Topic: Navigation Through the Maze: Indian SMEs' Awareness, Utilizations of Policies,

Business risk and challenges ?

Objective and study plan of the project:

The main goal of the research is to gain more detail and knowledge about the following
objectives.
 Acquire an understanding of the monetary and non-monetary difficulties Indian SMEs
face.
 Evaluate the effectiveness of the current institutional and governmental initiatives.
 Determine the impact of macro and micro components on SMEs.
 Determine risk and the owners of SMEs' succession and exit plans.

Name of the Organization: Finnovators Services Pvt. Ltd.

Executive Guide: Jinal Khatri
K.V. Balaji.
Contact No: +91 99309 63771
+91 93709 35720

Email ID: [email protected]

Department: Finance Analyst Intern.

Introduction
SMEs are crucial to the growth of any given industry, the economy of any nation, the reduction
of poverty, and the creation of jobs. In the previous recent years, several developed and emerging
nations have come to understand the significance of this industry. The Indian economy's Micro,
Small, and Medium-Sized Enterprises (MSME) sector has grown significantly during the past 50
years. By promoting entrepreneurship, it significantly contributes to the social and economic
development of the country.
Through their innovative business practices, Micro, Small, and Medium-Sized Enterprises
(MSMEs) have been making a substantial contribution to the growth of entrepreneurial activities.
MSMEs are expanding into new economic areas and offering a wide range of goods and services
to satisfy both local and international consumer demands. The industrialization of rural and
impoverished areas in India is largely due to MSMEs. This process also reduces regional
imbalances and ensures a more equitable distribution of wealth and income across the country.
(Ministry of Micro, 2023). India's SME sector is expanding more quickly than the country's
economy.
The expansion of information and communication technology has led to a rise in globalization,
and most SMEs are using this tactic to boost their marketability. Another aspect that is seen as
boosting firms' competitiveness is globalization. The internationalization of the economy offers
both possibilities and risks for business activities. The main cause for concern has been SMEs'
potential to prosper in the market and expand their operations internationally. The threat posed
by large corporations has been emphasized in the literature, especially by those categorized as
Trans-National Corporations (TNCs) and Multi-National Corporations (MNCs). This is because
SMEs are less equipped than large-scale firms to compete globally and have a reduced potential
for innovation.

“Under Section 3 of Chapter II of the Micro, Small, and Medium Enterprises Development Act,
2006, and the Rules adopted thereunder, the Government created the National Board for Micro,
Small, and Medium Enterprises (NBMSME)”. It looks at the elements influencing the growth
and promotion of MSMEs, evaluates current policies and initiatives, and offers suggestions to
the government for the creation of new policies and initiatives.

Data from the Ministry of Micro, Small, and Medium Enterprises shows that as of now, The
Indian government is deeply committed to supporting MSMEs, which are the foundation of the
country's economy. Nearly 4 crore MSMEs were registered as of March 2024, and that number is
expected to rise by 2.5% to 7.5 crore shortly. The monetary backing is provided by programs like
the Credit Guarantee Scheme, which guarantees loans worth over Rs. 5 lakh crore, and the
Pradhan Mantri Mudra Yojana, which granted loans totaling 5.8 crore in FY24. A Rs. 1 lakh
crore pool for interest-free loans is another initiative to support innovation and research. The
government's commitment to market access is demonstrated by the 42% rise in expenditure on
MSME purchases. These initiatives demonstrate the government's multifaceted strategy for
fostering MSME growth, which in turn makes a substantial contribution to the GDP and
employment of the country. (Ministry of Micro, 2023)(https://www.ibef.org/industry/msme)
SMEs encounter a range of obstacles linked to both financial and non-financial operations, as
well as a variety of micro and macro environmental challenges that at times could prove
advantageous to SMEs. Since there are numerous SMEs, they must deal with intense competition
from their peers, the social environment, and several other issues. We will examine each of these
issues in detail to determine how it affects SMEs' operations and overall performance as well as
potential solutions to similar risks and challenges.

