expertise relevant to their goods and services, they might lack the business acumen needed to run an enterprise smoothly. These include funding & financing, tracking sales, managing input & output costs, etc.

6. Procurement of raw material – The prices of raw materials have increased manifold, especially since the beginning of the Covid-19 pandemic. For MSMEs in the manufacturing sector, the procurement of raw material is extremely important to continue operations. However, lack of bulk orders, credit facilities and transportation of raw material make the procurement tedious. To eliminate these limitations, the NSIC runs a ‘Raw Material Assistance Scheme’ which helps small businesses by financing the purchase of raw material – both indigenous and imported.

7. Hiring – MSMEs struggle to hire skilled and competent manpower. Lack of name recognition of the company reduces the talent pool from which MSMEs can hire employees as there are fewer responses to job postings by small-scale businesses. Even after finding the right candidate from this small pool, MSMEs lose the right candidate due to inability to offer competitive salary, job security and career development opportunities similar to larger organizations.

8. Innovation – The rate of changes is accelerating rapidly. The role of creativity and innovation has increased in this change process for survival. Businesses are becoming knowledge-based and their success & survival is directly related to their creativity, innovation, discovery and inventiveness. MSMEs will have to learn and imbibe the process of innovation in their day to day working to remain competitive.

9. Stiff competition from giant businesses – Indian MSMEs are finding it difficult to sell their products in the

domestic and international markets because of increasing competition. Small-scale enterprises face a tough competition from their global counterparts due to liberalisation, as well as from domestic giants due to their immense scale of operation. While the government does run protective schemes for such small-scale enterprises, the competition remains one-sided by and large.

10. Overall management – Inadequate management skills hamper business expansion and often cause non-competitiveness of small enterprises. A successful business must be able to grow workforce, cater to diverse customer needs, manage inventory, deal with new competitors, keep the supply chain running and sustain the company’s culture. More often than not, entrepreneurs undermine the importance of effective management and face numerous hurdles when the business expands at the later stage. To help your enterprise manage its finances batter, IndusInd Bank Current Accounts offers multiple money-managing solutions like dynamic cash deposit limits, smart cash management services and grouping of related accounts.

Conclusion –

The problems faced by the small traditional enterprises with poor support system and little exposure, particularly in accessing technology and maintaining competitiveness, have been formidable. The non-availability of institutional finance on affordable and easy terms is seen as the biggest challenge faced by MSMEs. Further adding to the limitations of MSMEs are lack of formalized contractual relations and the reliance on cash payments.

Apart from this, most of the small-scale enterprises do not have access to well researched database – whether it pertains to market intelligence or technology. This information needs to be disseminated proactively, and on a regular basis.

Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision.  IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.