Challenges Indian SMEs Face To Reach The Next Level
Indian SME sector is one of our biggest providers of jobs, from workers to middle management levels. The larger companies have funding to install machinery and automation, which the small scale cannot.
The small scale businesses are a mostly one-man show with the entrepreneur running his or her company with some assistants and workers. He has a vision which he follows mostly one product outfit, even the marketing is done by him. The owner runs a low-cost operation, as profits derived from the low cost of operations. There is no respite for him/her, working long hours and 24/7. It is only when he is ill does he get time off. Often the spouse handles all other personal matters. And many places the spouse joins hands to run the show.
Not only this, procurement functions are handled by him. Those who understand the dynamics can run a successful enterprise, even grow it. Some move up the value chain from a few employees to several hundred, moving from small scale to medium.
The government plays a major role in this sector. Not just by the right policies to help, but also on a day to day basis. A lot of government services and approvals are needed, for which the SME entrepreneur has to run around. Tax men, factory inspectors, govt clearances needed, etc are part of the daily life. In reality, these are hindrances and not to help . Despite 7% growth, employment is going down . A task force must be set up by govt to analyse what is causing this drop. This task force must consist of govt, economists and also the business people who face the issues . Many policies remain only on paper, which need to be implemented in spirit and practice . The budget will provide a great opportunity to the govt to help this sector. Last year the focus was on the farm sector. Lets hope this year its on employment, particularly the small sector. The GST tool must also be used to reduce the multitude of taxes and procedures which hamper the smooth working of Small businesses.
Despite a lot of infra work done in the governments first term , including electric power available across the country , coal mines in full working, digitisation of the payments system (direct benefits), road building doubled in last 5 years, employment remains dismal. We need the govt to infuse large funds into the hands of the common man to facilitate consumer spending.
What holds back SME?
One major issue holding back SME growth is taxes. We are an overtaxed country with taxes whichever we turn . It's not just the plethora of taxes. These need specialised inputs from consultants and CAs all of whom charge the earth, And the time consumed of the businessman. Any small mistakes invite huge penalties . The small business man cannot afford all this in terms of cost and time .
Banks and Financial Institutions
SME funding from banks has greatly stalled , decision making managers are now afraid of things going wrong . They get seriously penalised to the extent of losing their jobs or even going to jail, so they follow the best course. Dont take decisions or sanction loans. At this stage of stalling economy, the govt should consider treating small scale on par with farm loans , with a one time waiver of SME loans and advances , including capital costs of machinery and plant . This will put working capital back in hands of the entrepreneur. Do we want to wait for the businessmen to start commit suicides like the poor farmers before acting? Waiver can be up to a certain category/level to be decided by an action group.
Internationally, there are financing options like Factoring and Bill Discounting. These are being done to an extent in India but the complications are too many for smooth systematic working. This would make the funds flow easier.
The delay in payment by large companies virtually kill the MSME, and must not be permitted under any circumstances. It should be criminal to delay beyond a point
SME sector must be supported for a few years by special incentives. The government must give a 10% incentive as reimbursement on annual turnover to improve its profitability.
The industry must be given a grant for R&D to power its quality and develop new products. It gives an edge over others, helps cut costs of production and another unique positioning
All in all, MSME needs to be supported to create employment, which is the need of the hour.
(The Author of the article is Chairman & Managing Director, Nazara Technologies Ltd. & Founder & President, India Business Group Chamber of Commerce.)