Small and Medium Enterprises or SMEs are now
playing a major role in the Indian economy and hence it is natural that the
government would also try to bring up this sector as much as possible. They
contribute about 35% to exports and 40% to industrial production and at least
12% of GDP.
They are now the source of employment for about 60 million skilled
and unskilled workers and it has been estimated that the SME sector is most
likely to generate another one million jobs each year. Moreover, due to
globalization and the far reaching effects of e-commerce, the SME sector is now
seeing the next phase of another major growth. However, challenges abound this
sector as well and they have to be met head on for the continuous growth and
development of this sector. Or else it could greatly impact its future
prospects and also adversely affect the economy.
One of the biggest challenges faced by this
sector, is well, complacency in itself. It has been seen that many SME
entrepreneurs are on the verge of reaching the point of satisfaction. Not only
has asset price inflation has greatly increased their wealth manifold, but the
inflation in real estate and stock in trade, which again, is bought on leverage
the maximum number of times- has kind of unexpectedly raised the net worth of
the company beyond their expectations. Hence, with so much being achieved in
such a short span of time, the hunger for growth seems to have reduced. An
entrepreneur who is already highly successful in his venture and is in a highly
comfortable position, does not want to risk everything all over again for
taking the business to the next level. The task of gathering fresh man power,
searching for new investors and upgrading everything all over again is too much
of a task that they do not want to go through with anymore. Even if he has MSME loan
eligibility, he just will not take it.
A majority of the SMEs that have been set up in
the last two decades are now not finding the right people to be handed over to.
Sons and daughters do not want to carry on with their parent’s business anymore and they
would rather settle abroad with their foreign degree and opt for a salaried
job. Running a factory or a business can be really difficult and challenging
and does not always ensure profit which the youngsters today, accustomed to
fast and easy lifestyle, are not okay with. Some just do not have what it takes
to be an entrepreneur. They do not want to go through the MSME loan and tackle the
repayment procedure. Hence, all in all, fresh faces are not coming into SMEs
and this could lead to a gradual decline.
Another factor that had made SMEs so popular
and they were so well run and administered was that most of them were family
run businesses, run by grandfathers, sons and brothers alike. The breakdown of
the joint family system, which had always been a source of huge support for the
SMEs had been detrimental to its growth and development. Instead of hiring
outside laborers, jobs were divided between family members who did them with
much more care and concern and the profits were kept within the family as well,
which again went towards the expansion of the business till it was large enough
to take it to the next level.
On the other hand, the SME
sector had been facing continuous demand on productivity and efficiency gains
and these demands require that investments in businesses be made on a regular
basis. The reward for making such investment is often not proportionate to the
capital and all the efforts that go into it. This is in turn affecting the
investments by SMEs. There have been periods of inflation and many new
businessmen have been faced with constraints when it comes to the high costs of
setting up a business and the availability of finance. MSME finance is now
available to help the small and medium businessmen tide over this problem. This
is probably the reason why there has been a rise of the technology based start-
up which requires much less investment and all one needs is a computer and they
are good to go.
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