The contribution of small and medium enterprises (SMEs) to India’s gross domestic product (GDP) is projected to go up by a minimum of five percentage points to 22 per cent of GDP by 2012, according to a paper published by the Associated Chambers of Commerce and Industry of India (Assocham).
The report said that over 60 per cent of SMEs are aggressively upgrading themselves technologically to reduce their input costs and increase production and exports.
However, it added, one of the major constrains that SMEs are still facing is finance, “since banks, financial institutions and cooperatives still hesitate to lend money to SMEs as per their mandatory requirement of nearly 18-20 per cent of their total lending.”
The paper, titled SMEs — Tomorrow’s Blue Chips, said that currently, SMEs’ share in national GDP is around 17 per cent, as in the last couple of years, the small-scale part of SMEs have been facing not only recession but a credit crunch and a variety of regulations from the Centre and the state governments.
The scenario has started changing after enactment of the Micro, Small & Medium Enterprises Development Act (MSME) 2006, the fruits of which will start flowing in the near future, as the sector has now been liberalised to a large extent, adds the Assocham study.
According to the report SMEs have been growing at 35 per cent annually over the last two years and this will climb to 40 per cent, driven by technology.
D S Rawat, Assocham secretary general said that the share of SMEs in national exports is currently around 38 per cent, and will surge to over 44 per cent in the next five years. The main reason why SMEs will do exceedingly well in the next four or five years is that over 55 per cent of them would have upgraded their technology.
This sector currently accounts for 95 per cent of industrial units and contributes about 40 per cent of the value addition in the manufacturing sector.
More than 32 lakh units spread over the country produce about 7,500 items and provide employment to more than 40 million persons.
“However, ever since the MSME Development Act 2006 has been enacted, SMEs have been given two classifications, one is that of manufacturing, while industries that provide and render services have also been brought under the SMEs jurisdiction,” Rawat said.
As a result, the SMEs sector has been liberalised and deregulated to a large extent. Earlier, small- scale units were subject to 60 Central, state and local laws.