Literature Review
Small and Medium-Sized Enterprises (SMEs) play an important role in developing and
developing economies in the world (Eva Maria Falkner, 2015). Small and medium-sized
enterprises (SMEs) play a critical role in increasing the nation's production, creating jobs,
increasing income and savings, directing investments, and ultimately guiding the country
towards growth and prosperity. (Purnima Rao S. K., 2018) Additionally, SMEs generate more
jobs than large firms do, and this share is far larger in low-income countries than in middle- or
high-income ones. In addition, job growth at smaller enterprises is faster than at larger ones.
Money is necessary for the existence, growth, and prosperity of SMEs. By supporting the
Sustainable Development Goals of the UN, SMEs promote equitable and sustainable economic
growth and lessen inequality. As a result, many countries recognize that SMEs can effectively
handle major development difficulties, especially in rural areas, when formulating national
policies (Sisira Kumara Naradda Gamage, 2020), SMEs build to increase the local technology
basis, support the involvement of underprivileged people, offer opportunities for
entrepreneurship and management training, and alter how their financial resources are used.
SMEs are essential to the manufacturing industry as specialized suppliers of parts, assemblies,
and components for bigger companies since they supply these essentials at a lower cost than
larger companies would charge to make the same product. As a result, it's essential to ensure that
SMEs have access to funding to increase output, which in turn fosters economic growth and the
creation of jobs (Purnima Rao, 2023).
Most SMEs are run by the people who founded or own them. Even though SMEs account for
over 90% of all firms globally, managing SMEs requires fundamentally different management
skills than managing huge organizations. In well-off countries, 20% of newly established SMEs
last less than a year, 20% last less than two years, and 50% last less than five years. Just 10% of
SMEs were able to endure for more than five years. The quantity and performance of SMEs in a
market typically indicate the health of the economy (Emam, 2023). According to the Indian
government's industrial plans, the SME sector has been identified as the key sector for the
expansion of the Indian economy, according to an article published in a journal by (Rizwana
Begum, 2024). However, this industry is having difficulty obtaining sufficient funding from
internal and external sources. Thus, raising capital is the main issue facing SMEs nowadays,
especially when it comes to non-debt financing and, to a lesser extent, unconventional financial
instruments like private equity, bank financing, and commercial borrowings. There are
restrictions on MSME financing in India, even with more people having access to bank loans due
to branch development. Because of things including a lack of assets, a history of loan defaults,
and susceptibility to economic swings, banks view MSMEs as high-risk. Furthermore, MSMEs
sometimes lack the transparency of bigger companies, which makes it challenging for banks to
evaluate creditworthiness. An article in the Journal (Mund, 2020) this lack of knowledge might
cause banks to demand greater collateral, which MSMEs frequently find difficult to supply, thus
restricting their access to financing.
In addition, MSMEs struggle to obtain timely and sufficient financing because of high
processing costs and reduced profits, a lack of product innovation on the part of businesses, and
financial institutions' low-risk appetite. In an article by (Chiara Crovini, 2021), the author
mentioned the following thing about risk in SMES To navigate the intricate micro and macro
environments successfully they come across; SMEs must do risk analyses. Despite being drivers
of innovation and expansion, SMEs are more susceptible to dangers from the inside and the
outside due to their limited resources. Conventional risk management techniques, frequently
created for bigger businesses, might not be appropriate for SMEs. Small and medium-sized
enterprises (SMEs) encounter difficulties in risk management (RM) because of their restricted
resources and susceptibility to internal and external risks. SME survival rates may be increased,
competitive advantage can be gained, and informed decision-making can be fostered by effective
RM methods (Chiara Verbano, 2013).
Small and medium-sized businesses (SMEs) have difficulties because of their constrained
resources and higher vulnerability to risk. Current Risk Management procedures, which are
usually too costly or complicated for SMEs to use successfully, are usually created for bigger
businesses. SMEs frequently lack the staffing and financial resources needed to commit to
creating and sustaining a strong RM program (Priscila Ferreira de Araújo Lima, 2020). This
problem gets worse by a vacuum in the existing academic literature on RM, which focuses
mostly on large firms and lacks information about the best RM methods for SMEs. One
important conclusion from the study by (Banque de France, 2021)is that, even more so than
boundaries on long-term funding, short-term financial constraints can severely limit SMEs'
ability to make investment decisions. This is a result of working capital's natural changes, which
include controlling inventories and accounts receivable. Due to these short-term cash flow
requirements, SMEs might have to prioritize daily operations ahead of long-term growth-
promoting asset investments. The research goes on to say that SMEs with larger working capital
requirements are especially susceptible since they find it difficult to raise the money needed for
important initiatives. When examining the capital and risk picture for SMEs, this research
emphasizes how crucial it is to take both short- and long-term financing choices into account.
Small and medium-sized businesses, or SMEs, must deal with everyday demands like handling
cash flow, obtaining financing, and navigating the difficulties posed by global megatrends like
technology, sustainability, and globalized supply networks. Risk management has never been
more difficult for SMEs (BARROS, 2020). Most SMEs face several risks and challenges in
managing their daily finances and running their businesses, including not having sufficient funds
on hand to pay off their immediate debt. To survive and flourish in this highly competitive
market, small and medium-sized enterprises (SMEs) must analyze the many risks connected with
operating their businesses while monitoring and examining various micro and
macroenvironmental components that might become dangerous if risk management methods are
not used.
SMEs (Small and Medium Size Enterprise)
Small and Medium-Sized Enterprise is denoted by the term SME. Due to their substantial
contribution to the GDP of the nation, they are frequently referred to as the "backbone of India's
GDP growth". India's economy has benefited from the remarkable growth of the SME sector in
the nation (Rizwana Begum, 2024).SMEs contribute overall around 33% to India’s GDP as
mentioned in an article by (Tambe, 2024)
The State Governments hold the major duty for the growth and promotion of MSMEs.
Nevertheless, the Indian government supports state governments' efforts in several ways. The
Ministry of MSME's function and its organizations are to support the States in their endeavors to
promote employment, entrepreneurship, and possibilities for a living, as well as to improve
MSMEs' competitiveness in the transformed economic environment.

