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Establishing The Challenges Affecting SMEs In India

Over 300 million Small and Medium Enterprises (SMEs) form the backbone of the Indian economy today, employing close to 40% of the total workforce in India. According to the Economic Survey of India, SMEs contributed 7.9% in GDP for the financial year 2012-2013. However, even though SMEs are vital sources of both employment and industrial development in India, they face several challenges in the current scenario.

To discuss a few:

Limited financial resources and high cost of credit: Capital investment is essential for the development of any business. SMEs in India generally lack a strong financial back-up. They depend on bank loans and other sources of credit for running their businesses. The interest rate on business loans are quite high in India. There are limited number of government schemes which provide substantial financial support.

Lack of infrastructure: Well-developed infrastructure plays an important role in the over-all development of SMEs. Deficiency of transportation facilities and channels, unplanned urbanization, improper electric and water supply and erratic availability of other basic facilities are becoming serious challenges for SMEs in India.

Technology gap: Most technologies being used for production by SMEs in India are very old and in use for decades. Machines with older technologies are less efficient, consuming more time, resources and human effort and providing limited production rates. Better technologies and advanced machines can minimize the cost of production and allow SMEs to grow faster.

Information barrier: Lack of access to information is a major challenge faced by SMEs in India. The information divide that exists between the Global North and the Global South, prevents the developing countries (comprising the Global South) from assessing the latest information. The limited development of the Information and Communication Technologies(ICTs) in India is another reason for its technological backwardness.

Limited human resources development: Improper and sub-optimal use of human resource is a challenge for SMEs in India. The lack of literacy and professional training restricts the development of human resources in India. Appropriate education and training programs can improve the productivity level of each worker. Limited salary budgets also influence the hiring procedure of SMEs which results in the hiring of less efficient employees.

Lack of innovation: Innovation or creation of new products is rare in SMEs in India. They mostly produce products similar to those produced by foreign companies. They simply import product ideas from international markets and produce similar kinds of products.

Poor quality control and checks: Most SMEs fail to pay proper attention on the quality of their products due to the absence of appropriate facilities and technologies for checking the quality of the products.

Competition in international market: Fierce competition in the global market further affects the profit making of Indian SMEs. International producers offer better quality product at low prices. Limited access to international markets is also a challenge for the Indian SMEs.

Discussed above are the main challenges which act as barriers in the development of SMEs in India. If these problems can be addressed, SMEs can provide a significant support in the over-all development of the Indian industrial sector and boost the Indian economy further.



Zia Abbas

Founder Director & Lead Consultant


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Founder & Lead Consultant, Orgmentors Business Solutions (Pvt.) Ltd.

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