MSME in India: Challenges Faced by MSMEs and How to Overcome Them

The MSME industry (micro, small, and medium enterprises) has immensely contributed to India’s socio-economic development. Although the Indian government is making every possible effort to develop this sector, MSME enterprises still have to combat several challenges and hardships.

MSMEs in India contribute over 8% to the nation’s GDP and over 45% to the total manufacturing output. That’s not all; the increasing number of MSMEs in India also constitute over 40% of India’s total exports. This is the reason why MSMEs are referred to as the backbone of India.

The enterprises registered under the MSME Act, 2006 are primarily engaged in the manufacturing, production, processing, and preservation of commodities and goods. Apart from economic development, MSMEs also play a vital role in generating employment opportunities across industries.

In fact, it is the only sector that works hand-in-hand with the government to develop the rural and backward areas of the country. Although MSMEs enjoy many special financial and developmental privileges, it seems that these privileges are not enough to uplift this sector’s status and productivity.

A lot more has to be done to bring MSMEs in India to the organic competition. Despite good tidings, several challenges prevent this sector from hitting its full potential. So, what are these issues that are acting as a hindrance in the development of MSMEs? Keep reading as we outline the most common challenges MSMEs in India face.

1. Finance-Related Challenges

One of the biggest challenges that MSMEs face in India is the lack of finance. You see, one of the significant reasons behind financial challenges is the lack of financial literacy. The majority of MSME owners are from education-deprived and poverty-hit regions.

Thus, they are unaware of the special financial privileges given to them by the government. This carelessness causes them to make some impractical financial decisions, leading to financial crises.

Apart from this, India’s MSME sector usually does not enjoy the same creditworthiness as other big shot companies. It might be due to two reasons. First, MSME owners usually do not have any asset in their name.

Second, the banks are unsure about their repayment capabilities. Lack of finance options, lack of liquidity, long paperwork, and approval process rob their chances of capitalising on real-time business opportunities.

Solution –

• MSME owners should invest some time in getting acquainted with the latest schemes and policies of the government.
• Apart from this, many private and public sector banks have also come forward to offer financial help to MSMEs. The majority of them are giving business loans to small, medium, and micro-entrepreneurs.
• Low-interest rates, flexible repayment policies, and easy processing are the highlights of these schemes.

2. Marketing and Managerial-Related Challenges

The lack of managerial, entrepreneurial, and marketing skills is taking a toll on the growth of the MSME sector. We all know the relevance of the right marketing strategies to boost sales and acquire new customers. But the lack of professionalism and structured top management is making it impossible for the enterprises to step into the competition.

Moreover, lack of education, knowledge of market trends, consumer preferences, and access to advanced technology has also acted as a bottleneck in the development of this sector.  Apart from this, ineffective marketing strategies, the absence of market analysis, and identification of the target audience are also a challenge for MSMEs in India.

Constraints on expansion and modernisation, improper product development, and poor product promotion are pulling back MSMEs out of the competition. As far as management is concerned, MSMEs hardly get any professional exposure to management practices in marketing, distribution, branding, or production. Above all, the continuous entry of private players in the market is taking the competition to another level.

Solution –

• MSME owners should take the initiative to improve their stand in the competition.
• They should also connect with a professional to refine their marketing skills, pricing policies, and network.
• The government has also launched several exclusive schemes like DMP, EMP, and MCY, to promote the sale of domestic goods.

3. Labour-Related Challenges

Skilled manpower is the backbone of a successful manufacturing enterprise. Unfortunately, MSMEs face a lot of inconsistencies when it comes to skilled manpower and labour law compliances. Moreover, the non-availability of a skilled workforce at an affordable cost is adding to the woes of the MSME sector.

Poor employee management and improper training and development facilities is also a big issue in India. The local labour markets are quite rigid, making it impossible for the MSMEs to function smoothly. Many companies also complain of poor industrial relationships and lack of manpower planning.

Solution –

• MSMEs should make efforts to organise things at their end. The entrepreneurs should also try to offer higher wages to the workers.
• On-the-job training will boost the productivity and morale of the employees.
• On the other hand, the government should also simplify labour laws in the country.
• The constitution of structured trade unions will also help in safeguarding the rights of the employees.

4. Technology-Related Challenges

When it comes to technology, the MSME sector is quite behind in the race. Limited access to IT education, knowledge, and information is restricting the growth of this sector. This challenge has created a huge backlog of unfilled returns, payments, and orders.

Lack of education can also be blamed for this issue. Apart from this, MSME owners cannot afford to buy and use expensive technical equipment. Even if they do so, the workforce is not qualified enough to operate advanced machinery. The result is, they are still using outdated machinery and methods of production.

The result is slower production processes and compromised product quality. One more issue that comes in the way of MSME development is the lack of online safety and security. Enterprises hardly invest in these measures and end up compromising their privacy and data.

Solution –

• MSME owners should enrol themselves in government IT development programs. It will help them in understanding the latest technological developments in their sector. It will also increase their access to modern technology.
• The Indian government should also encourage the MSME owners by opening IT centres in rural and underdeveloped areas.

5. Competition-Related Challenges

It is another challenge that micro, small, and medium enterprises in India are facing right now. You see, a business has to fulfil the needs and exceed the expectations of its consumers to thrive in the competition. And any business that is not progressing with time will move backwards over time.

As far as marketing and advertising are concerned, MSMEs still follow the traditional methods. They are not adopting innovative marketing channels. Moreover, their sales promotion and advertising are quite weaker than those of multinational companies. Poor marketing channels and ineffective advertising leads to very low sales in MSMEs.

Solution –

• MSMEs must be open to welcome changes in business strategies according to the feedback of the consumers.
• They should also try to identify and analyse the causes of their low sales. Using versatile modes to promote products and services will prove to be a masterstroke for this sector.
• Excellent customer service and high-quality products at affordable rates are the secrets to success in this industry.
• The government, on the other hand, should also motivate MSMEs by promoting domestic products in the market.

Bottom Line

Although there are many advantages of MSME in India, this sector is still lagging in many aspects. The Indian government needs to refine its MSME development policies. In contrast, young entrepreneurs should also make efforts to develop their technological and production skills. They should also learn the latest marketing tactics to put their best foot forward in the market and help the sector grow.

Also Read:

1) Franchises: What Differentiates them from Businesses "From Scratch"?
2) Impact of Globalisation on Small Scale Industries
3) How Are Small Local Businesses Transforming Into Widely Recognised Brands?
4) OkCredit: All you need to know about OkCredit & how it works.

FAQs

Q. What are the two major categories of MSME in India?

Ans. The two major categories of MSME in India are:

• Service enterprises
• Manufacturing enterprises

Q. What is the Indian government doing to offer Intellectual Property Rights to the MSME owners?

Ans. The government has introduced a scheme called Building Awareness on Intellectual Property Rights for Indian MSMEs. The primary objective is to increase awareness about protecting their business ideas and strategies.