Top MSME Problems in India

(1) PROBLEM FACED IN RESPECT OF FINANCE

The financial problem of MSMEs is the root cause for all the other problems faced by the MSME sector. These industries (especially micro) are generally poor and there are no facilities for cheap credit. They fall into the clutches of money lender who charges exhorbited rate of interest. In recent years, large Indian firms obtained around 15 percent of their total funding from internal sources, 25 percent from banks and FIs, and 10 percent from capital markets. The remaining 50 percent came from alternative sources. Friends and family equity accounted for a huge proportion of their alternative finance, followed by trade credit. The problem of finance in these units is mainly due to two reasons. Firstly it is partly due to scarcity of capital in the country as a whole. Secondly, it is partly due to weak credit worthiness of micro and small enterprises in the country. Due to their weak economic base, they find it difficult to take financial assistance from the commercial banks and financial institutions. As such, they are bound to obtain credit from the money lenders on a very high rate of interest and are, thus, exploitative in character.

(2) PROBLEM OF RAW MATERIAL

The problem of raw material has assumed the shape of (i) an absolute scarcity, (ii) a poor quality of raw materials, and (iii) a high cost. Earlier, the majority of micro and small enterprises mostly produced items dependent on local raw material. But, ever since the emergence of modern small-scale industries manufacturing a lot of sophisticated items, the problem of raw material has emerged as a serious problem on their production efforts. The small units that use imported raw material face raw material problem either on account of foreign currency or customs duty or any other reasons.

(3) PROBLEM OF MARKETING

These units often do not possess any marketing organization. In consequence, their products compare unfavorably with the quality of the products of the large-scale industries. Therefore, they suffer from competitive disadvantages vis-à-vis large-scale units. In order to protect micro and small enterprises from this competitive disadvantage, the Government of India has reserved certain items for the small-scale sector. The list of reserved items has continuously expanded over the period and at present stands at 824 items. Besides, the Trade Fair Authority of India and the State Trading Corporation help the small-scale industries in organizing their sales.

(4) PROBLEM OF UNDER-UTILIZATION OF CAPACITY

The very integral to the problems of under-utilization of capacity is power problem faced by micro and small enterprises. In short, there are two aspects to the problems: one, power supply is not always available to these units, and whenever it is available, it rationed out, limited to a few hours in a day. Second, unlike large scale industries, the micro and small enterprises cannot afford to go in for alternatives, like installing own thermal units, because these involve heavy costs, since these units are weak in economic front, they have to manage as best as it can within their available meagre means.

(5) OTHER PROBLEMS

Technological obsolescence, inadequate and irregular supply of raw materials, lack of organized market channels, imperfect knowledge of market conditions, unorganized nature of operations, inadequate availability of credit facility, constraint of infrastructure facilities including power, and deficient managerial and technical skills. There has been lack of effective co-ordination among the various support organizations set up over the period for the promotion and development of these industries. Quality consciousness has not been generated to the desired level despite various measures taken in this regard. Some of the fiscal policies pursued have resulted in unintended splitting up of these capacities into uneconomic operations and have inhibited their smooth transfer to the medium sector. All these constraints have resulted in a skewed cost structure placing this sector at disadvantage vis-a-vis the large industries, both in the domestic and export markets

Source: https://www.quora.com/What-are-the-top-five-Challenges-faced-by-Indian-MSMEs