India is one of the fastest growing economies of the world. In the last half-decade, the economic growth has steadily accelerated and most importantly, remained very stable. This growth has been driven by robust socio-economic policies of the government, an influx in the domestic and foreign capital and rise in disposable income and consumption among many other positive attributes. One other major factor that is being touted as the backbone of India’s economy is Small and Medium Enterprises (SME) sector.
Whether it is agriculture, manufacturing or service industry, SMEs are mushrooming in a myriad of sectors across the country. Statistics show that SME accounts for 45% of industrial output and 40% of the total exports in India. It generates employment for 60 million people and creates 1.3 million jobs every year. Given that a majority of India’s population lives in villages and Tier-1/Tier 2 cities, the SME sector has also emerged as a key factor to urbanize rural India.
However, in spite of its contribution to the socio-economic growth of India, SMEs face a number of challenges:
Lack of capital due to inadequate access to finance and credit
Inability to attract talented and tech-savvy manpower
Poor infrastructure and utilities resulting in low production capacity
Lack of innovation
Technology and digital knowledge gap
Lack of marketing know-how
Due to these challenges, the Indian SMEs are unable to scale to their full potential, rise up to the standards of their international peers and become self-sustainable. On the positive side, these challenges should be perceived as untapped opportunities for the SME sector. These challenges offer a broad scope to strengthen the foundation of SMEs in India.
The Indian government has been making commendable efforts to empower SMEs to overcome these hurdles. The National Manufacturing Competitiveness Programme encourages SMEs to adopt Information and Communication Technology tools and applications for their business processes. Then, there is Assistance to Training Institutions Scheme, which provides financial assistance to national level training institutions operating under the Ministry of MSME to strengthen SME infrastructure and create entrepreneurship skill development programs.
The SME sector has also gained recognition from the United Nations. According to the United Nations, these type of enterprises act as the first responders of the needs of the society, provide a safety net for inclusiveness and are a primary driver of poverty alleviation and development. Hence, the United Nations celebrates ‘Micro-, Small and Medium-sized Enterprises Day’ on 27th June every year to raise public awareness of this sector’s contribution to sustainable development.
There are immense opportunities for the Indian SME sector to grow and thrive. All it needs to do is to adapt to the changing trends and embrace digital skills.
These self-funded proprietary firms, private co-operatives, private self-help groups, Khadi, and Village and Coir industries, not only provide huge employment opportunities but also ensure regional balance by taking industrialisation to rural and backward areas (about 20% of MSMEs operate out of rural & backward areas – CII)
To communicate the importance of the SME sector, I’m going to share with you some key SME statistics, trends and reports. See for yourself what the numbers convey:
Number of SMEs in India: The number is estimated to be at 42.50 million, registered & unregistered together. A staggering 95% of the total industrial units in the country.
SME & Employment opportunity: Employs about 106 million, 40% of India’s workforce. Next only to the agricultural sector.
Products: produces more than 6000 products.
GDP Contribution: Currently around 6.11% of the manufacturing GDP and 24.63% of Service sector GDP.
SME Output: 45% of the total Indian manufacturing output.
SME Exports: 40% of the total exports.
Bank Lending: Accounts for 16% of bank lending.
Fixed Assets: Current fixed assets at INR 1,471,912.94 crore.
SME Growth Rate: Has maintained an average growth rate of over 10%.
Comprehending the sector’s contribution towards employment numbers, towards GDP, innovation and entrepreneurship, the Government of India has launched numerous initiatives to further the cause of SMEs. Mentioned below, in a table form, are the performances of some of the key schemes:
Credit Guarantee Fund Trust for Micro & Small Enterprises (CGTMSE).
Objective: To make available collateral free credit facility to new and existing Micro & small businesses subject to a limit of Rs.100 lakh per unit.
Performance during 2015-16 (up to 31/12/2015): 350056 Application approved with guarantee coverage of Rs.14,673 crore.
Performance since inception: 2160975 Application approved with coverage of Rs.103,864 crore.
Export Promotion of Capital Goods (EPCG).
Objective: To allow import of capital goods on zero duty subject to meeting export obligations.
Performance during 2015-16: Number of authorisation 22544 with FOB value of Rs.78,860 crore and duty savings of Rs.12619 crore.
Performance during 2016-17 (up to October 2016): Number of authorisation 13,585 with FOB value of Rs.50,359 crore and duty savings of Rs.8,668 crore.
Credit Linked Capital Subsidy Scheme (CLCSS).
Objective: To facilitate technology up-gradation. To enable beneficiary enterprises to avail institutional credit towards the purchase of machinery and technologies.
Performance during 2015-16 (up to 31/12/2015): 3,142 benefited units with an expenditure of Rs.203.76 crore.
Performance since inception: 22,380 benefited units with an expenditure of Rs. 1349.63 crore.
Lean Manufacturing (National Manufacturing Competitiveness Programme).
Objective: To make accessible the use of various Lean Manufacturing techniques to SMEs and thus improve their manufacturing competitiveness.
Performance during 2015-16 (up to 31/12/2015): Benefits to 670 units with an expenditure of Rs.11.26 crore.
Performance since inception: Benefits to 3041 units with an expenditure of Rs.45.26 crore.
Intellectual Property Rights.
Objective: To enhance competitiveness through increased awareness of IPR.
