Roles of Small Businesses in India and Problems of Small Businesses

Small businesses play a vital role in the economy. Think of the luxurious car that you see on the roads daily. The final product is the outcome of many small businesses that are integral parts that help the engine to run. It is these millions of small industries that get you the dream car. It has been seen that 65-75% of the innovation comes from small business industries. Here you will learn about the major role played by the small business and all the issues that are faced by them.

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Role of Small Businesses in India

  1. Industrial Units: In an economy like India, the majority of the industrial units are because of small business. This today accounts for more than 95% of the units. Almost 40% of the total industrial units are contributed because of the small industries. The small businesses are bagging around 45% of the total exports that happen from India.

  2. Labour-oriented: Small businesses generate a lot of labour. They give many employment opportunities to those living in rural and semi-urban areas. The small businesses help to lift the weight of unemployment in any economy. This is a significant role that they play predominantly in a country like India. India has a large labour force and the Indian government also encourages small industries that employ and utilize labour. The government encourages small businesses by drafting various policies and offering low-interest rates.

  3. Human Resource: The small businesses rank next to agriculture to employ in the Indian economy. As compared to many big companies, the small businesses are capable of generating the maximum employment opportunities for each unit of capital that is invested. This makes the small business the second largest employment generator in the economy.

  4. Utilization of Local Resources: The local community needs and demands let the small businesses to emerge in the semi-urban and the rural areas. The small businesses are community-based, and these are focused to work for and generate employment in a few areas. This lets any business utilize local resources like talent, raw materials, demographic opportunities and labour. When there are ample mobilization and utilization of any local resources, this helps to improve the economic condition of a particular area.

  5. Flexible and Adaptable: Any new business opportunity gets captured at the correct time. Small businesses get an edge when it comes to adapting and growing in the light of any upcoming changes. The small business usually is the manufactures and the distributors, and they are thus capable of generating a personal touch with the business and with their clients as well. There is also no government intervention in the case of small businesses as these are limited in finance and size.

There are however many challenges of small enterprises along with the opportunities that are faced by them. 

Problems of Small Businesses

These are the problems faced by small businesses.

  1. Finance

The major small business problems faced is the inadequacy of funds to funnel in the operations. This hinders the business from developing. The small business does not have enough creditworthiness that is important in the capital market, and thus there are financial problems faced by small businesses. The industrial investors or the banks ask for collateral as security. The small businesses operate in the semi-urban and rural areas, and this makes it difficult for them to get their finances.

  1. Raw material

Businesses need raw materials for production. They need some input to generate output. The raw material quality is the challenges faced by small businesses as it depends on what is inputted into it. However, it is possible that because the small business is tight on the budget, they are not able to get raw materials of good quality. Also, because these industries purchase in small lots, they do not have a lot of bargaining power. The storage facility is also an issue here. This is why the small business needs to be quick to produce and to sell the goods. This is among the major problems of small scale business because they cannot hold on to their inventories for long.

  1. Managerial Skills

The small business operations are done by limited employees. In most cases, a single person only will manage all the operations. The manager has a lot of pressure to meet production demands. Also, it is possible since the small business cannot hire well-read managers. The managers may lack the basic managerial skills that are needed to operate any unit. These are the challenges of small business.

  1. Skilled Labour

Skilled labour is among the problems of small scale enterprises. Small businesses have a fund shortage because of which they are not able to employ skilled labour to do the job, which is one of the challenges of small scale business. They cannot pay very high wages to their employees, and thus they have to make do with a low skill level. This results in a productivity drop, and the labour rates are high. This again is a major concern in the production operations.

  1. Marketing

Here are the small business marketing problems. The small business needs to sell the product to make profits, and for this, they need a marketing channel. The business needs a marketing channel that can help it achieve its sales goals. Because of the lack of infrastructure, direct marketing is not possible for these companies and is one of the problems of small entrepreneurs. The lack of funds hinders the small business to hire a middle man to make the sales. These middlemen exploit these companies by paying a low price and delaying payments. This is another of the challenges facing small business enterprises. 

The small business plays a key role in the economy of the country. There are many problems with small enterprises. However, if the country has to fulfil its aim of becoming a global hub of manufacturing, then it does need small business in its country. As is rightly said by Amarendra Sinha, Special Secretary and Development Commissioner at India’s Ministry of Micro, Small and Medium Enterprises, it is the small business that can lead the charge of manufacturing.

FAQs (Frequently Asked Questions)

Q1.  What is the role of Small Business in rural India?

Ans. The small scale industries offer many benefits in rural areas. They offer non-farm employment to the people. The small scale industries help to offer employment opportunities. They also help to curb the migration of rural people to urban areas by giving them ample opportunities in their rural areas. The small scale business also helps to meet the demand of the rural population. When the business is set, it eradicates poverty by generating employment. There are also many social-economic aspects of the small scale industries. These industries contribute to various social-economic factors like dispersed development and reduction in inequality.

Q2. What are the problems faced by Small Scale Industries?

Ans. Small scale industries face a lot more trouble than the large scale industries. They have to deal with the scale of operations, procurement of raw materials and shortage of funds. The primary issue, however, that the small-scale industries face is finance.

They do not have enough finance to carry out their operations. They thus depend on local moneylenders to finance their business plans which charge a high-interest rate. The acquirement of raw materials is a major concern for the small scale industries. Because of lack of funds, these industries are unable to hire skilled labour which in turn affects productivity. Marketing is another major concern faced by the small scale industries as they need to create the marketing channel themselves and cannot pay extra to an intermediary.