Small Business

Roles of Small Businesses in India and Problems of Small Businesses

In every economy, small businesses are a million little integral parts of a lavish car which help the engine keep running but all that someone can see from the outside are the four tyres (i.e big corporations) that give the car speed.  It is confirmed that 65-75% of the innovation in India come from the industry of small business. Let us learn about the vital role small businesses play in our economy and the problems they face.

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Role of Small Businesses in India

Small Businesses

(Source: Teluglobe)

1. Industrial units

In an economy so enormous as India, 95% of the industrial units in the country consist of small business and 40% of total industrial output is contributed by these small industries. Again, small businesses bag around 45% of the total exports from India.

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2. Labour-oriented

Small business provides immense opportunities in the rural and semi-urban areas. The weight of the unemployment faced by the Indian economy is lifted by these small businesses. It is one of the most important roles of them. Like any other economy having a large labour force, the Indian government also encourage the operations of small businesses to utilise the labour by drafting policies and establishing low loan interest rates.

3. ‎Human resource

After agriculture, small businesses are the second largest employment provider in the Indian economy. In comparison to big corporations, small businesses generate the most number of employment opportunities per unit of capital invested. Therefore, they are the second largest generators of employment in human resource.

4. Utilisation of local resources

The awareness of needs and demands of the local community make the small businesses emerge in rural and semi-urban areas. Small business is community-based and generally focused on fewer areas.

This gives the opportunity to the businesses to utilise the local resources like raw material, local talent, labour and demographic opportunities. The utilisation and the mobilisation of the local resources help elevate the economic condition of that particular area.

5. Flexible and Adaptable

New business opportunity is captured at right time. The strength to adapt and grow in the face of upcoming changes gives an edge to the small businesses. Also, being the manufacturer and distributor, small businesses develop a sense of personal touch with the area of business and their customers. Limited in size and finance, there is little or no government intervention.

Any business whether small, medium or large has its opportunities and challenges. Every coin has two sides and every line has a lineage.

Problems of by Small Businesses

1. Finance

The inadequacy of funds to funnel in the operations of a small business prove to be a major hindrance to the development of the small business. Small businesses lack the creditworthiness needed in the capital market. Small businesses have a poor creditworthiness.

The banks and industrial investors need a collateral security, due to most of the small businesses being operated in the rural and semi-urban area, these businesses lack the collateral security to get finance for their business.

2. Raw material

For the production purposes, the businesses need raw materials. To get some output, they need to give some input. The quality of the raw material completely depends upon the quality of input. But due to a tight budget, these businesses are unable to get a good quality raw material for their production.

Bargaining power is non-existent because of the small quantity of purchase. Another issue linked here is the shortage of storage facility, because of the shortage of storage facility the production needs to be quick and the sale good. This puts a heavy strain on these small businesses to sell their stock as quickly as possible.

3. ‎Managerial skills

The operations of small businesses are carried out by a limited number of employees. This means that a single person usually manages the operations. The pressure on this manger is immense to satisfy the demands of production. Also, the manager might lack managerial skills required to operate a unit.

4. ‎Skilled labour

Due to a shortage of funds, small businesses are unable to hire the proper candidate for the job. Also, they are not in a position to give high wages to the employees. This results in the drop in productivity per employee and rate of labour are high. This proves to be a major obstruction in the operations of productions.

5. ‎Marketing

Marketing is one of the most important links to sell whatever the business plan to or has produced. Without marketing these businesses will not be able to achieve their goal of sales they planned. Direct marketing is not possible due to the lack of necessary infrastructure.

The shortage of finance does not let the business hire a good middleman. These middlemen exploit these businesses by paying low prices and delaying payments.

Small Businesses

“Small businesses already play a pivotal role in India’s economy.But if the country is to fulfil its ambition of becoming a global manufacturing hub, the sector must grow rapidly.” -Amarendra Sinha, Special Secretary and Development Commissioner at India’s Ministry of Micro, Small and Medium Enterprises, on how the sector can lead the manufacturing charge.

Solved Question for You

Q: Why do small businesses have a tough time getting financial assistance?

  1. Shortage of space
  2. Lack of innovation
  3. Poor creditworthiness
  4. Natural calamities

Answer: The correct answer is option “C”. Small businesses have a tough time getting financial assistance is because of their poor creditworthiness.

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