Relevance of Small and Medium enterprises in India

Contributing enormously to the socio-economic development of the country, MSMEs today are considered to be the supplementary units to large industries.
Micro, Small and Medium Enterprise

The last five decades have witnessed an emergence of Micro, Small and Medium Enterprises (MSME) as a highly vibrant and dynamic sector of the Indian economy. Over the years, MSMEs have earned the status of being indispensable to the growth of our economy with its pivotal role in it, vis-à-vis large employment opportunities at comparatively lower capital cost than large industries; industrialisation of rural and backward areas, thereby, reducing regional imbalances, ensuring equal distribution of national income and wealth.

Contributing enormously to the socio-economic development of the country, MSMEs today are considered to be the supplementary units to large industries. Confirming its significance in the Indian economy, the sector consists of 36 Million units, providing employment to over 80 million people. Additionally, with more than 6000 products, the sector also contributes about 8% of GDP, besides 45% to the total manufacturing output and 40% to the exports from the country. With this as a background, the sector is touted to become a major partner in the process of inclusive growth of the country, after having demonstrated the potential to spread industrial growth across the country.

Following the amendments of the Government of India Rules 1961 on May 9, 2007, erstwhile Ministry of Small Scale Industries and the Ministry of Agro and Rural Industries were merged to form the Ministry of Micro, Small and Medium Enterprises (M/o MSME). This is the ministry that has been bestowed with the responsibility of designing policies and promoting and facilitating programs, projects and schemes, along with monitoring their implementation, in a bid to assist MSMEs to help scale up. While the primary responsibility of promotion and development of MSMEs lies with the State Government, the Central government supplements the efforts of the State Government through various initiatives. Through the Ministry of MSMEs and its functioning bodies, the Central Government aids the States in their efforts to encourage entrepreneurship, employment and livelihood opportunities and enhance the competitiveness of MSMEs in the changing economic scenario.

Fostering further growth in the MSME segment, is the retail industry that has emerged as one of the most dynamic and fast-paced industries due to the entry of several new players. The retail sector accounts for over 10 percent of the country’s Gross Domestic Product and around 8 percent of the employment. Indian retail industry makes for the world’s fifth-largest global destination in the retail space.

As the segment gets on its growth track, it is expected to grow almost double the size to US$ 1 trillion by 2020 from US $ 600 billion in 2015, driven by growth in income, urbanisation and attitudinal shifts. Additionally, the overall retail market is expected to grow at a rate of 12 percent per annum, with modern trade anticipated to grow 20 percent per annum and traditional trade at 10 percent.

While the online retail is expected to be at par with the physical stores in the next five years, India’s B2B e-commerce market is expected to reach US $ 700 billion by 2020 and the B2C segment is projected to touch US $ 102 billion by 2020.

With such numbers, the Indian e-commerce market is expected to be the fastest growing market globally. The segment owes its growth to robust investments in the sector and rapid increase in the number of internet users. Moreover, India’s e-commerce market is expected to reach US$ 220 billion in terms of gross merchandise value (GMV) and 530 Million Shoppers by 2025, led by better internet facilities, rapid adoption of online services and better variety as well as convenience.

Considering such forecasts and achievements of the retail sector, Chandrajit Banerjee, Confederation of Indian Industry (CII) director-general, said: “India’s growing retail boom is a success story. FDI of 51 per cent in multi-brand retail and its early implementation would give a major boost to the all-round growth of organised retail in the country having substantial positive impact on the growth of SMEs.”

Despite the segment’s high enthusiasm and inherent capabilities to grow, SMEs in India is smothered by pain points like sub-optimal scale of operations, technology obsolescence, supply chain inefficacies, increasing domestic and global competition, working capital shortages, change in manufacturing strategies and turbulent and uncertain market scenario. To survive with such issues and compete with large and global enterprises, SMEs need to adopt innovative approaches in their operations. SMEs that are innovative, inventive, internationals in their business outlook, have strong technological base, competitive spirit and a willingness to restructure them, can withstand the prevalent challenges and come out successfully.

According to KPMG report, SMEs who actively adopt the internet for business activities boast 51% higher revenues, which results in 49% more profit and a 7% broader consumer base than their offline counterparts. Digital traffic of users searching online for offline store has also increased significantly. Also, the consumer searches are more specific with SKU number nowadays and people want to know the availability of inventory at nearest stores.

This article has been authored by MukeshLohar, Business Head, India and Asia Emerging Markets, NowFloats

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