Most Indian small businesses bullish on business and local economic growth
More than three-quarters of small businesses in India reported growth in 2023, exceeding pre-pandemic levels. This growth momentum is likely to continue this year as confidence in the local economy and business expansion keeps rising. CPA Australia’s new survey shows that India’s small businesses sector remains one of the most dynamic and fastest-growing in the Asia-Pacific.
The annual Asia-Pacific Small Business Survey was conducted by CPA Australia, one of the largest accounting bodies in the world.
Up from 73 per cent in 2022, 77 per cent of Indian small businesses grew last year, which is the highest level since 2019. 84 per cent anticipate business growth this year, much higher than the market average (70 per cent). Though the outlook for the global economy is uncertain, 80 per cent of Indian respondents are upbeat about the local economy in 2024, above the survey average (65 per cent), and the optimism has been rising since the survey in 2022.
Reflecting the strong business confidence, many surveyed Indian small businesses are keen to hire new staff. 52 per cent increased their headcount in 2023, 67 per cent plan to recruit new staff this year, the highest number of Asia-Pacific surveyed markets.
Mr Prafulla Chhajed, a CPA member of CPA Australia in India, stated: “Micro, Small and Medium-sized Enterprises (MSMEs) are making a significant contribution to India’s economic success. Not only is India’s rapid economic growth and improving business environment boosting their confidence, support from the government ranging from digitalisation to access to funds, is assisting businesses to recover from the pandemic.
“India’s small businesses are enthusiastically improving their performance through innovation, adopting technologies, and building connections with overseas markets.
“‘Good staff’ was nominated as the top positive factor that benefited India small business performance in 2023. It explains why Indian respondents have been so willing to add new employees over the past two years,” Chhajed said.
“This year the pace in jobs creation by small businesses is expected to slow, although remain high in comparison to other markets. This is most likely due to a combination of factors including increasing levels of automation and rising labour costs.”
The survey results show that increasing costs, competition, and cashflow difficulties were the major barriers to India’s small businesses last year. Among various costs, staff costs and materials were the costs that caused the most detriment to small businesses in 2023 and was up slightly from 2022.
To cover increasing expenses and support business growth, many Indian small businesses sought external funds. 68 per cent sought external funds last year, dropping 20 percentage points from 2022. However, reflecting strong growth expectations, 81 per cent plan to access finance this year.
Given the most popular source of external finance is banks, the downtrend is possibly due to the tightening of financing conditions. 42 per cent of respondents said it was easy to seek funds in 2023, a sharp declining from 69 per cent in 2022. This year, 43 per cent anticipate it will be easy to access funds, also dropping from 64 per cent in the last survey.
Chhajed explained: “Difficulty in accessing finance is a common challenge for small businesses worldwide. Though government loans like Pradhan Mantri MUDRA Yojana (PMMY) helps to foster entrepreneurship by offering financial support, MSMEs should not solely rely on borrowing to fund their long-term development, particularly in a high-interest rate environment.”
A noteworthy trend is that an increasing number of respondents in India focused on managing costs and cashflow last year. Among the technologies they invested in last year, accounting software was one of the most popular technologies (23 per cent). Accountants (34 per cent) were the second most respondents had sought advice from in businesses in 2023, ranked after friends and families (38 per cent).
“Indian MSMEs are very competitive in many areas such as digitalisation and innovation, now they should focus on cost management and cashflow to increase their financial return,” Chhajed suggested. “It’s wise to use accounting software to control cost and analyse financial performance regularly. Further, financial experts like qualified accountants may provide professional advice to small businesses to manage technical issues like taxation and improve financial performance.”
A strong intention to introduce new products or services into the market and sell them overseas is another characteristic of India’s small businesses. Leading the 11 surveyed markets, 34 per cent of respondents in India said they expect revenue from overseas markets to grow strongly this year, considerably higher than the survey average of 19 per cent. 44 per cent will innovate this year, also far above the market average 29 per cent.
“The Indian government has established good platforms to bolster our MSMEs’ global expansion, for example, international trade fairs for MSMEs. They could leverage these opportunities to connect with overseas customers and promote their novel products globally. Besides, our thriving digital economy also fosters MSMEs’ innovation and revolution in the digital era.” Chhajed stated.
The survey collected views from 4,222 small businesses in 11 Asia-Pacific markets across Australia, Mainland China, and Malaysia including 505 respondents from India.
