The Indian SME sector contributes 45 per cent of industrial output and 40 per cent of country’s total exports. It hence plays an integral part in the growth of the economy by showcasing Indian entrepreneurship to the world. In other words, SMEs are the engine of economic growth for India. There are about 30 million SMEs in India who employ more than 60 million people by creating massive amount of jobs year upon year.
After agriculture, small business is the second largest employer of human resources. SMEs have been highly positive on the future prospects of growth, largely owing to the recent change in the government and are quite hopeful of a favorable transformation. SMEs are facing myriad challenges in the current scenario - which if not addressed poses some risk to the high growth trajectory.
The biggest challenge across this sector is access to proper finance. Small and Medium Enterprises, face severe constraints with their finances and often seek alternate help leading to higher interest costs and transaction cost. As a result SMEs are stuck in a vicious circle and becomes globally uncompetitive compared to its counterparts in other countries.
SMEs typically do not have ‘deep’ pockets. As liquidity gets tighter, the cost of funding (even when it is available) also tends to go up, adding to the strain, making them vulnerable to the shocks of the market. Nonetheless, adequate and timely funding is the life blood for SMEs and is the key differentiator which can take these SMEs to the big league.
Adequate and modern developed infrastructure helps in the growth of the SME sector. However it is hampered as large part of this sector in India, is based out of Tier 2 and smaller cities that lack basic infrastructure facilities such as proper roads, power and water supply. Technology, being the backbone of modern business helps in innovation and cost reduction. With adapting and enforcing new technologies, SMEs faces a roadblock in the path of catching up with their global counterparts. Most of the SMEs in rural areas undertake manufacturing using old methods and rudimentary technology even today.
Regulatory policies are critical for growth of the sector. The right support and incentives to develop to its full potential is essential for the growth of any business. Thus, policy makers should provide the right incubation support and start-up incentives to facilitate ease of doing business.
Some of the other challenges encountered by SMEs are non-availability of skilled labour at an affordable cost, identification of new markets and the marketing strategy to sell their products. With these barriers, this sector stretches in diverse directions with limited bandwidth to achieve the desired growth.
Nonetheless the sentiments for Small & Medium Enterprises are positive, putting them back in the spotlight. There is an expectation that the growth here would be much faster over the next few years. However, the companies which would emerge winners would need to find means to leverage their strengths and remain ahead of intense competition. The use of technology and using it as a competitive advantage would be key thing to look out for. Having access to the right talent, adequate sources of funding and above all a ‘value proposition’ which embeds itself into the journeys of their customers improving experience would be crucial. Indeed exciting times ahead.