Performance during 2015-16 (up to 31/12/2015): Awareness programs held-26, Workshops-05, and IPR Facilitation Centre-03. Expenditure Rs.1.73 crore.
Performance since inception: Awareness programs held-308, Workshops-95, and IPR Facilitation Centre-31. Expenditure Rs.13.69 crore.
Marketing Development Assistance (MDA) Scheme.
Objective: To help & encourage SMEs to tap & develop overseas market.
Performance during 2015-16 (up to 31/12/2015): Units participated 233. Expenditure Rs.4.77crore.
Performance since inception: Units participated 1476. Expenditure Rs.28.76 crore.
Source: MSME at a glance.
The future outlook looks very bullish for Indian SMEs, which are far more optimistic than their Asian counterparts in China, Japan and other dynamic and large economies. Consider what this survey result from American Express Global SME Pulse 2017 has to convey:
71% of the SME respondents hold an optimistic view about their domestic economy, followed by Japan with 62% and Japan with 54%. IBEF.
The year 2017 has all the makings of an interesting year with GST following close on the heels of demonetisation. Those who have survived the effects of demonetisation are more likely to see sunnier days ahead.
The implementation of GST is generally expected to bring good tidings to this sector. Some key points in favour of SMEs are:
Market Base: Set to grow as interstate sales complexities are a thing of the past. Since there is no longer any tax burden on interstate sales, big corporates and manufacturers can procure materials & components from small players from across any state borders.
Increased Competitiveness: Low-cost imports are no longer a cause for worry since tax levied on imports goods and local manufacturers will be the same.
Freight Cost: Expected to come down by 1 to 2%, thus bringing down the cost of raw material and finished products.
Cost of Raw Materials: Expected to come down with the disappearance of 2% CST on interstate sales.
Sales & Service: Treatment of sales & services will be the same under GST means no additional tax burden on SMEs with a business model of sales and service.
Transparency and Ease of Doing Business: The new indirect tax regime replaces multiple tax rules. Physical interface of bureaucracy expected to be nonexistent or minimal since registration, tax payment, input tax credit & tax liability adjustment, tax returns, and refunds will all happen online electronically.
The same American Express Global SME Pulse 2017 was found stating that 37% of Indian SMEs considered flexible lending and repayment and 49% high-interest rates as important factors affecting business. Addressing these pain points will definitely make the road ahead much smoother.
With the Indian economy expected to touch $5 trillion by 2025, and with groundbreaking economic reforms kicking in, SMEs are expected and bound to play a much more important role. B2B e-commerce, food processing, pharma, and homeland security and defence are the areas to watch out for.
What Tech Companies Are Doing To Foster Technology Adoption In SME Sector
Elaborating how different companies are focusing on the SME sector, we see many examples. One of the most prominent is telecom giant Reliance Jio announced that it wanted to expand the digital benefits and make them more inclusive for small and medium sized businesses. The company said SMEs will be given cheap digital services, from compute to storage, to connectivity. Jio’s partnership with tech giant Microsoft will help provide the cloud services Jio would need to scale the infrastructure to millions of SMEs across India.
Reliance is not the only one working to bring digitisation to Indian SMEs. Recently, large tech companies like Dell, HP, Intel, Vodafone Idea and WhatsApp came together under the guidance of industry body Confederation of Indian Industry (CII) for project called Tech-Saksham. The project plans to reach out to over 10,000 MSMEs. The tech companies will work with SMEs overcome challenges in adopting technology, proving resources and expertise to make sure India’s large SME base gets the digital assistance it needs badly. Shreekant Somany, Chairman, CII National MSME Council stated the direct benefit of the project involving the technology players will be made available through training programmes and workshops on the latest technological solutions such as cloud computing, and market access for trade and exports.
Even Facebook announced an initiative under which it is collaborating with Venture Capital (VC) funds to accelerate the growth of the small and medium businesses (SMEs). Facebook’s VC Brand Incubator Program will be the first in a series of programs by Facebook that will be focused on helping SMEs achieve growth in India by providing them with technology skilling and support.
SMEs have also found its place in the technology world. Recently the founder of WLS engaged in a live session with Neil Lesher who is the founder of Lesher Technologies and how he designed a hands free communication phone cover. A software allows the owner to control the phone from a distance.
It’s a hovering smartphone case which even allows drone technology to function. It allows voice commands which can be used with ear pods. This technology will also help people with less balance to keep lighter and the phone won’t fall down according to Sumit Agarwal who is a young entrepreneur. People with diseases like cerebral palsy will surely be benefitted from this technology as it will free them from the burden of carrying stuff which is helpful because generally these kind of people have less balance in their body. Secondly, people with visual impairments will also get benefitted from the voice commands as seeing on the screen can be difficult for them to understand. People with disabilities will also be benefitted by the upcoming PhoneQuad technology. There is a need to create such a community who will actually be benefitted from such products so that the products do not only remain as a social media flaunting device. It should reach out to people who are in real need of it specially developing countries like India where economic status and language barrier acts as a major problem in the launching of these kind of products. It also has the follow me technology in the PhoneQuad which allows it to hover along with the owner which makes it feel like a hands free selfie stick. The proprietary software allows voice recognition and makes use of excellent physics to create such a technology. This technology will certainly impact the lives of many and give the world a new way to think and look into the future.