2024 MSME Crisis: Strategies for Sustainable Growth

The MSME sector in 2024 is at a critical turning point, with businesses navigating challenges like funding constraints, scaling hurdles, and technological transitions. As enterprises adapt to changes, numerous stories of perseverance and innovation emerge in India. They emphasize a shared opportunity, despite varying causes. The opportunity is to unlock a new age of growth and pave the way for a brighter future, by refining strategies and embracing upcoming technologies.

The sector has grown stronger by leveraging government initiatives and adapting to significant changes in the economic landscape. MSMEs are now poised to drive India’s economic growth, create jobs, and contribute to global markets. This resilience underscores the indomitable spirit of Indian enterprises, as they build a future defined by adaptability, innovation, and collaboration.

Recent data from the Ministry of Micro, Small & Medium Enterprises (MSME) indicates that Indian MSMEs have been severely affected by the second financial downturn. Official statistics show that since 2022, more than 61,000 MSMEs have closed, with over 12,000 closures occurring in the past four months alone. Regions like Maharashtra, Tamil Nadu, and Uttar Pradesh have experienced some of the highest numbers of shutdowns, highlighting the widespread nature of this crisis.

The total count of MSMEs closed in different states | Data Source: Financial Express

According to MSME Minister Jitan Ram Manjhi, closures have been linked to changes in company ownership, redundant certifications, and duplicate registrations. These administrative hurdles have made it difficult for some businesses to sustain operations.  

The reasons behind these closures are multifaceted. They are as follows:

• Increasing Operational Expenses: Inflation has caused a substantial increase in the costs of raw materials, energy, and logistics. This, combined with decreasing consumer demand in major sectors, has resulted in an unsustainable cost structure for many MSMEs.
• Technology and Scalability Challenges: Many MSMEs struggle to implement new technologies and achieve significant growth. Their lack of access to affordable R&D facilities impedes their ability to innovate and stay competitive.
• Poor Financial Planning: A lack of structured financial planning, including effective management of working capital and cost efficiencies, has left numerous businesses vulnerable to external pressures.
• Global and Macroeconomic Influences: Ongoing geopolitical instabilities and a slowdown in the world economy have undermined investor confidence and disrupted supply chains, making it difficult for MSMEs to sustain their operations.
• Inadequate Infrastructure: A significant number of MSMEs are located in regions with insufficient road networks, unreliable electricity supply, and limited access to water and sanitation services. These shortcomings elevate operational expenses and diminish productivity, posing challenges for MSMEs when competing with bigger businesses.
• Regulatory Compliance: MSMEs encounter intricate and burdensome regulatory frameworks that involve numerous approvals and compliance obligations from different government agencies. The frequent alterations in regulations create an additional layer of difficulty, making it challenging and confusing for MSMEs to remain informed and compliant.
• Access to Credit and Lending Practices: Many MSMEs struggle to secure timely and adequate credit from banks and other financial institutions. Factors such as insufficient collateral, a lack of comprehensive financial documentation, and unfavorable credit ratings contribute to this challenge. Consequently, a large number of MSMEs remain undercapitalized, which limits their growth capabilities and competitiveness.
• Issues with Credit Lenders: MSMEs face various challenges when dealing with credit providers. High interest rates, stringent lending criteria, and the economic impacts of global downturns can limit their access to crucial funding. Such obstacles often create a significant credit gap, leaving many MSMEs without the financial resources they need to thrive.

Impact of MSME Closures in India

The closure of MSMEs in 2024 has had a considerable impact on local economies, employment rates, and the overall manufacturing output in India, with more than 61,469 MSMEs reported to be shut down since the Udyam Registration portal’s launch, resulting in a job loss of 317,641 by July 2024. This downturn not only jeopardizes the income of millions but also disrupts local economies, as MSMEs are responsible for around 40% of India’s manufacturing output and are vital for job creation. The reasons for these closures include escalating operational expenses, low demand, competition from inexpensive imports, and regulatory challenges.

Key Initiatives for MSME Support in Union Budget 2024

In the 2024 Union Budget, the Indian government unveiled several significant initiatives aimed at assisting MSMEs. These initiatives include the Credit Guarantee Scheme for loans without collateral, an increased Mudra Loan Limit under the ‘Tarun’ category, and a reduced TReDS Onboarding threshold to boost liquidity. Furthermore, there is provision for struggling MSMEs to secure ongoing bank credit, the establishment of E-Commerce Export Hubs to facilitate access to international markets, and the creation of 12 plug-and-play industrial parks as part of the National Industrial Corridor Development Programme to lower operational costs. The Reserve Bank of India (RBI) has implemented initiatives to support MSMEs, including Priority Sector Lending (PSL) guidelines that mandate banks to allocate a portion of their lending to these enterprises. Additionally, the RBI has introduced programs to improve credit access, such as linking loans to external benchmarks for better monetary policy effectiveness. These policies are designed to promote growth and sustainability within the MSME sector, acknowledging its essential role in India’s economic progress.

How Astravise Services Can Support MSMEs:

Astravise Services offers customized CFO and CHRO solutions that include fundraising assistance, that is designed to address the specific challenges faced by MSMEs in the current economic landscape.

Strategic Financial Management: Astravise Services’ CFO services assist MSMEs in optimizing their cash flow and managing working capital effectively thereby extending their financial lifespan. Strong financial strategies, backed by our expertise, empower businesses to achieve profitability while strategically allocating resources for growth.

Furthermore, we provide fundraising assistance by guiding companies in improving their financial performance and developing a robust action plan to attract and manage investor confidence.

Regulatory Compliance: We also help MSMEs navigate complex regulatory environments by streamlining the processes and providing guidance on compliance requirements. This includes assistance with obtaining necessary certifications, maintaining up-to-date records, and leveraging your MSME certification to its full extent.

Enhancing Operational Effectiveness: MSMEs can greatly reduce expenses by optimizing their operations and adopting lean practices. We offer expert advice in cost optimization and re-evaluating business processes for utmost efficiency.

Workforce and Organizational Strength: The CHRO services aim to build strong organizations through workforce planning, skill training, and employee engagement initiatives. Retaining and motivating essential talent is crucial for business survival and development during uncertain times.

Embracing Technology and Innovation: We assist MSMEs in utilizing cost-effective technological solutions to boost productivity and scalability. From digital transformation efforts to collaborative research and development opportunities, these strategies prepare businesses for sustained success.

Recognizing the budgetary constraints often faced by MSMEs, we prioritize flexibility and customization in all our service offerings. This ensures that you receive the highest possible value within your budget. Schedule your free consultation today and explore how our tailored solutions can effectively address your specific business needs and contribute to your growth journey.