3 Reasons India’s Startups & SMEs Are Facing Challenging Times

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By Vikash Mittersain

India’s SME sector is one of its biggest providers of jobs. The large companies are replacing human beings by automation.

The small scale businesses are mostly a one-man show, with the entrepreneur running his or her company individually with some assistants and workers.

He has the vision which he follows, mostly one product to make and even the marketing is done by him.

The owner runs a low-cost operation, as profits come from keeping cost structure in control.

There is no respite to the small scale business people, they work 24/7 even on most holidays.

It’s only when he is unwell, does he gets forced to rest.  Even procurement of raw materials is done by the entrepreneur himself or herself.

These sector players must be very careful and organized and not try to do too many products at the same time. Those who understand the issues involved are able to run a smooth business and even grow in these challenging times.

The difficulties and opportunities for SMEs (small and medium enterprises) are broadly as below: 

1. Government action remains on paper: The government speaks a lot about helping the small sector, but in reality, it does not care.  The schemes mostly remain on paper.

There is a dire need to step up SME activity to generate employment. This is at an all-time low in India. For some reason, even at 7% GDP annual growth, employment is not rising.

The government is best placed to find out the reasons for this situation. Government machinery must be used to get into the nitty-gritty.

2. Over-taxation is stalling economy:  Despite a lot of infra work done in the first term, including electricity power being provided across the country, coal mines in full working, digitization of the payment system, (direct benefits ), building of roads being doubled, etc, the Indian economy is stalling.

We need the government to infuse large funds into the hands of the common man to facilitate consumer spending.

One major issue holding back SME growth is taxes.

We are an overtaxed country, with taxes whichever way we turn.

It’s not only the amount; it’s also the plethora of taxes.

This needs specialized attention from chartered accountants and is such a waste of time.

Any delays or mistakes invite huge penalties for SMEs.

So many governmental issues take up a lot of time and money, which small businesses can ill-afford.

3. Bank funding of SMEs has stalled:  SME funding by banks has greatly stalled.  This needs to be restarted, with banks reducing their requirements to lend to businesses.

Maybe the government should consider treating small scale on a par with the farming sector by doing a small scale sector loan waiver.

This will put working capital funds in the hands of the business owners, especially manufacturers who can then ramp up production and employment.

Bill discounting by banks is not that widely encouraged in India.  It’s too complex.

Western countries have factoring, which has been finely honed over the decades, freeing up time and funds of the small sector.

Many large businesses and companies delay dues of small scale suppliers.   This sector keeps running around in circles to recover their dues rather than focusing on production activities.

Perhaps a law is required to make it mandatory to pay the small scale suppliers ahead of the rest.  Not paying this sector has a cascading effect, and keeps employment low.

All dues for supplies made by this sector must be cleared within a maximum of one month.  Penal interest must become applicable.

I believe some law has been put in place but it’s ineffective.

So all in all, this is the most vibrant sector for the economy, employment, GDP, etc.

Even the USA and China have a large reliance on small scale and medium enterprise  sectors, primarily for job creation.

About Author: 

The author is Chairman & Managing Director of mobile gaming firm Nazara Technologies Ltd. & Founder & President, India Business Group Chamber of Commerce. He is also a TEDX Speaker and co-author of YOU CEO: Success Lessons From Leading CEOs

Author Feedback: vikash@nazara.com

 

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