Why Do Small Businesses in India Struggle to Grow?
Apr 3, 2025
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Small businesses in India face significant challenges that hinder their growth, including complex regulations and limited access to financing. The COVID-19 pandemic has pushed many towards e-commerce, but deep-rooted issues remain. Additionally, the investigation into met-coke prices is stirring concerns in the steel industry, revealing tensions between producers and manufacturers over import policies. These discussions shed light on the intricate dynamics of India's MSMEs and their critical role in the economy.
India's MSMEs, constituting 98% of businesses, struggle to grow due to size limitations, regulatory complexities, and financing challenges.
The rise of e-commerce has opened new avenues for MSMEs to enhance sales and operations, despite existing fundamental infrastructure issues.
Deep dives
Challenges Faced by MSMEs
India's micro, small, and medium enterprises (MSMEs) play a crucial role in the economy, contributing over 16.5% of its total value and employing more than 100 million people. However, these businesses struggle to grow due to their overwhelmingly small size, with about 98% classified as micro enterprises having fewer than 10 employees. This small scale limits their ability to invest in improved technology and processes, leading to significantly lower productivity compared to larger firms, which can produce four times the value. Regulatory complexities, lack of access to finance, and a knowledge gap further inhibit these enterprises from scaling, trapping them in a cycle of stagnation and limiting their potential contributions to the economy.
E-commerce as a Growth Opportunity
Despite the challenges faced by MSMEs, the rise of e-commerce has emerged as a potential growth opportunity for many small businesses in India. The COVID-19 pandemic prompted a significant shift towards online sales, with nearly 32% of MSMEs reporting that more than half of their sales now come from online platforms. Engaging in e-commerce encourages these businesses to enhance their operational processes, boost their digital presence, and appeal to a broader customer base. While e-commerce does not address fundamental issues like infrastructure and regulatory hurdles, it offers a new pathway for MSMEs to increase their revenue and expand their operations.
Investigation into Met-Coke Imports
India has initiated an investigation into the pricing of low-ash metallurgical coke (met-coke) imports from several countries, aiming to determine if these imports are being sold at unfairly low prices, effectively undercutting domestic producers. The investigation comes against a backdrop of increasing met-coke imports, which have more than doubled over the last four years, raising concerns among local manufacturers about their ability to compete. Domestic steelmakers argue that while imported met-coke can be cost-effective, it often lacks the consistent quality required for optimal blast furnace operations. The outcome of the investigation may lead to anti-dumping duties if local industries are found to be adversely affected, highlighting the ongoing tension between domestic coke producers and large steel manufacturers reliant on affordable imports.
In today's episode of The Daily Brief, we cover 2 major stories shaping the Indian economy and global markets:
00:04 Intro
00:41 Why do India's MSMEs stay small
08:08 Will steel soon be more expensive?
15:31 Tidbits
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