ByNilesh Arora

Founder Partner, ADD VALUE Consulting Inc. ,INDIA

“SME OVERVIEW – INDIAN CONTEXT”

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WHAT ARE SME’S ?

• Manufacturing Enterprises – Investment in Plant & Machinery Description

• Micro Enterprises up to $ 62,500• Small Enterprises above $ 62,500 & up to $ 1.25 million• Medium Enterprises above $ 1.25 million & up to $ 2.5 million

• Service Enterprises – Investment in Equipment Description • Micro Enterprises up to $ 25,000• Small Enterprises above $ 25,000 & up to $ 0.5 million• Medium Enterprises above $ 0.5 million & up to $ 1.5 million

WHY ARE SME’s CRUCIAL ?• SME sector of India is considered as the

backbone of economy contributing to 45% of the industrial output

• 40% of India’s exports, employing 60 million people, create 1.3 million jobs every year and produce more than 8000 quality products for the Indian and international markets

• With approximately 30 million SMEs in India, 12 million people expected to join the workforce in next 3 years and the sector growing at a rate of 8% per year

WHY ARE SME’s CRUCIAL ? …contd

Several factors that have contributed towards the growth of Indian SMEs1. Funding of SMEs by local and foreign investors2. New technology in the market is assisting SMEs add considerable

value to their business3. Various trade directories and trade portals

• Despite of this strong growth, there is huge potential amongst Indian SMEs that still remains untapped

VARIOUS MSME SECTORS

WHY ARE INDIAN SME’s CRUCIAL..?• SMEs are the major source for entrepreneurial skills, innovation

and employment, after agriculture• After agriculture, SMEs are the second largest employer of human

resources• Number of people employed in SMEs has grown to approx. 75

million at a growth rate of 5.5%• 45% of the SMEs are in rural areas while 55% of the SMEs are in

urban areas

• 67% of the SMEs are in manufacturing sector, 17% in service sector and

16% in repairs and automation

• SMEs make up for 80-90% of all enterprises and generate about 50-80% of

total employment in developing Asia

IMPORTANT DATA – SME’s(2013-14) …contd

IMPORTANT DATA – SME’s(2013-14) …contd

IMPORTANT DATA – SME’s(2013-14) …contd

REASONS FOR SME GROWTH1. Low investment2. High contribution to domestic production3. Significant export earnings4. Capacity to develop indigenous technology5. Operational flexibility6. Contribution to defense production7. Technology oriented industries8. Import substitution9. Location wise mobility10. Low intensive imports11. Competitiveness in domestic markets12. Competitiveness in export market

SME’s.. Manufacturing Sector• The various types of SMEs in manufacturing are textiles, machinery, plastics, auto

components, rubber, foundries, paints, electrical, automation etc. • SMEs contribute to 40% of total exports• Form 95% of the total industrial units• Manufacture 8000 quality products for Indian and international markets

CHALLENGESManufacturing SMEs in India are also facing a number of problems like…….• Sub-optimal scale of operation • Technological obsolescence• Supply chain inefficiencies• Increasing domestic & global competition• Working capital shortages – payment delays and Insufficient skilled manpower• Change in manufacturing strategies and turbulent and uncertain market scenario

OPPORTUNITIES • There lies a huge opportunity in terms of technological advancement, financial

assistance, manufacturing competitiveness, innovation, infrastructure development etc.

SME’s - SERVICE SECTORCSO (Central statistics organization) of India has classified servicesector into 14 classifications they are:1) Trade, hotels and restaurants (THR)2) Trade3) Hotels and restaurants4) Transport, storage and communication5) Railways6) Transport by other means7) Storage8) Communication9) Financing, Insurance, Real Estate and Business Services10) Banking and Insurance11) Real Estate, Ownership of Dwellings and Business Services12) Community, Social and Personal services13) Public Administration and defense (PA & D)14) Other

SME’s - SERVICE SECTOR…contd• Employment-intensity is highest in manpower-intensive services

like security agencies, housekeeping, and facility management.CHALLENGES • SME Sector is a handicap, despite of commendable contribution to

nation’s economy1. Absence of adequate and timely banking finance2. Ineffective marketing strategy3. Constraints on modernization & expansions4. Non availability of highly skilled labor at affordable cost5. Follow-up with various government agencies to resolve problems

etc. OPPORTUNITIES • There lies a huge opportunity in terms of available skilled and

unskilled manpower

SME’s AGRICULTURE SECTOR..• The various types of agriculture sector SMEs are inputs and

technology providers, producers (farmers), logistics trade and distribution, processors, wholesalers and retailers.

CHALLENGES• Fragile internal control systems• Poor management culture• Corruption and security risks• Lack of skilled workers and reliable infrastructure• The most significant barriers common are lack of access to

financing and to markets.OPPORTUNITIES • Addressing the lack of access to financing and to markets is

instrumental to unlocking the potential of SMEs as engines of domestic growth.

Agriculture Value Chain

OPPORTUNITIES IN INDIAN SMEs..• India is among the three most attractive FDI destinations in the world• One of world’s leading technology centers• India has highest return on foreign investment in the world• By 2032, India will be among the three largest economies in the world• India is a developed country as far as Intellectual Property is concerned• The Indian market has two core advantages – an increasing presence of

multinationals and an upswing in the IT exports.• In order to enable SMEs get easy access to the finance, government has

also introduced priority sector lending and has made mandatory on the domestic and foreign banks to lend 40% and 32% of their Net Bank Credit (NBC) to the SMEs

• The opportunities exists for foreign SMEs looking to expand in the Indian market in the field of technology transfer, setting up the new business in the country, obtaining the sub-contracting rights, out-sourcing to their Indian partners etc.

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