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Challenges Faced by SMEs in India

By on March 22, 2014 in SMEs Insights with 0 Comments

The number of SMEs in India are increasing at a fast rate and supporting the growth of Indian industrial sector.

There are over 300 million Small and Medium Enterprises (SMEs) in India. SMEs are being considered as the backbone on Indian economy. SMEs employees 40% of the total workforce in India and had contributed 7.9% in GDP for the financial year 2012-2013 (according to the Economic Survey of India). SMEs are growing at a fast rate and are increasing the production of the industrial sector in India. Though SMEs are vital sources of both employment and industrial development in India, they are facing several challenges in the current scenario.




Lack of financial support is one of the major challenge faced by Indian SMEs

Some of those challenges are:

Unavailability of financial resources and high cost of credit: Financial resources are the basic requirements for SMEs. Capital investment is essential for the development of any business. The SMEs in India generally lacks 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 much financial supports to the SMEs.

Lack of infrastructure: Well-developed Infrastructures can play an important role in the over-all development of Small and Medium Enterprises (SMEs). Deficiency of transportation facilities and channels, unplanned urbanization, improper electric and water supply and unbalanced availability of other basis facilities are becoming serious challenges for the SMEs in India.

Technological Backwardness: Most of the technologies which are being used for production by SMEs in India are very old and are being used from decades. The machines with older technologies consumes more time, resources and human efforts and provides limited production rate. Better technologies and advanced machines can minimize the cost of production and allows SMEs to grow fast.

Information divide: The informational divide that exists between the Global North and the Global South , prevents the developing countries (consisting 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. Lack of access to information is a major challenge faced by the SMEs in India.

Limited Human resources development: The lack of literacy and professional trainings restrict the development of human resources in India. Proper education and training programs can improve the productivity level of each worker. Improper and not fully-optimized use of human resource is a challenge for SMEs in India. Limited salary budgets also influences the hiring procedure of SMEs which results in the hiring of low efficient employees.

Lack of innovations: Innovations of new products is very rare in SMEs in India. They mostly produce products similar to those produced by foreign companies. SMEs in India lack innovations or creation of new products. They just import product ideas from international market and produce similar kinds of products.

Limited facilities for quality control and check: Most of the SMEs fail to pay proper attention on the quality of their products. The absence of appropriate facilities and technologies for checking the quality of the product is another challenge.

Competition in international market: Advanced competition in the global market further affects the profit making of Indian SMEs. International producers offer better quality product at quite low prices. The limited assess to international market is also a challenge for the Indian SMEs.

These are the main challenges which act as barriers in the development of SMEs located in India. If these problems can be minimized, the SMEs can provide a great support in the over-all development of the Indian industrial sector and can boost the Indian economy.


SMEs contributes around 8% of the total GDP

Even along with these challenges, the contribution of SMEs in the GDP of the country, is something around 8% and it is further increasing with each passing year.

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