For the Indian economy to fire on all cylinders, it is important for SMEs to pitch in. This entails removing all roadblocks plaguing the sector.
The new-age India wants its rightful place under the sun. After decades of growing at snail’s pace, it now wants to make up for the lost time by aggressively focusing on its economy. One of the key drivers’ of the economy is the SME segment.
The importance of the SME segment can be gauged from the numbers shared by the Ministry of Micro, Small and Medium Enterprises and the SMB Chamber of Commerce. According to them, there are more than 48 million SMEs contributing 45 percent of the country’s industrial output.
The government has the right strategy with respect to the Small and Medium Enterprises. There are reports on how the fast growing sector would soon overtake China in its growth rates. However, for this to materialize there are several impediments along the journey that need to be overcome.
One glance and the problems plaguing the sector are clearly visible. For starters, the regulatory policies put in place for SMEs are unfortunately not yielding the desired results. They are, in fact, proving to be impediments in the growth. A closer look reveals that the government has not announced any special and specific schemes for SMEs. The only discussions have been around supporting them.
The need of the hour is to set up an SME-specific regulatory body that not just regulates but also shows the way forward to the sector. It could effectively come across as a single window that enables all clearances needed for starting a new business, eventually cutting down on precious time spent running around.
The other roadblock ahead of small and medium businesses is that of availability of finance. Most such businesses fold up in just a few years of their starting just because they are unable to get funds. These businesses function with minimal human resources with the promoters having a lot on their plates. As most of them don’t have a background in finance, they are taken for a ride by dubious elements.
While there are banking guidelines that highlight loan availability without the need of any collateral, the situation is different on the ground. With the quantum of dead loans piling up, banks have become doubly cautious in extending capital. Bankers’ annual appraisals are linked to the loan amount gone bad.
Meanwhile, Non-Banking Financial Companies (NBFC) extend finance to SMEs at higher costs, thereby lowering their margins. On the other hand, approaching an investor is fraught with a different set of issues. In the process of raising capital from investors, SMEs end up diluting their stake with the result that the promoters lose interest in running the show.
It is, therefore, up to the government to make availability of finance easy for SMEs, thereby enabling them to move up to the next level.
It has traditionally been seen that India has launched several ambitious projects only to lose steam as they progressed. However, the last few years has seen a more confident and assertive India. An India that wants to finish what its starts. Lets hope the thrust it has accorded to SMEs is sustained.