Challenges Faced by Small and Medium Enterprises in India Due to COVID-19

YRSK | Published: 18-01-21
With Small and Medium Enterprises (SMEs) sector contributing significantly to the economic growth of the country, its importance can never be undervalued looking at the employment, manufacturing and export opportunities it offers. Called the “engine of growth”, SMEs in India are about 43 million in number and comprises manufacturing, packaging, food processing, chemicals, infrastructure, service and IT. They contribute about 8 percent of the GDP, while it is about 45 percent and 40 percent of total manufacturing and exports respectively.

Nonetheless, the sector has been facing challenges in terms of economy slowdown, increase in the price of raw materials, insufficient funds to spend on research and development, high cost of capital, and so on for over a decade. The COVID-19 challenge, which the SMEs sector faces now, is an unprecedented one and it has caused serious damage to the world. With the economy taking a beating, it is very hard for the SMEs to deal with the challenges the coronavirus pandemic pose. 

Some Principal Challenges SMEs Face in the Wake of COVID-19

Here are some of the challenges the sector faces:

Financial Pressures: SMEs feel significant financial pressures with no cash flow owing to the lockdown. They have been struggling and trying to cope with the effects of GST and demonetization. With no liquid cash because of no or little business or no operation, they are finding it difficult to operate. The manufacturing industry is a worst hit with only 7 percent able to survive the crises using the available cash flow. The schemes announced by the present government has not reached the SMEs and it need to be seen whether they will be able to manage until they reach them. 

Acute Raw Material Shortage: Since the coronavirus outbreak, most of the SMEs in the organized sector have been facing serious raw-material shortage. With manufacturing units not operating to their full capacity and import restrictions, these SMEs find it hard to source raw materials for the orders they hold. Furthermore, the cost of these materials have gone up due to the scarcity or unavailability, which has resulted in the increase in the manufacturing cost of goods.

Understand and Utilize Government Schemes: The government has announced several schemes for SMEs to tide over the financial crunch. It is up to them to study and utilize such schemes, though this however asks for thorough evaluation of the financial situation. The challenge is to work out a strategy taking into account various aspects and receive the schemes to manage the crises.

Loan Delinquency Risk: There is a high risk of delinquency by SMEs, which have all possibilities of affecting the asset backed securities (ABS). The increase in the loan delinquencies will affect the property prices, which challenges SMEs’ refinancing options through loans against property (LAP) and affect the recovery of defaulted loans. SMEs should use the stimulus measures offered by the government to alleviate the problem, which in the current situation of declining income and job losses is arduous.

Creating New Demand: With the lockdown owing to coronavirus still continuing in some places and easing of it from time to time in most of the major cities and towns, you hardly find any increase in the number of people venturing out for shopping. There is no idea when people will go shopping like they did earlier and when there will be increase in the demand for goods and services.

Keeping Up with the Latest Technology: To be in the race during this crisis is to develop your business online too. Positioning your company, brand and product on top will help create new demand and customers. Using the latest technology and processes can really help but they are not complete solutions to this problem.

Shortage of Manpower: The COVID-19 pandemic has caused a widespread panic that most workers and employees were forced to return to their hometowns. This has caused a big shortage of manpower in the SMEs sector, which is now struggling hard to run its manufacturing units in full capacity. Nevertheless, this is a short-time problem and SMEs should get back to its full strength immediately.

Coping with Work and Life: SMEs of today find a new problem of having their employees balance work with home-life. The pandemic has restricted traveling from home to office and vice versa. With some work undertaken remotely, SMEs need to ensure that their employees can work effectively in the given surroundings adjusting work-family life and demands.

Cost-Effective Marketing: Marketing and advertising are the two prime aspects that SMEs look at for survival and success. With digital marketing gaining a lot of prominence, it is advisable for SMEs to have a strong presence online and stay economical. Some of the cost-effective marketing ideas include creating great content and instructional videos, having customer referral programs, using social media platforms, etc.

Global Competition: MostSMEs in India are purely domestic and hence, are not prepared for global competition. With China looked down in this new global reality, there are chances for SMEs to meet the global demand for various byproducts, which are supplied by China. It is time that SMEs work out different strategies to stay tuned to meet the demand.

The challenges mentioned above should not constraint SMEs from trying, performing and facing them. With the present government calling for “Self-Reliant India”, there is undoubtedly a big commitment from it to save them through various financial relief schemes and policies. Using them, SMEs should improve innovation capabilities and develop new techniques and management talent to stay ahead and emerge as winners.