Small and Medium Enterprises (SMEs) in India face inherent challenges in financing despite several schemes and incentives by the government, according to a new report by the Federation of Indian Chambers of Commerce & Industry (FICCI). The FICCI report highlights the resilience and transformation of SMEs in India.

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The report suggests that bank loans were the most common source of finance for setting up and running a business, followed by own capital or self-funding among SMEs. Among all, the highest proportion of SMEs have taken bank loans (85%) for setting up and running their enterprises followed by firms that have used their own capital/ self-funding (50%), NBFCs (30%), informal lenders - moneylenders, friends, family (26%).

The report suggests that digital infrastructure that supports end-to-end solutions, access to finance, payments, inventory, operations, trading, sales, etc. would be instrumental for enterprises to adopt digital technologies. The report says that 60% of Indian SMEs use digital tools for human resource functions, while 51% and 48% leverage them for sales and marketing, and finance, respectively.

The report says that the majority of the surveyed SMEs reported experiencing improvements in productivity and a reduction in operational costs through the use of tools such as Customer Relationship Management (CRM) and Enterprise Resource Planning (ERP) systems.

On the sustainability front, the report suggests that a considerable 72% of respondents were aware of sustainability, and 64% received guidance from buyers in implementing sustainable practices. Most have taken steps such as eliminating paper usage, investing in green projects, and conserving water.

But it’s not all smooth sailing. SMEs indicated that time constraints, limited funding, and a lack of incentives were the major challenges in adopting sustainable operations. Around 42% cited time as a major constraint, while 41% pointed to limited funding and a similar percentage flagged a lack of incentives.

The report emphasises the government's role in promoting digital transformation, such as investments in digital infrastructure and the promotion of digital payment systems like UPI.

"The government and private sector's concerted efforts to digitise SMEs is yielding positive results," the report states. However, the study also points to obstacles, including cybersecurity concerns, connectivity issues, and a lack of digital awareness and skills, which need to be addressed for more comprehensive digital adoption.

(Edited by : Ajay Vaishnav)