LIBRARY ASSIGNMENT

BUSINESS ENVIRONMENT (302)

TOPIC- Challenges and Strategies for MSME’s in India

Submitted to- Submitted by-

Prof. Shahid Amin Natasha Batra
(BBAN1MG21024)
MSME
In India, MSMEs contribute nearly 8% of the country’s GDP, around 45% of the
manufacturing output, and approximately 40% of the country’s exports. It won’t
be wrong to refer them as the ‘Backbone of the country.’
The Government of India has introduced MSME or Micro, Small, and Medium
Enterprises in agreement with Micro, Small and Medium Enterprises
Development (MSMED) Act of 2006. These enterprises primarily engaged in the
production, manufacturing, processing, or preservation of goods and
commodities.
MSMEs are an important sector for the Indian economy and have contributed
immensely to the country’s socio-economic development. It not only generates
employment opportunities but also works hand-in-hand towards the
development of the nation’s backward and rural areas. According to the annual
report by the Government (2018-19), there are around 6,08,41,245 MSMEs in
India.
MSMEs Redefined
A proposal was made to redefine MSMEs by the Micro, Small and Medium
Enterprises Development (Amendment) Bill, 2018, to classify them as
manufacturing or service-providing enterprises, based on their annual turnover.
Classification of enterprises into micro, small and medium enterprises (in Rs)
Kind of Act of 2006 Bill of 2018
enterprise
Manufacturing Services All enterprises
Investment towards Investment Annual Turnover
plant & machinery towards
equipment
Micro 25 lacs 10 lacs 5 Cr

Small 25 lacs to 5 Cr 10 lacs to 2 Cr 5 Cr to 75 Cr

Medium 5 Cr to 10 Cr 2 Cr to 5 Cr 75 Cr to 250 Cr
CHALLENGES FACED BY MSME’S
Below is a list of some of the major challenges faced by MSMEs that have a
significant impact on their growth prospects:
1) Financial issues:
In the Indian economy, access to finance has always been an issue for smaller
firms and businesses. This is a major hindrance for businesses as well as the
MSME sector. However, the most disturbing fact about it is that only 16% of
SMEs get access to timely finance, resulting in small and medium firms being
forced to rely on their own resources. It is not just small firms that face this
problem, but larger firms do as well because even those bigger players face
significant difficulties in accessing cheaper credit from formal banks.
2) Regulatory issues:
Several regulatory issues have been identified over time, including problems like
tax compliance and changes to labor laws which have ended up costing the
MSME sector dearly. In an attempt to make this sector more competitive among
others, certain labor reforms were attempted some years back. Still, they failed
to make any dent in improving things for MSMEs despite making them more
competitive than larger firms. As a result, it has become very difficult for MSMEs
to comply with these regulations and register for tax compliance, which has
resulted in many operating on low capital or even shutting shops.
3) Infrastructure:
In India, the infrastructure sector is extremely important because we are often
referred to as the ‘world’s back-office because so many works in this sector are
carried out overseas. Applications such as eCommerce and BPO have created
more jobs in low-wage countries like India.
4) Low productivity:
MSMEs are not necessarily very productive, but they perform certain tasks that
emit more value than they produce. Retailers sell consumer goods to end-users
at relatively lower prices. In fact, MSMEs may be very productive only when it
comes to being cost-efficient and are capable of creating high volume at very
low costs. But given that their production is on a small scale with low margins,
low productivity can put them at a disadvantage, especially when compared
with larger firms.
5) Lack of innovation:
Indian MSMEs are not very innovative, and the majority of the products that
they produce are based on outdated technologies. There is a severe lack of
entrepreneurs in this sector, which has prevented it from adopting new
technologies and tools which have brought about significant changes in other
sectors like eCommerce and call centers, etc. As a result, MSMEs have had to
struggle with outdated technology as well as low levels of productivity,
especially when compared with larger firms.
6) Technical changes:
There has been no dearth of technical changes over time, and most industries
have undergone some form of change in order to remain competitive. As a
result, Indian MSMEs have had to deal with some very important changes which
have affected their growth potential. At first, there was a change in the
ownership right of land, which has made the sector more prone to
mismanagement and, with it, a fall in productivity.
STRATEGIES OF MSME’S
What are some of the key strategies that MSMEs continue to adapt:
1) Keeping up communications
Perhaps most importantly, setting consistent, clear and responsible
expectations for the ongoing second wave will help all your customers and
employees stay in the loop and strengthen all of your business relationships.
We recommend regularly updating your employees about any recent changes
in policy or safety precautionary measures. Similarly, keeping your customers
and clients informed of your ongoing situation–for example, if your business is
shutting down, operating at a reduced capacity, or transitioning to fully remote–
is of paramount importance.
Some avenues to share this information are across your social media handles,
your website, through local newspapers or even the radio.
2) Developing new revenue streams
At times of disruption, it’s crucial to think creatively and come up with out-of-
the-box solutions. If the future of your current business model is impossible in
face of the pandemic restrictions, how will you continue to seamlessly fulfill your
customers’ needs?
Many small businesses started using WhatsApp and other digital platforms to
continue selling their products to customers and creating additional revenue
streams on the way.
Another example of smart pivoting was when small businesses, including alcohol
companies, began producing hand sanitizers to meet their growing demand.
3) Leveraging New Age Marketing Tools
The pandemic pushed traditional small businesses, including local kirana stores,
to step up their online presence and adapt to newer ways to reach existing and
new customers whose behaviour was swiftly shifting online.
After establishing your presence, we’d recommend learning how to optimize
and grow by staying engaged online with personalized communications.
According to reports, 60% of MSMEs have weathered the storm and reduced
the stress to their systems by adopting digital sales channels, and 40% have
witnessed significant growth in sales.