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India’s SME Landscape and Challenges

Small and medium enterprises (SMEs) are the backbone of the Indian economy, accounting for almost 50% of industrial output, 42% of exports, 50% of private sector employment, and 30-40% of manufacturing value-addition. However, SMEs in India face challenges such as technological obsolescence, suboptimal scale, poor financial situations, and a lack of access to technology and skills. Recent policy changes like the Micro Small and Medium Enterprises Development Act and Limited Liability Partnership Bill aim to boost SME growth by facilitating foreign investment, improving access to technology, and reducing business risks.

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5 views2 pages

India’s SME Landscape and Challenges

Small and medium enterprises (SMEs) are the backbone of the Indian economy, accounting for almost 50% of industrial output, 42% of exports, 50% of private sector employment, and 30-40% of manufacturing value-addition. However, SMEs in India face challenges such as technological obsolescence, suboptimal scale, poor financial situations, and a lack of access to technology and skills. Recent policy changes like the Micro Small and Medium Enterprises Development Act and Limited Liability Partnership Bill aim to boost SME growth by facilitating foreign investment, improving access to technology, and reducing business risks.

Uploaded by

gupterad
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd

INDIA'S SME SCENARIO:

Small and medium enterprises (SMEs), are the backbone of the Indian economy.
They constitute the bulk of the industrial base and also contribute significantly to their
exports as well as to their Gross Domestic Product (GDP) or Gross National Product
(GNP).

India has nearly three million SMEs, which account for almost 50 percent of
industrial output and 42 percent of India’s total exports.
A special role for SMEs were earmarked in the Indian economy with the advent of
planned economy from 1951 and the subsequent industrial policy followed by
government. By and large, SMEs developed in a manner, which made it possible for
them to achieve the objectives of:
1. High contribution to domestic production
2. Significant export earnings
3. Low investment requirements
4. Operational flexibility
5. Low intensive imports
6. Capacity to develop appropriate indigenous technology
7. Import substitution
8. Technology-oriented industries
9. Competitiveness in domestic and export markets

It is the most important employment-generating sector and is an effective tool for


promotion of balanced regional development. These account for 50 percent of
private sector employment and 30 to 40 percent of value-addition in manufacturing. It
produces a diverse range of products (about 8000 odd items), including consumer
items, capital and intermediate goods.

PROBLEMS FACED BY SME’s:

As a result of globalization and liberalization, coupled with WTO regime, SMEs have
been passing through a transitional period. With enhanced competition from China
and a few low cost centers of production from abroad many units have of late been
facing a tough time.
The SMEs in India, which constitute more than 80 percent of the total number of
industrial enterprises and form the backbone of industrial development, are as yet, in
technological backwaters vis-á-vis advances in science and technology. These suffer
from problems of suboptimal scales of operations and technological obsolescence.

Poor financial situations and low levels of R&D, poor adaptability to changing trade
trends, non-availability of technically trained human resources, lack of management
skills, lack of access to technological information and consultancy
services and isolation from technology hubs are some of the reasons why these
SMEs are not being able to surge ahead.

EFFORTS TO BE TAKEN FOR THE GROWTH OF SME’s

There has to be a major change in policy on how they are operating. SMEs have to
put in more effort on research and development (R&D) and on ways to use
technology at par with the international standards.

The Limited Liability Partnership Bill (LLP Bill) which was passed by Lok Sabha on
December 12 , 2008, would provide adequate breathing space to SMEs which till
date have not been able to avail of th benefits of corporate structure. The liability of
business vehicle would not be tagged and made personal liability of partners
constituting [Link] shall have a separate legal entity apart from the partners
constituting it.

With the introduction of Micro Small and Medium Enterprises Development


( MSMED) Act and LLP Act ,the 24% ceiling for the equity investment by industrial
undertakings, whether foreign or domestic , in the SME sector , would be done away
[Link] would pave the way for the SME sector to bring in fresh foreign investment
in the form of equity holding. It would also give an incentive to the Ministry of MSME
to liberalise foreign investment in the SME sector.

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