Leveraging the Potential of SME Capital Markets: Evidence from Small and Medium-Sized Enterprises in Jammu Region, India

Abstract

The paper intends to explore the potential for developing Small and Medium-sized Enterprise (SME) capital markets in India by analyzing the business conditions of SMEs, the priority, reasons, necessary actions and critical factors needed for developing capital markets for SMEs, and to offer strategies for development of new SME capital market. Besides, the status of the SME capital market in India has also been analyzed. The study has been restricted to 114 non-financial firms consisting of 43 SMEs engaged in manufacturing activities and limited to five selected major industrial areas surrounding suburbs of Jammu city. The study covered 71 SMEs engaged in service activities and confined to hotel and restaurant, computer and electronics, offset printing, pharmaceutical distribution, wine trade, motor parts, gold jewelry, and wholesale general merchant in the commercial areas of Jammu city in Jammu and Kashmir. The study has used a life cycle approach to analyze the sources of finance in different stages of the SME. A simple descriptive technique has been used to analyze the data. The study reveals that there are various challenges to establish direct growth capital financing for SMEs. Looking at numerous viewpoints on the development of SME capital market, a specialized market infrastructure of non -exchange foundation equity market for SMEs can be developed. The establishment of a separate foundation equity market for SMEs from exchange market can be advantageous. There is a need to develop a preliminary market for growing SMEs. This should ultimately integrate into the regular SME stock exchange market. A preliminary market is expected to endow SMEs with a chance to understand clearly SME capital market rules and responsibilities linked to disclosures before integrating into the organized capital market. It will imbibe the corporate culture through knowledge regarding the significance of enhanced corporate value for the growth and development of firms. The foundation market should evolve into a robust system for carrying SMEs in equity finance from various dimensions. These dimensions can be the promotion of the venture capital market to provide initial risk capital for SMEs, the development of a strong base of capital market professionals to train and goad the SME disclosure process through a network of certified public accountants, and the development of a blueprint for government policy support measures including tax incentives for SME issuers and investors.