Challenges faced by the MSME sector in India
1) Financial & Regulatory issues
Access to finance is a significant hurdle for MSMEs, with only 16% receiving timely finance. This forces them to rely on their own resources, hindering their growth prospects. Even larger firms struggle to access cheaper credit from formal banks. MSMEs face challenges with tax compliance and labour law changes, which have proven costly. Despite attempts to make the sector more competitive, compliance with regulations and tax registration remains difficult, leading to low capital and business closures.
India's infrastructure is crucial for the MSME sector, especially in the outsourcing industry. However, inadequate infrastructure affects their efficiency and ability to compete globally, limiting their growth potential.
3) Low productivity & Lack of innovation
MSMEs may lack high productivity but offer value through cost efficiency and providing goods at lower prices. However, their small-scale production and low margins put them at a disadvantage compared to larger firms. Indian MSMEs often rely on outdated technologies and lack entrepreneurs who embrace new tools and technologies. This hampers their productivity and competitiveness, especially when compared to larger firms in sectors like e-commerce and call centres.
4) Technical changes
MSMEs have faced significant technical changes over time, impacting their growth potential. Changes in land ownership rights have led to mismanagement and reduced productivity, highlighting the need for adaptability.
5) Competition & Skills
MSMEs face fierce competition from larger firms, exacerbated by the rise of e-commerce and globalization. While competition is not new, MSMEs struggle to withstand the pressure in areas such as agriculture, garments, and tourism. MSMEs lag behind in terms of skills compared to their counterparts in other countries. Dependence on informal workers with limited technical skills hampers productivity and forces smaller firms into low-skilled jobs, hindering long-term growth.
6) Lack of professionalism
Many Indian MSMEs lack professionalism, making them vulnerable to corruption and abuse of power. This significantly impacts their business productivity and overall growth.
7) Lack of standardized policies
India lacks consistent MSME policies, resulting in inconsistent development and entrepreneurship promotion programs. While progress has been made in Delhi, nationwide efforts are necessary for Indian firms to compete globally.
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