Top 10 Challenges Faced by Indian MSMEs and How to Overcome Them

India’s MSME sector is a powerhouse of innovation and employment, contributing nearly 30% to India’s GDP and supporting over 110 million jobs. This vibrant sector is the backbone of the Indian economy, driving growth, fostering entrepreneurship, and creating opportunities across diverse industries. However, there are several challenges faced by Indian MSMEs that hinder their growth and long-term sustainability.

Challenges faced by Indian MSMEs

These challenges faced by MSMEs can limit their potential and impact their ability to compete on a global scale. In this blog, we will delve into the top 10 challenges faced by Indian MSMEs and provide practical, real-world solutions to overcome these obstacles.

Join us as we explore strategies to empower MSMEs, ensuring they not only survive but thrive in today’s competitive landscape.

1. Limited Access to Finance

Finance is the backbone of any business. Unfortunately, many Indian MSMEs struggle to secure loans from traditional banks due to lack of credit history, collateral, or formal documentation. A manufacturing unit in Ludhiana, for example, had to stall its production expansion due to multiple loan rejections despite growing customer demand. Digital lending platforms like Lendingkart stepped in, offering fast and collateral-free loans based on GST and invoice records. Government schemes like MUDRA and CGTMSE are also underutilized because business owners often aren’t aware of the process. Platforms like MyKhataExpert help maintain clear financial records, which are essential when applying for such schemes.

2. Lack of Digital Adoption

In a world driven by automation, many MSMEs still depend on manual ledgers and spreadsheets. This results in inefficiencies, errors, and data losses. For instance, a retail business in Jaipur used notebooks to track inventory, often running into stock-outs or overstocking. After adopting a tool like MyKhataExpert, they could track purchases and sales in real time, reducing their inventory costs by 20%. Digital tools not only streamline operations but also improve decision-making and customer experience, addressing one of the key challenges faced by MSMEs.

3. Compliance and Regulatory Issues

MSMEs have to comply with numerous regulations—GST filings, labor laws, environmental permits, and more. These are often complex and frequently updated, and small business owners usually don’t have legal teams to stay on top of them. Take the case of a small exporter in Mumbai who missed a deadline for GST filing and had to pay a hefty late fee. Automating these processes using tools like MyKhataExpert helps avoid such situations. Regular alerts and guided workflows can ensure timely compliance, mitigating challenges faced by MSMEs.

4. Difficulty in Talent Acquisition and Retention

Hiring is a major pain point for MSMEs. Larger companies attract the best talent with better salaries and perks, leaving MSMEs with limited options. A printing press in Indore, for example, saw frequent employee churn because of limited growth opportunities. They tackled this by partnering with an ITI to train interns who were then absorbed into full-time roles. Creating a positive workplace, offering basic health benefits, and providing career development opportunities can go a long way in employee retention, addressing challenges faced by MSMEs.

5. Market Access Limitations

Gaining access to new and broader markets is often difficult for MSMEs. Many don’t know how to market themselves beyond their local area. A handicrafts manufacturer in Odisha depended solely on local exhibitions until they listed their products on Amazon Karigar and Flipkart Samarth. Their orders quadrupled in six months. Simple digital marketing via Facebook or WhatsApp, and participating in trade fairs can open new doors, overcoming challenges faced by MSMEs.

6. Poor Inventory and Supply Chain Management

Inefficient stock tracking can result in overstocking or missed sales. An electronics distributor in Bengaluru used Excel to manage thousands of SKUs, which often led to errors. After switching to an inventory solution integrated with MyKhataExpert, their monthly order fulfillment rate improved by 35%. Digitizing supply chain records ensures transparency and smoother operations, addressing challenges faced by MSMEs.

7. Lack of Innovation and R&D

MSMEs often prioritize immediate survival over long-term growth, which can lead to neglect in product development and innovation. This oversight can have significant consequences:

Stagnation in Product Offerings: A footwear company in Agra experienced this firsthand by sticking to the same designs for years. This lack of innovation resulted in a loss of market share as competitors introduced trendier products.
Adopting Customer Feedback: By integrating customer feedback tools, businesses can gain valuable insights into consumer preferences and adjust their offerings accordingly.
Utilizing Low-Cost Design Tools: These tools enable companies to experiment with new designs without significant financial investment, allowing for more frequent updates to product lines.
Reintroducing Modern Styles: The Agra footwear company successfully regained its market position by embracing modern styles, demonstrating the impact of innovation on competitiveness.
Cost-Effective R&D Strategies: Research and development do not have to be costly. Simple methods like conducting customer surveys and tracking online trends can provide a solid foundation for product improvement.

8. Inadequate Infrastructure

Basic infrastructure challenges, such as unstable electricity, internet, or transport, significantly impact MSMEs, especially in semi-urban or rural areas. Addressing these issues can lead to improved efficiency and growth:

Transportation Challenges: A food processing MSME in Bihar experienced delays in raw material delivery due to poor road conditions, highlighting the need for better transport infrastructure.
Collaborative Solutions: By forming a cluster with nearby units, the MSME pooled logistics resources, effectively reducing delays and improving supply chain efficiency.
Investing in Renewable Energy: Utilizing solar power can decrease dependency on unreliable local electricity, ensuring more consistent operations.
Leveraging Technology: Cloud-based apps like MyKhataExpert offer solutions to manage business operations efficiently, reducing reliance on unstable internet connections.
Community-Based Approaches: Collaborating with local businesses can create a support network that addresses common infrastructure challenges collectively.

9. Payment Delays from Buyers

Delayed payments strain cash flow and prevent growth. A packaging supplier in Hyderabad often had to borrow money at high interest to pay workers on time, because corporate clients delayed invoices. They moved to TReDS to discount their receivables early and began using MyKhataExpert payment reminders to follow up more professionally. Timely invoicing and automated reminders can reduce this challenge significantly, addressing challenges faced by MSMEs.

10. Low Financial Literacy

Many MSME owners do not understand basic financial concepts like gross margin, working capital, or breakeven points. This leads to poor decisions. For instance, a small construction contractor in Pune took on projects below cost due to incorrect budgeting. After attending financial literacy workshops and using accounting apps like MyKhataExpert, he could bid accurately and improve profitability. Understanding finances is crucial to sustainable business growth, addressing challenges faced by MSMEs.

How MyKhataExpert Helps MSMEs Overcome These Challenges

MyKhataExpert is designed to be a complete digital solution for Indian MSMEs. It helps in:

Quick and compliant invoice and e-way bill generation
Expense tracking and financial reporting
Seamless GST return filing
Reducing manual errors and saving time through automation
Getting paid faster with payment reminders

If you are an MSME looking to simplify operations, improve compliance, and grow your business—MyKhataExpert is your one-stop platform.

Final Thoughts about Challenges faced by Indian MSMEs

The challenges faced by Indian MSMEs are multi-dimensional, but none are insurmountable. With the right mix of technology, financial discipline, government support, and market intelligence, MSMEs can turn these challenges into growth opportunities.

Instead of navigating the maze of issues alone, adopting smart solutions like MyKhataExpert can help MSMEs leap forward into a more organized, scalable future.