Leading SMEs of India 2021

22 Deterrents to the growth of MSMEs Physical infrastructure bottlenecks: With an objective to fulfil the infrastructural requirements, the government has planned the formation of clusters across different regions. However, despite these efforts, MSME clusters – particularly micro enterprises are unable to benefit from these infrastructural support systems. The government envisages to set-up industry-wise clusters in different regions for MSMEs to leverage upon shared resources such as utilities. One of the key solutions to overcome this limitation is the adoption of technology. In the current scenario of globalization and openness in trade, technology adoption to improve operational efficiency is imperative in achieving the larger economies of scale to cater. Access to Credit and Formalization : Credit availability remains one of the key necessities for an enterprise of any scale. Disbursal of credit to MSMEs has remained low. The total credit outstanding from banks and NBFCs to the MSME sector was approximately ₹11.1 lakh crore as of August 2021, wherein scheduled commercial banks accounted for almost 90% of the total credit outstanding. 96% 4% Types of Establishment Proprietar y concer n Ot he rs Source: Annual Report 2020-21 issued by Ministry of Micro, Small and Medium Enterprises The results of the 73rd NSS Round Survey (2015-16) indicated that approximately 96% of the entities within the MSME sector are proprietary concerns. Such a large proportion of proprietary entities imply an informal manner of conducting operations and thus assessing their creditworthiness can be difficult due to the lack of consistent information, particularly with respect to the financial performance of their businesses. In the process of raising credit, enterprises need to support their application with collateral securities and ascertained future business revenues and readiness in terms of digital identification. However, MSMEs are not completely equipped to meet the requirements and the small-scale operations restrict theMSMEs to raise adequate capital. Thus, the government has promulgated various initiatives towards digitization of identity and other statutory processes such as return filings, GST, and JAM trinity. This has led to increased awareness amongst the MSMEs to ensure their onboarding on various digital platforms to validate their identities, which in turn has eased the process of availing various incentives. Delay in receipt of payment: In the absence of adequate credit facilities, MSMEs have to rely on the cash flow generated fromoperations tomeet working capital requirements. They serve various companies in both public and private sectors and face challenges in the receipt of payments on a timely basis, thus affecting their cash flow and working capital availability. This has a cascading effect on the substance of operations due to uncertainties arising out of the lack of funds. As per a study conducted by the RBI in December 2019, 44% of MSMEs engaged in manufacturing activities (mainly engaged in basic metal and metal products, engineering, construction, and infrastructure-related industries) witnessed delays in receipt of payments. Dun & Bradstreet