[Answered] Discuss the major problems faced by MSMEs in India. What are the measures presented in budget 2019-20 for MSME sector?

Demand of the question
Introduction. A contextual introduction.
Body. Problems MSME face.
Conclusion. Way forward.

The budget 2019-20 aim at  $5 trillion economy. This cannot be achieved without underperforming MSME. Budget focus on ease of doing business for MSMEs and ease of living for citizens.

Problems faced by MSMEs

  1. Problem of Raw Material: A major problem that the micro and small enterprises have to contend with is the procurement of raw material. The problem of raw material has assumed the shape of:
    • An absolute scarcity,
    • A poor quality of raw materials, and
    • A high cost.

The small units that use imported raw material face raw material problem with more severity mainly due to difficulty in obtaining this raw material either on account of the foreign exchange crisis or some of other reasons. Even the micro and small enterprises that depend on local resources for raw material requirements face the problem of other type. An example of this type is handloom industry that depends for its requirement of cotton on local traders.

Nonetheless, micro and small enterprises with no special staff to liaise with the official agencies, these units are left with inadequate supplies of raw material. As a result, they have to resort to open market purchases at very high prices. This, in turn, increases their cost of production, and, thus, puts them in an adverse position vis-a-vis their larger rivals.

  • Problem of Finance: An important problem faced by micro and small enterprises in the country is that of finance. The problem of finance in micro and small sector is mainly due to two reasons.
    • Firstly, it is partly due to scarcity of capital in the country as a whole.
    • Secondly, it is partly due to weak credit worthiness of micro and small enterprises in the country. Due to their weak economic base, they find it difficult to take financial assistance from the commercial banks and financial institutions.

As such, they are bound to obtain credit from the money lenders on a very high rate of interest and are, thus, exploitative in character.

  • Problem of Marketing: One of the main problems faced by the micro and small enterprises is in the field of marketing. These units often do not possess any marketing organisation. In consequence, their products compare unfavourably with the quality of the products of the large-scale industries. Therefore, they suffer from competitive disadvantages vis-a-vis large-scale units.
  • Problem of Under-Utilization of Capacity: Studies shows the gross under-utilization of installed capacities in micro and small enterprises. On the basis of All India Census of Small-Scale Industries, 50 to 40 per cent of capacity were not utilized in micro and small enterprises.
  • Power deficit- The problems of under-utilization of capacity is further enhanced by power problem faced by micro and small enterprises. In short, there are two aspects to the problem: One, power supply is not always available to the small units on the mere asking, and whenever it is available, it rationed out, limited to a few hours in a day. Also, unlike large-scale industries, the micro and small enterprises cannot afford to go in for alternatives; like installing own thermal units, because these involve heavy costs. Since micro and small units are weak in economic front, they have to manage as best as it can within their available meager means.
  • Lack of Coordination: There has been lack of effective co-ordination among the various support organisations set up over the period for the promotion and development of these industries. Quality consciousness has not been generated to the desired level despite various measures taken in this regard.
  • Other Problems: In addition to the problems enumerated above, the micro and small enterprises have been constrained by a number of other problems also. These include technological obsolescence, inadequate and irregular supply of raw materials, lack of organised market channels, imperfect knowledge of market conditions, unorganised nature of operations, inadequate availability of credit facility, constraint of infrastructure facilities including power, and deficient managerial and technical skills.

Measures for MSME in budget 2019-20

  1. 2% interest subvention scheme– It will benefit MSME with more amount of capital and will help them to work toward Make in India. Also, ₹350 crore has been allocated for Financial Year 2019-20 for 2% interest subvention for all GST registered MSMEs on fresh or incremental loans. This keeps the supply chain intact and registered assesses get additional buoyancy in this sector.
  2. The government has introduced a scheme for providing loans up to ₹1 crore within 59 minutes through a dedicated online portal. This will ensure quick availability of capital.
  3. Budget provide to create a payment platform for MSMEs to enable filing of bills and payment on the platform itself to eliminate delays in government payments.
  4. The government will extend pension benefit to about three crore retail traders and small shopkeepers whose annual turnover is less than ₹1.5 crore under a new scheme named Pradhan Mantri Karam Yogi Maandhan Scheme. Enrolment will be kept simple requiring only Aadhaar and a bank account.
  5. Under the Scheme of Fund for Upgradation and Regeneration of Traditional Industries (SFURTI), 100 new clusters will be set up during 2019-20, enabling 50,000 artisans to join the economic value chain. SFURTI aims to set up Common Facility Centres (CFCs) to facilitate cluster-based development to make traditional industries more productive, profitable and capable for generating sustained employment opportunities.
  6. Enrolment to be kept simple, requiring only Aadhaar, bank account and a self-declaration.

Government continues to push for Ease of Doing Business for MSMEs and industries, but effectiveness will depend upon connecting millions of MSME sellers, manufacturers and artisans with consumers efficiently in a cost effective manner.

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