MSME’S to face liquidity crunch on lack of efficiency, management, workplace conditions
Micro, small, and medium-sized enterprises (MSMEs) play an important role in our country’s economic growth because they generate a considerable number of job opportunities in every corner of India. Although the sector was largely hit by the Covid-19 pandemic, it has bounced back to normal. Indian MSMEs say that business is just not back to normal but is thriving. Although the sector is flourishing post pandemic, there are few MSMEs liquidity crunch.
All India Manufacturers Organisation conducted a survey on MSMEs and confirmed that the self-employed MSME units, predominantly 35% of the MSMEs sector, do not have any scope of recovery for their businesses and have already started winding up their units and liquidity.
MSMEs liquidity and profitability have slowed to levels that are incompatible with economic growth due to its low efficiency, mismanagement, and poor workplace conditions. There will be a considerable increase in the number of jobs created in India if the MSME sector is robust.
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The MSME has several serious issues which necessitate an immediate response. The government is working hard to lay forward a plan for this industry that will help overcome its many challenges and prosper.
Below are the factors due to which MSMEs liquidity crunch:
- Lack of Funds
Despite the government’s efforts to make business loans more freely accessible and encourage entrepreneurship, most companies still have difficulty getting financing or applying for an MSME loan. Regulatory flaws that cause delays in obtaining permits and insurance can harm the chances of small and medium enterprises. A lack of resources hampers most firms when it comes to producing their products, buying raw materials on time, or even gaining access to innovative technologies and expertise.
- Regulatory Issues
Most Indian start-ups encounter this issue in their early phases because of an overabundance of rules and regulations. Even though India has improved its ranking in the World Bank’s Ease of Doing Business Index, the system still has major flaws that inhibit businesses from growing and prospering.
Most of the time, difficulties with getting an MSME loan, contract enforcement, or dealing with building permits deter entrepreneurs from starting a business.
- Technological Advancements
Technological advancements have been plentiful, and most industries have experienced some sort of transformation to stay competitive. Although, because of a lack of experience and awareness, many firms are missing out on the latest technology advancements in their industry. As a result, MSMEs must be kept informed of technology advancements that directly impact the success of their companies. It is critical that scientific research institutions remain engaged with local MSME groups and pay attention to their technological concerns and issues.
- Labour
Indian MSMEs lag far behind their international counterparts in terms of technical expertise due to their reliance on low-wage informal workers who do not possess the necessary education or training to contribute significantly to production. As a result, small businesses are compelled to take on positions requiring modest levels of experience and training, further limiting their long-term chances for growth.
- Trust Concerns
Banks are reluctant to provide MSME loans because the amounts are still tiny and they believe MSMEs lack the repayment capabilities so they end up enforcing harsher controls on these start-ups in this situation. Certain businesses have difficulty getting loans because of a lack of recognition of a company’s credit score.
7. Collateral for Loans
A rigorous collateral requirement can make it problematic for some businesses to access MSME loan. Small businesses may not have the collateral or assets necessary to receive a loan from a bank.
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- Absence of Standardised Policies
In India, just a few policies are in place to support small and medium-sized businesses. As a result, MSME growth and entrepreneurship development programs lack coherence. Even though strides have been made in Delhi over the years, more remains to be accomplished at the national scale if Indian businesses are to be more relevant in the world economy for global companies and stakeholders.
Another essential thing to consider in understanding the MSME sector is its composition. Micro enterprises comprise 99% of the MSME sector, and the share of Small and Medium enterprises is only 0.52% and 0.01%, respectively. This indicates the higher importance of Micro-enterprises within the MSME sector. Additionally, more than 95% of employment is generated by micro-enterprises. This sector also plays a vital role in achieving socio-economic equality, but it is not discussed generally.
The MSME sector is expected to rebound sharply with 15-17 per cent growth in revenues for the financial year 2021-22 on the back of demand recovery following the pick-up in economic activity with the gradual easing of Covid restrictions, said a study by Assocham-Crisil. The recovery was reported across sectors with construction, commodities, exports, and consumption services leading the pack. The FY22 growth follows the negative growth of the sector by an estimated 10 per cent in FY21 and 6 per cent in FY20. For the current financial year, the study estimated 11-13 per cent growth.
However, the apparel manufacturing units of the export sector realised a business loss of over Rs 150 crore from March 2020 to May 2020. Loss of India’s leather industries has been valued to be Rs. 11,210 crore in the global market.