Following the provision of the Micro, Small & Medium Enterprises Development (MSMED)
Act, 2006 the Micro, Small, and Medium Enterprises (MSME) are classified as below:
(i) a micro enterprise, where the investment in plant and machinery or equipment
does not exceed one crore rupees and turnover does not exceed five crore rupees.
(ii) a small enterprise, where the investment in plant and machinery or equipment
does not exceed ten crore rupees and turnover does not exceed fifty crore rupees.
(iii) a medium enterprise, where the investment in plant and machinery or equipment
does not exceed fifty crore rupees and turnover does not exceed two hundred and
fifty crore rupees.
Under Section 3 of Chapter II of the Micro, Small, and Medium Enterprises Development Act,
2006, and the Rules adopted thereunder, the Government created the National Board for Micro,
Small, and Medium Enterprises (NBMSME). It looks at the elements influencing the growth and
promotion of MSMEs, evaluates current policies and initiatives, and offers suggestions to the
government for the creation of new policies and initiatives. (Ministry of Micro, 2023)

The Indian economy benefits greatly from the presence of MSMEs. They contribute significantly
to the GDP, making up 6.11% of the GDP from manufacturing and an astounding 24.63% from
the service sector. Additionally, MSMEs generate 40% and 45% of the nation's manufacturing
output, respectively, and account for a significant portion of exports.

Even while MSMEs only receive 16% of bank loans, they have a sizable quantity of fixed assets,
which are presently worth an astounding INR. 1,471,912.94 crore.

From various research papers and articles from journals and websites we have found that
MSMEs had the following common challenges:

 Finance availability: MSMEs frequently have trouble obtaining financing from banks
and other financial organizations.
 Skilled labor scarcity: There is a dearth of skilled personnel in the SME sector.
  Competition from big businesses: big businesses, with their access to economies of scale
and other benefits, compete with MSMEs.
 The problems of the micro and macro environment for the growth and sustainability of
SMEs
 Risk analysis and risk management for SME business operations.

Research Questions:
This research project will delve into the challenges faced by Indian Small and Medium
Enterprises (SMEs) and their awareness and utilization of government, and institutional policies
designed to support them.
The research will focus on the following questions which are crucial for understanding SMEs:
Are the SMEs aware of Government reform and policy and Institute policy?
Various governments and groups offer resources and programs designed specifically to
aid in the growth of small and medium-sized enterprises. It's critical to ascertain how
much awareness SMEs have of these operations. A lack of information may be
preventing these resources from being fully utilized.

What policy can SMEs avail from the Government and Institute for Business
Growth?
Figuring out which institutional and governmental policies are best for SMEs will have
an impact on future policy and program development. It could also highlight
circumstances that undermine the effectiveness of the policies in place.

Various challenges faced by SMEs?

Understanding the issues that SMEs face allows for targeted assistance and solutions.
These challenges might include obtaining capital, interpreting regulations, and facing up
to larger companies.

What steps are taken to grow the business?

By learning about the growth strategies that SMEs are presently employing, researchers
may identify best practices and potential areas for progress.

How does the choice between short-term and long-term financing impact risk
management practices in Indian SMEs?

By recognizing this issue, we may create focused solutions like training programs in
 financial literacy and specialized financial services. These enable SMEs to decide on
their funding strategy with knowledge.

SMEs face overcoming a complex maze of barriers that prevent them from growing. These
include knowledge gaps in the areas of management and technology. Globalization has left them
in fierce rivalry. Getting money for projects and operations might be difficult. It is conceivable
that entrepreneurs themselves are not well-versed in the fundamentals of business or the tools
available to them. Maintaining quality standards, efficiently allocating and managing resources,
and competing with well-established enterprises are ongoing problems. Their interactions with
banks, other companies, and the broader social and economic environment all have an impact on
their performance. In summary, SMEs operate in a dynamic environment where a variety of
factors impact their potential for success (Esubalew, 2020) (Amitabh Anand, 2021) (Sisira
Kumara Naradda Gamage, 2020) (Lalit K. Toke, 2020) (Balaji B. Vedula, 2024).

