The Indian small and medium enterprises (SMEs) sector has emerged as a key sector in the growth of the Indian economy. The role of SMEs in the Indian economy is significant. The sector has contributed greatly to employment generation, exports, innovation and inclusive growth of the economy. In short, the Indian small and medium enterprise sector (SMEs) has been the backbone of socio-economic development in India. It has made up almost 45% of industrial production, 40% of total exports and makes a significant contribution to India’s total Gross Domestic Product (GDP). Indian SMEs account for almost 8% of India’s GDP.

What are Small and Medium Enterprises (SMEs) in India? How are they classified?

Indian SMEs are classified according to their annual turnover and money invested in plants and machinery. The MSME Development Act divides industrial units into medium, small, and micro-companies. 

• A small enterprise is defined as one that has an annual turnover between INR 5 crores and INR 50 crores. The investment threshold (in plant and machinery) for a small enterprise is between INR 1-10 crores. 
• A medium enterprise is defined as one that has an annual turnover of not more than INR 250 crores. The investment threshold for a medium enterprise is INR 50 crores. 
• In addition to small and medium enterprises, there are also micro enterprises. They have an annual turnover of less than INR 5 crores. Together, they are called MSMEs in India (Micro, Small and Medium Enterprises).

The market size of SMEs in India

As mentioned already, the SME sector is very important to the Indian economy. And when you include micro enterprises, the numbers are big. There are roughly 6.3 crore MSMEs in India. According to data from the MSME Ministry, the Udyam Registration platform registered 5,767,734 MSMEs as of November 26, 2021. Micro enterprises accounted for 5,441,220 (94.34 per cent), small businesses for 293,555 (5.09 per cent), and medium-sized businesses for 32,959. (0.57 per cent). 

Maharashtra has the most MSMEs (12.18 lakhs) in India, followed by Tamil Nadu (6.23 lakhs), Gujarat (4.86 lakhs), Rajasthan (4.68 lakhs), and Uttar Pradesh (4.45 lakhs). 

Role of SMEs in India

• SMEs employ a good chunk of India’s workforce. This amounts to almost 40%, which makes up around 80 million workers. 
• They make up almost 40% of India’s export business and a significant chunk of the country’s manufacturing output (45%). 
• India has the second-largest number of SMEs in the world, eclipsed only by China. 

Schemes for SMEs in India

The government provides several schemes to give Indian SMEs a push. Let’s look into these schemes in detail;-

• Make in India: This much-celebrated initiative has played a key role in promoting businesses and pushing Indian SMEs to manufacture, develop, and assemble products made in India.
• Financial Assistance to Small and Medium-Sized Enterprises in the ZED Certification Scheme: The scheme aims to instil Zero Defect & Zero Effect (ZED) principles in Indian MSMEs’ manufacturing. Under this scheme, the Government of India (GoI) grants up to an 80% subsidy to MSMEs.
• The Prime Minister’s Employment Generation Programme: This scheme, set up by Khadi and Village Industries Commission (KVIC), was to finance MSMEs. 
• Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE): This scheme was implemented to eradicate the financing issues faced by Indian SMEs. It provides collateral-free loans to individual, micro and small enterprises. 
• Government Initiatives for Technology Advancement and Innovation: The central government is trying to improve the conditions of MSMEs in India and has implemented several initiatives to help advance the technology and promote innovation among Indian SMEs. They are A scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE), National Manufacturing Competitiveness Programme (NMCP) etc. 

These schemes for SMEs in India help them overcome issues like financing, technology etc. A strong SME sector helps drive employment and technological advancement and grow the Indian economy.

Conclusion

The role that SMEs play in India’s economy is understated. There are SMEs in the manufacturing and the service sector, and they are powering India forward while creating jobs, opportunities and economic growth. There are various schemes implemented by the government that promote SMEs. It is important that this sector thrives, given the fact that if it stagnates, the common man will feel the brunt. The trickle-down effect on the common man is higher when it comes to SMEs, and when this sector thrives, the quality of life of the common man improves.