Page 38 - Banking Finance December 2023

ARTICLE

Financial inclusion: Small industries and retail businesses in
tier-II and tier-III cities create opportunities for people to
use banking services and products.

Protection from global economic Shock: Indian MSME
sector is the backbone of the national economic structure
and acts as a bulwark for Indian economy, providing
resilience to ward off global economic shocks and
adversities.

Issues Hindering MSMEs Potential:

The Micro, Small and Medium Enterprises of India have
shown better growth trajectories as compared to the other
sector. Thus, the proactive role of MSMEs in the Indian
economy is crucial for making India a $5 trillion economic
an alternative for India's soaring import bills, but also bring giant. Despite recording a huge contribution of MSMEs in
down a huge trade deficit. Further, the Indian Government the Indian economy, there are grave challenges faced by
now plans to bring out a roadmap to establish a small scale industries that require timely addressal. A
semiconductor ecosystem to boost designing, regional imbalance in MSME distribution is quite evident as
manufacturing and packaging of semiconductor chips majorly states like Uttar Pradesh and Madhya Pradesh tops the list
by MSMEs. Also, the Indian Government is planning to while poor states such as Bihar lie at the bottom. The major
enhance the export contribution of MSMEs in the Indian reasons behind the regional disparity are the unavailability
economy to 60% in upcoming years. of resources; be it raw material, financial aid, technical
Creates New Avenues of Growth: As the Indian knowledge, or entrepreneurial assistance.
Government and private sector come together to provide
The Financial Stability Report by the Reserve Bank of India
a conducive environment for MSMEs, the entrepreneurs are
highlighted the liquidity crunch and rising bad loans in the
now exploring the new domains. Lately, there has been a
massive growth in MSMEs engaged in tea, coffee, fishery, MSME sector. Even after numerous credit guarantee plans
bamboo, food-processing, and organic farming domains. Not and MSME loan schemes, the NPA load in the sector is still
only do they produce diverse products for domestic and on a rise indicating challenges of MSMEs.
global market demands, but also offer huge unexplored
Moreover, high credit cost, almost zero R & D, lack of skill
areas with high outputs.
development, complicated labour codes, etc. are still the
Ensures Inclusive and Sustainable Growth: As a huge
biggest challenges that MSMEs face. Below are the main
chunk of India's rural population is still engaged in
challenges associated with MSMEs:
agriculture and that to mostly disguised employment, Access to Finance: Access to finance is one of the biggest
MSMEs offer a new wave of solutions. According to challenges faced by MSMEs. These businesses often struggle
Government data, 50% of MSMEs in India operate in rural to secure loans from formal financial institutions due to a
parts employing rural populations. Moreover, as MSMEs lack of collateral, limited financial history, and high interest
offer jobs for unskilled labourers, their importance can't be rates.
emphasized enough in an economy like India. Besides
providing jobs to rural and unskilled individuals, 97% of Infrastructure: MSMEs often operate in areas with poor
workers in MSME sectors come from the micro-strata of the infrastructure, such as inadequate transportation, power,
and water supply. This can make it difficult for them to
society. Hence MSMEs promote inclusive growth by
providing employment opportunities in rural areas especially operate efficiently and meet customer demand.
to people belonging to weaker sections of the society. For Skilled Workforce: MSMEs require skilled workers to
example: Khadi and Village industries require low per capita operate their businesses effectively. However, they often
investment and employs a large number of women in rural struggle to attract and retain skilled workers due to a lack
areas. of competitive compensation and benefits.

34 | 2023 | DECEMBER | BANKING FINANCE