To identify the elements that drive the expansion of SMEs, this research looks at the following
critical areas. It starts by assessing how well-versed SMEs are in government programs and
services that are meant to support them. It also establishes which policies are most effective in
promoting the growth of SMEs. Finally, it looks at the challenges SMEs face and the strategies
they now use to thrive. The project aims to uncover effective policies, describe best practices for
wider implementation, and bridge the knowledge gap between SME awareness and available
resources through the finding of these insights. The study will also look at the many risks
connected to the financial and non-financial aspects of the company and the effects that the
macro and micro environments have on the operations of SMEs.

Data Collection:

This study will employ a mixed-methods approach, combining quantitative and qualitative
techniques to gather data to obtain a comprehensive picture of the obstacles that Indian SMEs
confront as well as their knowledge of and application of institutional and governmental policies
intended to assist them.

Quantitative Data Collection Survey:

To gather quantitative data, a structured questionnaire will be created and sent to a sample of
small and medium-sized enterprises (SMEs) in India from different industries and regions.

Gathering Qualitative Data

Semi-formal Interviews:
An additional personal round of interviews will be held with a reduced number of SME
managers or owners.

Taking Samples
To guarantee that the sample of SMEs is representative of the larger population across various
industries and areas, a stratified random sampling technique will be employed.

Reliability and Credibility

A small sample of SMEs will take part in a pilot study of the research instruments, which
comprise a questionnaire and interview guide, to ensure validity, comprehensiveness, and clarity.
There will be measures in place to ensure participant replies remain anonymous and confidential.

This mixed-methods approach will enable a complete understanding of the study's concerns. The
quantitative data will present a more comprehensive picture of SME awareness and policy usage,
while the qualitative data will offer deeper insights into the experiences and perspectives of SME
owners or managers.
By combining these methods, we will be able to gather in-depth and informative data to address
research questions and provide politicians and organizations that support the growth of Indian
SMEs with relevant information.

Data Analysis

The data analysis plan for the Indian SME research project is covered in detail in this section.
Using a combination of quantitative surveys and qualitative interviews, we will use a mixed
methods approach to obtain a thorough grasp of the difficulties faced by SMEs their knowledge
of institutional and governmental assistance programs, and the various risks they are facing in
the competitive industry.

Statistical software will be the main tool we use to analyze the survey data. The replies will be
examined to determine the general level of knowledge of assistance programs, to identify any
size or industry-specific variations, and to identify the most frequently utilized policies. We may
further examine if some policies are more favored by all sorts of companies than by others. We
want to employ a combination of pre-established response alternatives and open-ended questions
to address the issues encountered by SMEs. In addition to recording the most common problems
and various business operation challenges they are dealing with; this will enable us to record any
difficulties raised by the responders.

The qualitative data gathered from the interviews will be examined using thematic analysis. Part
of this procedure is looking for recurring themes and patterns in the interview transcripts. To
provide a more trustworthy and compelling picture, triangulation involves comparing the
findings from both quantitative and qualitative data. The quantitative data will present a more
complete picture, but the qualitative data will offer richer context and more in-depth
explanations.

Utilizing the Resource-Based View (RBV) model, this study will look at how institutional
policies and government programs that are easily accessible serve as internal resources for SMEs
in the context of the economy. The research will look at how these resources help SMEs
maintain a competitive edge over time, which in turn affects the SMEs' ability to develop and
expand.

This collaborative study aims to provide important insights into assistance programs, the efficacy
of current policies, and the main obstacles holding back SMEs' expansion. In the end, these
conclusions will be used to provide institutions and policymakers with suggestions. Bridging the
knowledge gap between SMEs and the resources at their disposal is the aim of creating an
environment more conducive to the growth of Indian SMEs.

References
Amitabh Anand, B. M. (2021). Knowledge sharing, knowledge transfer and SMEs: evolution,
antecedents, outcomes and directions. Personal Review.
Balaji B. Vedula, S. S. (2024). Adoption of Circular Economy: A Case Study of SMEs in Visakhapatnam,
India. Journal of The Institution of Engineers (India) Series C.
Banque de France, T. N. (2021). Short-term financial constraints and SMEs’ investment decision:
evidence from the working capital channel. Small Business Economics, 1885-1717.
BARROS, J. (2020, August 20). International Federation of Accountants. Retrieved from International
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Chiara Crovini, G. O. (2021). How to reconsider risk management in SMEs? An Advanced, Reasoned and
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Chiara Verbano, K. V. (2013). Managing Risks in SMEs: A Literature Review and Research Agenda.
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