SME Sector in India

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SME Sector in India

According to SME Chamber of India (July 2020),Micro, Small and Medium Enterprise (MSME) sector has emerged as a very important sector of the Indian economy, contributing significantly to the employment generation, innovation, exports, and inclusive growth of the economy. Micro, Small and Medium Enterprises (MSME) are the backbone of the socio-economic development of India.

It also accounts for 45 % of total industrial production, 40% of total exports and contributes very significantly to the GDP. Manufacturing segment within the MSME contributes to 7.09% of GDP. MSMEs also contribute to 30.50% of services. The total contribution of MSMEs to the GDP is 37.54.

The MSME Act, 2006, of India, was enacted to provide enabling policy environment for promotion and development of the sector by way of defining MSMEs, putting in place a framework for developing and enhancing competitiveness of the MSME enterprises, ensuring flow of credit to the sector and paving the way for preference in Government procurement to products and services of the MSEs, address the issue of delayed payments, etc.

The new law will be able to address the major challenges, relating to physical infrastructural bottlenecks, absence of formalization, technology adoption, capacity building, backward and forward linkages, lack of access to credit, risk capital, perennial problem of delayed payments, etc. These problems are hindering the development of a conducive business environment for expansion of the sector.

The Ministry of MSME India has noted that a thriving entrepreneurial eco-system is a policy imperative for realizing the potential of the sector and ensuring sustainable growth of the sector.

As per the Department of Scientific and Industrial Research through the Ministry of Science and Technology of the Government of India (December 2024), in India, ‘small and medium enterprises’ (SME) is a generic term used to describe small scale industrial (SSI) units and medium-scale industrial units.

Any industrial unit with a total investment in its fixed assets or leased assets or hire-purchase asset upto Rs10 million is considered as a SSI unit and investment upto Rs. 100 million is considered as a medium unit. In addition, an SSI unit should neither be a subsidiary of any other industrial unit nor can it be owned or controlled by any other industrial unit.

The SME sector produces a wide range of industrial products such as food products, beverage, tobacco and tobacco products, cotton textiles, wool, silk, synthetic products, jute, hemp & jute products, wood & wood products, furniture and fixtures, paper & paper products, printing publishing and allied industries, machinery, machines, apparatus, appliances and electrical machinery. SME sector also has a large number of service industries.

The small scale sector in India comprises of a diverse range of units from traditional crafts to high-tech industries. The number of SSI working units (registered & unregistered) in India totaled 11.4 million in 2003, 80.5 per cent of which are proprietary concerns and 16.8 per cent are partnership firms and private limited companies.

Importance of Small Scale Industrial (SSIs) in India

The Small Scale Industrial (SSI) is one of the significant segments of the Indian economy, contributing about 7 per cent to the Indian GDP and providing employment to over 28 million people.

According to the Department of Scientific and Industrial Research (December;2024), the Indian SME segment’s current production value is almost Rs 816,000 crore. It contributes to around 40% of industrial production & exports. It manufactures more than 8,000 diverse products, ranging from low-tech items to technologically-advanced products.

The SSI sector targets both domestic as well global markets. SSIs sector is recognized as the engine of growth, accounting for about 70% of employment and contributes a significant amount for the growth of GDP. Globally, 99.7 per cent of all enterprises in the world are SME’s and the balance 0.3 per cent are large-scale enterprises. By contrast, the SSI sector in India accounts for 95 per cent of all industrial units.

According to the Ministry of Small Scale Industries(2020), the number of registered SSI units in India has increased from 11 million units in 2002-03 to 11.4 million units in 2003-04, up 3.6 per cent. The fixed investment grew by 5.04 per cent from Rs. 162,533 crore in 2002-03 to Rs. 170,726 crore in 2003-04. About 8,000 products are manufactured in the small-scale sector. The production of SSI units in India increased from Rs.311,993 crore in 2002-03 to Rs.357,733 crore in 2003-04.The industry groups-with a large share in the total production of SSIs such as textile products, wood, furniture, paper, printing, and metal products-have recorded high growth rates.

The exports grew at a faster rate than production in 2002-03. While production at current prices grew by about 10.53 per cent and exports rose by 20.7 per cent from Rs. 71,244 crore to Rs. 86,013 crore between 2001-02 and 2002-03. The industry groups with a large share in exports are hosiery and garments (29.0%), food products (21.4%) and, leather products (18%).

The SSI units continue to create employment. The number of employed in the SSI sector went up from 260.13 lakh in 2002-03 to 271.36 lakh in 2003-04. This sector is next only to agriculture in employment.

How many SMEs are there in India?

As per some estimates, there are about 63.05 million micro industries, 0.33 million small, and about 5,000 medium enterprises in the country. The state of Uttar Pradesh has the largest number of estimated MSMEs with a share of 14.20 percent of the total MSMEs in the country (India-briefing.com: Nov2023).

Classification of SME in India**

The categories are as follows:

  1. Micro enterprises: Investment less than Rs. 1 crore and turnover less than Rs. 5 crore.
  2. Small enterprises: Investment less than Rs. 10 crore and turnover up to Rs. 50 crore.
  3. Medium enterprises: Investment less than Rs. 20 crore and turnover up to Rs. 100 crore.

**(Source from Ministry of MSME: 2020)

What is the contribution of SME in India?

According to Forbes (2023), SMEs contribute around 30% to India’s Gross Domestic Product (GDP) and employ approximately 40% of the country’s workforce. SMEs in India are mainly focused on the manufacturing, trade, and services sector.

What is the problem of SMEs in India?

Miicro Small, Medium Enterprises (MSMEs) in India suffer from the problems of financial assistance, lack of business expertise, and technological obsolescence. Indian SMEs are also facing tough competition from their global counterparts due to liberalization, redundant manufacturing strategies and uncertain market scenarios (indusind.com; 2022).

What is the future of SMEs in India?

MSMEs as investment opportunities

According to Invest India (June 2024), the Indian MSME sector is projected to grow to $1 Tn by 2028. There are many winning advantages which encompass a diverse range of investment opportunities across various industries and supply chain ecosystems, including but not limited to textiles, food processing, agriculture, and more.

How much does SME contribute to India GDP?

According to SME Chamber of India (2024), SME sector accounts for 45 % of total industrial production, 40% of total exports and contributes very significantly to the GDP. Manufacturing segment within the MSME contributes to 7.09% of GDP. MSMEs also contribute to 30.50% of services. The total contribution of MSMEs to the GDP is 37.54.

 

By Reshmee Chamroo 
 
Founder & Director
Ideas For Us
Mauritius