Dorji Choden

Cottage and small industries (CSIs) form the backbone of the country’s economy, generating employment, fostering grassroots development, and contributing to the overall Gross Domestic Product.

Yet, despite the potential, the CSI sector faces a range of challenges that stifle its growth and competitiveness.

According to a report from the Ministry of Industry, Commerce, and Employment (MoICE), CSIs account for more than 90 percent of Bhutan’s business enterprises.

Specialising in traditional crafts, textiles, and agro-based products, these businesses play a vital role indriving economic diversification, reducing import dependency, and promoting sustainable business practices. 

Recognising the sector’s importance, the government introduced the CSI Policy 2019, offering targeted financial support, technology access, and market linkages to help these enterprises stay competitive.

A review report on business regulatory process done by MoICE highlights multiple constraints faced by the CSI sector, limiting its growth.

One of the primary challenges facing CSIs is limited access to financing. Small business owners struggle to secure loans due to stringent eligibility requirements, high-interest rates, and a lack of venture capital.

Many also lack the collateral needed to meet bank lending criteria. Without adequate funding, businesses find it difficult to scale up operations or invest in productivity-enhancing technology.

Small-scale operations result in higher per-unit costs, making it difficult for local businesses to compete with larger firms. Many CSIs still rely on traditional manufacturing techniques, which, while preserving cultural heritage, limit efficiency and quality.

A lack of investment in modern equipment exacerbates these challenges.

The influx of cheaper, mass-produced foreign goods mak it difficult for local businesses to compete in the domestic market. Fluctuating consumer demand and economic volatility also make it difficult for CSIs to sustain operations and plan for the future. 

CSIs also face difficulties in accessing international markets. Limited government support, trade barriers, and a lack of expertise in global commerce prevent many businesses from expanding beyond Bhutan’s borders.

To address these challenges, a host of policy interventions has been recommended.

To ease financial constraints, the government is considering incentives for banks to relax lending requirements and establish dedicated low-interest loan programmes for small enterprises. Encouraging venture capital and angel investment through tax incentives is also being explored.

To improve production efficiency, policymakers are advocating for cluster-based development initiatives, shared industrial parks, and technology adoption subsidies.

Tax breaks and financial incentives for businesses investing in modern equipment could further boost productivity.

Strengthening domestic supply chains is another priority. The business review report states that investing in local raw material production and improving logistics infrastructure can reduce dependence on imports and lower distribution costs.

Other recommendations include establishing market intelligence systems to track consumer trends, providing business development support to CSIs to adapt to changing market conditions. Additionally, expanding trade promotion agencies and forging international partnerships could help CSIs gain a foothold in global markets.