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Msmes in India’s Contribute

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Even MSMEs face difficulties in raising the funds from non-bank finance instruments, especially from the capital market. On the demand side, many entrepreneurs lack financial knowledge, strategic vision, resources and in some cases, the willingness to attract sources of finance other than straight debt. The limited demand for alternative financial instruments can also be attributed in part to their disadvantageous tax treatment vis-à-vis straight debt. On the supply side, potential investors are dissuaded by the opacity of the SME finance market, a lack of investor-ready projects and exit options, as well as persisting regulatory impediments. As a consequence, financial instruments for SMEs often continue to operate in thin, illiquid markets, with a low number of market participants (OECD, 2017).

Lack of Diversified Exports (KPMG, 2015) mentioned that MSMEs in India’s contribute about two fifths of total exports, however the share of the top four commodities account for about 60 per cent of total MSME exports. This figure suggests that India’s MSMEs export basket is highly concentrated which puts Indian exports into vulnerable condition amid changing global economic conditions, and there is much scope for diversification (KPMG, 2015).

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Infrastructural Problems

Another major hindrance to the growth of MSMEs is the non-availability of infrastructure support, according to a report of the Small Industries Development Bank of India (SIDBI), 2010. Many MSMEs in rural and semi-urban areas are facing difficulty in access of stable flow of infrastructural facilities like power, roads, and communication services. This phenomenon coupled with archaic labour laws, multiple taxes and the “intransigent attitude” of Government officials affects the efficient operating of MSMEs (PHDCCI Survey). Even workers get less remuneration as individual units often experience problems of markets shrinking due to their inability regarding packaging and product standardization.

The three key players of inter-state goods facilitators such as retailers, transport providers and logistics providers express their concern towards inadequate infrastructure for reaching the diverse geographic needs. The limited availability of cold chains, warehouses, logistics parks and hubs, etc remain the key challenges for making the effective flow of goods across states. The constant stoppage of vehicles at state borders to meet out the requirements of government departments lowers the average speed of logistic vehicles and thereby underutilization of underlying resources. It is estimated that in India trucks ply for 20 days a month against an average of 25 days a month in other developing countries. Sometimes retailers face difficulty in true estimation of demand amid varied habits of customers across states which eventually create the problems of inventory at retailers, distribution centers and outlets (EY & Rai, 2013). It is also added that the transport sector, relate to issues of taxation (both Centre and State), regulation by States on the movement of goods, frequent stoppages and delays under administrative rules and inspection agencies hamper the flows of goods across states.

Problems of Intellectual Protection

Moreover, the MSMEs are not tuned to prevent the theft of their ideas and products as they are less aware of IP provisions and also lack in knowledge and expertise. Also, the high cost of application filling, long gestation period in taking patents, ignorance towards comparative advantage through IP, etc are the key factors for MSMEs to move towards strengthening the IP assets.

Trade Competition

A large number of Indian MSMEs are seen to be facing greater competition from China as compared to rest of the world (PTI, 2014). The Chinese imports have been identified much cheaper (FICCI, 2009 ; Textile Machinery Manufacturers Association (TMMA). Machinery imports, such as textile machinery, are one of the biggest threats to small domestic manufacturers. The value of textile machinery imports from China grew from Rs 1,636 crore in 2007–08 to Rs 4,300 crore in 2012–13 (Khan, 2014). The average technology value-addition in manufactured products exported by the Indian industry is around 8 per cent24, significantly low when compared to that of other emerging developing nations (KPMG, 2015).. China’s SMEs contribute to over 68% of the exports and most importantly the country has added more SMEs than the total number of combined SMEs in Europe and the US, in past two decades.

Product Development and Marketing

Indian MSMEs also experience the problem related to product marketing. The possible reasons for this problem are small scale of production, lack of skilled staff to market the product at right time and right platform, high competition from technically more efficient units, etc. Another factor in this domain include the high cost of certification as a deterrent to the growth of MSMEs marketing strategies as the product is subject matter of law and regulation. Even the small industries producing vegetables and milk, have to undergo with due approvals. The high cost of advertising also hampers the marketing capabilities of MSMEs. It is also mentioned that multiple growth constraints of MSMEs in the form of poor infrastructure, obsolete technology, inadequate market linkages, largely affects the borrowing capacities of these units.

Lack of Investment Incentivized Schemes

In a very recent period, members of MSME across TN have expressed that the investment incentivized schemes of other states have resulted into lower investment of large industries in the state eventually ending up the small units with poor economic performance. Also, the entrepreneurs have expressed their concerns for natural calamity as well (Kandeval, 2018).

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