JANUARY 11, 2022
Indian SMEs and their story so far
Over the last few years due to the global pandemic, businesses and economies across the world have suffered setbacks, some bounced back stronger than expected while some continue to reel under the pressure of the challenges that COVID 19 brought.
Amongst the various businesses, it’s the SME’s that have been hit the hardest. The traditional challenges that the sector was facing such as lack of credit, lack of support from big financial institutions were aggravated even further due to the sudden shutdown of manufacturing units and the collapse of the supply chain all around the world. According to a Financial Times news report, of the total 1.65 lakh businesses listed for sale, 52,000 came onboard from April 1, 2020. In fact, before Covid, the daily average of businesses listing for sale was 10 that increased to 20 before the second wave, and is currently about to cross 25.
However, thanks to a stronger than expected recovery, SMEs in India have fought with resilience, India’s exports till now (September 2021) are around 185 billion dollars, for the quarter ending in September 2021, the exports surpassed 100 billion dollars for the first time. The government of India has set an ambitious target of 400 billion dollars for total exports.
To achieve these targets, the Government has announced various measures such as an extension of the Remission of Duties and Taxes on Exported Products (RoDTEP) to special economic zones and export-oriented units. In addition to this, the Indian government has also relaxed container re-export rules by granting three extra months.
While these measures are in reaction to the adverse effects of COVID, SME sector has long faced challenges in terms of their ability to raise collateral-free capital. Due to the low-risk appetite of traditional financial institutions, SME’s face a higher rejection rate, and those who manage to be eligible have to go through heaps of paperwork and higher turnaround time to be eligible to receive financing.
All of the above reasons create huge obstacles for Indian SMEs to compete globally and grow at a faster rate. After all, SMEs contribute to around 40 percent of the country’s GDP. Hence, it is safe to say that the economic growth of India is strongly interlinked with the growth of the SME sector.
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