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SMEs of India — Boosting Indian Economic Growth

Small and Medium Enterprise or SME is a silent and powerful revolution occurring in the nation. India has approximately 42.50 million SEMs that make up 95% of the total industrial units. These make a significant share in India’s GDP of around 6.11% in the manufacturing sector and 24.63% in the service sector. Maintaining an average growth rate of over 10%, these enterprises have a certain specified investment level.

Manufacturing Enterprises:  These are involved in the manufacturing or production of goods related to any industry according to the Industries Development and Regulation Act, 1951. Classification of manufacturing enterprises is based on their investment in plant and machinery. The investment limit is as below

Manufacturing Sector
Enterprises Investment in plant and machinery
Small Enterprises Above 25 lakh rupees and below 5 crore rupees
Medium Enterprises Above 5 crore rupees and below 10 crore rupees

 

Service Enterprises:  These enterprises are involved in providing and/or rendering of services and are classified on the basis of investment in equipment. The investment limit is as below

Service Sector
Enterprises Investment in equipment
Small Enterprises Above 10 lakh rupees and below 2 crore rupees
Medium Enterprises Above 2 crore rupees and below 5 crore rupees

 

Like for any other nation, SMEs are a major contributor in Indian economy. Small business is a favorable source of income for the 65% of Indian population residing in the rural and semi-rural area. It is the second largest source of income after agriculture. Being a gateway for employment and growth of the nation, SME business is mounting every day.’ Make in India’ has taken it to next level. Purchasing power and consumerism are the keys to success for SME business that can be achieved in a short span of time.

The growth of SME helps the nation grow. Let’s see how

  • SMEs provide employment and livelihood opportunity to around 80 million people.
  • They strengthen the India economy by contributing to 45% of India’s manufacturing output.
  • 7% SMEs are engaged in manufacturing of 6000 products and remaining 68.2% involved in service deliveries.

But it is essential to know what factors affect the growth of SMEs in India

  1. Business Structure

SMEs need to have an encouraging organizational structure to welcome and implement strategies that help them grow rapidly. Everyone can do everything, preaching this practice will make employees feel the ownership of their work and encourage them to offer better service and skill to the business. Good management and planning can take any business to new heights.

  1. Role of Government

To boost the SME sector and their share in GDP, the Government of India has taken various initiatives such as

  • Micro Units Development Refinance Agency Bank (MUDRA): This Government bank helped in the allocation of 20000 crores to increase the GDP share of SMEs.
  • Credit Linked Capital Subsidy Scheme for Technology Upgradation (CLCSS): It provides a subsidy of 15% to Small Scale Industries in the manufacturing sector.
  • Mini Tool Room: An amount equivalent to machinery (maximum 9 crores) is granted to the SME for the creation of a mini tool room.
  • Skill India: An initiative to generate skilled workforce to benefit the SME and the nation in the long run.
  • Technology & Quality Upgradation Support: This scheme offers SME with 75% expenditure benefit to purchase energy-efficient technologies.
  • Credit Guarantee Fund Scheme: This scheme aims to offer collateral-free credit to existing and new Indian SMEs, thus facilitating Rs 100 Lakh loan per unit.
  • Export Promotion of Capital Goods (EPCG): Here, to meet export obligations, the Government has zero duty on import of capital goods.
  • Financial Assistance on International Participation: This allows SMEs to participate in international exhibitions and trade fairs to grow their business with upgraded technology, foreign investments, and partnerships. Other benefits under this scheme are reimbursement of 75% of registration fees and 75% of annual fees paid to GSI for the barcode.
  • ZED rating: Under this scheme, SMEs will be assigned platinum, gold, silver and bronze categories on the basis of performance and credit rating. This to promote ‘Zero-Defect’ manufacturing producing quality product and higher economic gains.
  • Marketing Development Assistance (MDA): With the launch of MDA scheme, the Government is trying to help and encourage the growth of SMEs in not just India but internationally.

 

  1. Funding options

Other than the Government initiates and schemes, there are other financing options for the SME businesses to sustain their business and never run out of funds, such as

  • Equity Funding: This is preferred by the start-ups and highly productive if there is a senior management that is improving market share and revenue of the company
  • Debt Funding: For SME it can’t be bank all the time. So, depending on the size, age, and type of business can opt for collateral-free loans of up to Rs. 1 crore.
  • Grants: Under bilateral trade, countries offer grants to sectors where they find their growth. Indian Government has been in discussion with various foreign countries over bilateral investment discussions such as Kenya, Korea, Singapore, etc.

 

  1. Role of technology

In addition to finance, the second step towards the success of SME business is being technology prone. Innovation helps in creating a strategic growth plan. Technology helps in making SMEs agile, build customer relationship and acquire new markets. Some of these growth drivers are

  • Big Data Analytics: To have customers’ insights on what, how, when are they buying (customer journey) analytics are a great help. This helps SMEs in building better customer experience and nurture customers for a long-term relationship.
  • Cloud computing: This technology saves SMEs from building infrastructures and offices for IT management. It helps in inventory and financial management without huge investments
  • Telecom technologies: VoIP, WiFi, etc. services have become quite affordable for SMEs. These have made communication system smooth for SMEs to interact better between its branches or with the customers. Such network services can be installed instantly and updated whenever required.
  • Mobile technology: Mobile is playing a significant role in the world of Internet and technology. MobiTech or mobile technology create a better user experience using mobile apps etc

 

Challenges face by SMES

Even after numerous benefits and a crucial position in India’s development, there are some challenges faced by SMEs such as

  • Getting comfortable in the small space and reluctant to grow, so escaping taxation and regulatory issues
  • Struggling with finances and bank credit due to high-interest rates
  • Having shorter interest-free repayment timeline of 60 days
  • Facing other social, economic and political issues such as downfall in real estate prices.
  • Producing high-quality product at a reduced price as they are not the market leaders and don’t have the bargaining power

What’s trending in the Indian SME sector?

SMEs are having a sunnier future and there are numerous trends or activities happening in this industry. Let’s have a look at what new things or on-going events SMEs need to deal with

  • With GST laws, interstate business is in and complexities are out. This will help SMEs to tap a wider market
  • As a consequence of the above-mentioned point, there will be higher competition in the SME sector.
  • Reduction in cost of raw material and finished products by 2%
  • With the Digital India initiative, SMEs need to work on their digital marketing strategies and spread more awareness about their business targeting millennials the most. Hand-on CRM solution will help in lead management.
  • Technological advancement is and will make financing and invoicing easier.
  • Personalization is still left untouched by many. SMEs can run marketing campaigns targeting a particular segment. Make use of drip and nurture marketing to offer real value to the customer

Apart from trends, the country is realizing the potential in the SME businesses and willing to have them in various sectors. Here’s a glimpse of related news:

  • Industries working on technology are creating software solutions for SMEs at a lowered price and many new features, such as IceWrap’s Webclient 12.1
  • EY-FICCI report states SME can play a significant role in railway sector manufacturing
  • Travel agencies like Yatra and MMT are focusing on SMEs and launching special products for this sector

Conclusion

Small and Medium Enterprises have a huge growth potential, contributing to the nation’s growth with maximum employment. So, it is essential for SMEs to have skilled workers and follow a decentralized way of working. It’s not the era of micromanagement but be a noticeable part of the Indian economy that’s estimated to reach $5 trillion by 2025. Industries such as pharma, security, B2B eCommerce, and defense are expected to see something really big coming their way.

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