What are problems of SMES in India.
Ans: Problems of Small and Medium Enterprises (SMEs)
(1) Problem of Finance
Scarcity of finance and credit is the main obstacle in the development of small scale units. The artisans and craftsmen have little capital. They take credit from money lenders who charge a very high exploitative rate of interest. Due to their weak creditworthiness and poor economic base, they find it difficult to take loans from the commercial banks. Also, it is partly due to scarcity of capital in the country as a whole. Besides, SSIs are also unable to generate resources as they lack knowledge to communicate their work to the capital markets. Due to poor financial image, small entrepreneurs fail to get credit facility at reasonable costs.
(2) Problem of Raw Materials
SSIs are facing the problem of short supply of raw materials. They cannot use the services of middlemen to get raw materials due to their weak financial position. In some areas there is an absolute scarcity of raw materials or it has a poor quality and high cost. For instance, the handloom industry depends on the condition that the weavers will sell the cloth only to them when it is ready. Thus, the weavers are subjected to double exploitation. Thus, small units fail to use their full production capacity. It also increases their production cost which adversely affects their competitive strength in the market.
(3) Inadequate infrastructure
In a survey of 1063 small units, Keshar Das and Morris found that 716 units faced significant infrastructural problems. SSTs are being constrained by inadequate physical facilities like electricity, water, roads, transportation, communication, banks and other basic services particularly in backward areas. This results in underutilisation of capacity and wastages.
(4) Outdated Technology
Most of the small units depend upon old techniques of production. They use outdated machinery and equipments. Many are using second-hand tools and machines. Due to limited capital,. they find it difficult to modernise their workshop and machinery. Thus, the quality of their products and productivity tend to be low and cost of production per unit remains high.
(5) Problem of Under-utilised capacity
Many studies have made it clear that there is the gross under-utilisation of installed capacity in small scale industries. After looking at findings of various surveys, it can be inferred that on an average 50 to 40% of capacity is not utilised in small scale units.
(6) Problem of Power and Water
Related to the under-utilisation of capacity are power and water problems faced by small scale units. Power supply is not always available in rural areas. Besides, small entrepreneurs cannot afford to go in for power alternatives. Water supply is also not regular in villages. This affects their productivity adversely.
(7) Unskilled labour
Labour has an active part in small scale units. But, workers lack training facilities in small scale sector. Most of the workers are unskilled, inefficient, untrained and having low level of education. Hence, they fail to cope up with the challenges of modern production system. Professionals and trained technicians also do not join small scale units. Due to this constraint of labour force, SSIs face difficulty in improving their productivity.
(8) Unsuitable location
Selection of proper location of workshops and plant is also a major problem before the SS1s. The choice of location depends on various factors like availability of infrastructural facility, cost of location, availability of skilled labour, markets and raw materials. But, small entrepreneurs are governed by different considerations such as cheap land, their traditional work place, family business, measures of local markets, sentimental attachment to their traditional ancestral property or business-place etc. Thus, small entrepreneurs are not properly skilled in deciding about suitable location.
(9) Problems of Marketing
One of the problems faced by SS1s is in the field of marketing. These units do not have any ‘marketing organisation’. They lack transport, storage and warehousing facilities. They do not have sale organisation. They do not make use of advertising and publicity methods. Therefore, these units suffer from a competitive disadvantage vis-a-vis large scale units. These, units also lack ‘bargaining skill’ and ‘staying capacity’ in the market. Thus, they are forced to sell their products at very low prices. To save small scale units from competition with large scale units, the government has reserved certain items for the small scale sector.
(10) Poor Project Planning
Due to the low level of education and experience, small entrepreneurs often depend upon consultants and hired experts for project formulation. They do not fully understand project details. Thus, poor planning of projects increase the cost and expenses. Due to dependence on others, project and programmes tend to over-run which leads to further difficulties.
(11) Problem for Ancillary Units
Ancillary units face the problems of their own types. One of these problems relate to delayed payments. Small entrepreneurs go through financial hardships on account of delayed payments by large firms and government departments. The other problems include-inadequacy of technological support by parent units, non-adherence to quality and delivery schedules. SSIs lack bargaining power in dictating their terms for their products. It, frequently happens that buyers do not pay their dues to SSIs for more than 12 months. Thus, it creates working capital problems before the SSIs.
Latest posts by MT UVA BMS (see all)
- International Finance Important Question Bank – MT UVA BMS - May 5, 2014
- Special Studies in Finance Chapter-wise Important Sums for practice - November 25, 2013
- Operations Research Important Questions 2013 – MT UVA BMS - April 22, 2013