SWOT Analysis of India's MSME Sector

Globally, the MSME sector is one of the most crucial sectors in any economy because it helps generate employment opportunities and utilize local resources, both natural and human. Also, to develop sustainably, any economy around the globe requires organized industrial development. In India, more than 65% of Indians live in rural areas where establishing large-scale industries can be challenging. But, that is not the case with MSMEs, which is why this sector is so critically essential for India's growth and sustenance.

In this article, we will do a SWOT (Strengths, Weaknesses, Opportunities, and Threats) Analysis of the Indian MSME sector for a better perspective.

 

1.     Strengths Vs. Weaknesses

Strengths

Weaknesses

·       Low investment costs – a Micro unit in the country in the service segment can be started with an investment of INR 10 lakh, while in the manufacturing segment can be started with an investment of less than INR 25 lakh. ·       One of the biggest employers in India – the MSME sector had employed about 110 million people across India in FY 2020. ·       MSME is the largest contributor to the GDP – the MSME sector contributes about 30% to the Indian GDP. In the next couple of years, the targeted percentage is 40%. ·       Agile to changes – being small and micro helps MSMEs to adapt to changes quickly. The administrative and bureaucratic processes are minimal in the sector. ·       Customer-centric – one of the biggest strengths of MSMEs is that they can produce new and modify their products, product line, services, etc., as per the changing demands of their customers. Their customers are at the focal point of their business. ·       Entrepreneurship- most SME units are the work of entrepreneurs seeking independence.

·       Lack of working capital and funds is one of the biggest issues with the sector. Most banks and FIs are hesitant to offer loans to MSMEs. ·       IT resources – unfortunately, in India, the sector is mostly manually operated. Pandemic-like situations become difficult to deal with in the absence of automation, new technology, and computerization. ·       Marketing aspects – the sector lacks a competitive edge, especially internationally, because of the absence of QC, standardization, design control, skilled workers, after-sale services, etc. Competition from bigger brands offers them poor bargaining power, while the lack of management skills at the top level becomes a root cause of failure.

2.     Opportunities Vs. Threats

Opportunities

Threats

·  Encouraging policies and schemes from the government. For example, PM's Employment Generation Program, the Credit Linked Capital Subsidy Scheme, skill development programs like ASPIRE, ESDP, etc. ·    Credit and financial support – in the 2021 Union Budget, the government announced INR 10,000 crore assistance under the Guarantee Emergency Credit Line. ·     The government is also supporting technological upgradation, training, etc., to the sector with schemes like TUF. ·    Marketing support like regular trade promotions, buyer-seller meets, expos, etc., are being organized.

·       Payments from clients are mostly delayed causing working capital shortages. ·       New compliances and taxation laws also affect the morale of the businessmen. ·       Failure of Banks and financial institutions to offer funding to small businesses. ·       Low investment in Research and Development impacts innovation and is a cause of concern. ·       Quality control and standardization are also a big concern with MSMEs in India.