Micro, Small, and Medium Enterprises (MSMEs) play an important role in the Indian economy, contributing nearly 30% to the country’s Gross Domestic Product (GDP) and accounting for 45% of its exports, which amounts to almost USD 1 trillion, as per a report by KPMG and the Confederation of Indian Industry. Additionally, these enterprises generate employment for approximately 20% to 25% of the nation’s workforce, making a significant impact on overall economic growth.
But despite its economic potential, the MSME sector faces numerous challenges that restrict its growth, with inadequate access to finance being the most significant obstacle. According to estimates, the sector requires approximately ₹36 lakh crore in funding, while only ₹16 lakh crore is available as formal credit, resulting in a credit gap of ₹20 lakh crore. In the absence of formal sources of finance, many micro-entrepreneurs depend on family, friends, and local moneylenders to meet their credit needs.
Limited technical knowledge, funding, innovation, and awareness frequently contribute to MSMEs operating with outdated technology, resulting in lower productivity levels. Moreover, due to limited access to formal training, many MSME entrepreneurs lack the managerial competence found in their counterparts in larger firms. This situation presents challenges in resource planning, capital management, labour management, bookkeeping, analysis, and decision-making, thereby hindering their growth potential.
Insufficient market linkages present challenges for MSMEs, as supply chain disruptions can have a significant impact on their performance. The involvement of multiple intermediaries complicates organizational and procurement processes, hindering cost reduction and the streamlining of the supply chain.
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