Challenges Faced by Small and Medium Businesses in India

Small and medium businesses in India play a significant role in the national economy. In fact, SMEs are the backbone of our country. They have a massive contribution of 22% nation’s GDP in 2012. Apart from this, SMEs create over 1.3 million jobs every year and employ 60 million people. Despite their commendable contribution to the nation’s financial development, they are facing a plethora of problems on many fronts. The major ones are –

The SME sector is constrained on a high cost of setting business because of the limited capital. They are always under pressure from their large counterparts to make it big yet the demand of capital and efforts needed is not met. This adds to the increasing complexity and affects the SME framework.

1. Absence of timely finance

Ease of timely finance is one of the most critical drivers in the growth of SME. The lack of easy credit from banks is the biggest hurdle in the growth of SMEs. Unavailability of credit at the right time is leading to a stagnated growth of SMEs and as a result, small businesses simply shut their shops.

The major issues faced by SMEs while they seek out financial assistance are-

• High rates of term loans by banks
• Requirement of complex collaterals for loans
• High cost of exports and imports
• Difficult procedures in obtaining loans
• Delay in fund disbursement

1. Lacking in technological innovations

The latest technological innovations can prove cost-effective and provide technology enabled ecosystem required for the growth of SMEs. However, in India, SMEs have to struggle to get access to the advanced technology to transform their business. The reasons of limited access are many such as –

• Access to latest technology is expensive
• Lacking funds to support R&D
• Limited exposure to the tech providers
• Minimal knowledge to new and advanced innovations
• E-governance lends virtually little or no help

1. Flawed marketing strategies

The absence of marketing platforms is something that affects even the most capable SMEs. Every small or medium enterprise is in the need of effective marketing strategy to enhance customer interaction which is still a distant dream for them. The reason is the inability to approach proper marketing distribution system because of limited expertise. Also, they usually lose to bigger players in the market due to lack of networks. Apart from that, there are occasional buyers-sellers meet that hardly do any good.

1. Non-availability of skilled labor

By employing the major chunk of the workforce in India i.e. 40% they need highly productive workforce for the obvious reasons. But the problems of culture and common minimum wage policies, SMEs are not able to meet their workforce demands. Another reason is the lack of funds to pay the talented workforce. Either way, they have to do without skilled workers.

1. Limitations on expansions

SMEs usually utilize the limited resources and struggle to acquire the necessary skills to pace up in the fast paced developments. This restricts them from expanding due to high capital demands and lack of exposure.

1. Complicated policies for starting a business

Out of 189 countries, India is ranked at 130thposition in ease of doing business in the World Bank’s Ease of Doing Business Ranking. This is why many entrepreneurs are not able to enter the market. Those who do, they fail to sustain a business owing to complex policies and procedures for setting up business.

The SMEs sector is facing most of the hurdles since time immemorial. There is dire need of making a common regulatory body for ease of business and special start-up schemes to encourage innovative entrepreneurs and counter the challenges faced by SMEs.

Originally published at www.ofbusiness.com.