Performance Of Small And Medium Enterprise In India Economics Essay

SMEs have been almost established in all major sectors in the Indian industry such as food processing, Agricultural inputs, Chemicals and pharmaceuticals, Textiles, plastic products and Computer software. SMEs are known for innovations as new product with good quality service as well it also provides employment opportunities. It is also known as backbone of the company. SMEs constitute above 80% of total number of industrial enterprise and from the backbone of development. Not only in India but across the world SMEs provides incredible contribution to the economy. SMEs have above more than 40% share in industries, producing more than 8000 value-added products which contribute nearly 35% direct export and up to 45% in the export. After agriculture SMEs is one of the biggest employment providing sector which provide employment nearly 28.28 million people. (Stuti Kacker, Ministry Small Scale industries)


There is no universal definition of small and medium enterprises. Different countries use different definitions and use various criteria such as number of employees, capital assets, sales turnover and average income. In some countries there are certain objective standards and which classify the units as small, micro or medium enterprises depending on the number of employees as mentioned above. In some other countries annual turnover of the company determines the size of an enterprise.

Under the industries Development and Regulation Act (IDR) 1951, a small scale industry is classified on the basis of limit of historical value of investment in plant and machinery which is up to INR 10 million. However in some in some items the limit of investment has been INR 50 million.

The small and medium enterprises Fund, GOI (Government of India) approved the limit of investment in plant and machinery up to 10 million and for medium scale has been up to 100 million. Amongst the all developing countries, India has been the first to display special concern to SMEs and focus considering use of capital assets and labour supply in the country (Chopra V.K.)

According to the Micro, Small and Medium Enterprise Development Act (MSMEDA) 2006, the micro, small and medium scale in India are defined as:

In the manufacturing Sector:

The enterprise who invest up to INR 2.5 million(USD 62.5 thousand) in plant and machinery known as Micro enterprise, the enterprise who invest between INR 2.5 million(USD 62.5) to INR 50 million(USD 1.25 thousand) known as small enterprise and who invest more than INR 5o million but not exceed INR 100 million known as medium enterprise.

In the Service Sector:

The enterprise who invest up to INR 1.0 million (USD 25 thousand) in equipment called Micro enterprise, who invest between INR 1.0million to INR 20 million(USD 500 thousand) known as Small enterprise and who invest more than INR 20 million but not exceed INR 50 million known as Medium enterprise.

Importance of SMEs in India:

SME plays a central and pivotal role in any of the developing countries and the importances of the SMEs in India are as follows:

The small and medium sector enterprise play an important role in the economy of India as SMEs play a key role for the nation economy, their contribution to the economy is huge and they represent 80% of the industrial enterprises.

SMEs contribute more employment opportunities, generate new jobs and thus contribute positively employment and poverty reduction. Furthermore this employment comes with low investments in capital compared to the large enterprises.

It is very useful for agriculture industrial units as they provide basic raw materials for the units moreover opportunities for livelihoods.

It is also very useful for foreign investment as low capital investment with good products and service technology attracts foreigners to invest in it.

Research in brief:

The main reason for the research is to demonstrate the situation of SMEs in India. My research will focus on identifying the importance and development of SMEs in the financial sector and their effects on the economy in India. I would also like to find out the role and performance of women entrepreneur in SMEs.

The purpose of this study is to examine the present and the future performance of smes and evaluate available opportunities and challenges in India.

Research Objectives:

To analyse the impacts of SMEs in the economy of India

To find out the problems being faced by the SMEs

To make suggestions for improving the financial system for SMEs

Research questions:

The research questions give main ideas about the research so it is importance to broadcast questions. The essential questions covered under my research are as follows:

What is scope and performance of small firms?

What is the development growth of Smes and their effects on the economy?

What are the opportunities and challenges to the smes?

Research Methodology:

In my research I will plan to both qualitative and quantitative research. My research is based on a descriptive analysis of secondary data and from the government sources.

Data Collection:

Data collection involves obtaining primary as well secondary data. The secondary sources are the published sources such as Books, Journal, news papers, conference papers and web sites so I will obtain various secondary data. The primary sources are the original data which is mainly collected from the questionnaire survey, interviews, databases and official documents. I would like to go to the past studies in my research.

2) Literature Review:

This chapter reviews the past studies relating to the research and it gives the proposal why the research has been conducted. It also helps to know the various methods and sources used for the research.

Innovation is the means by which the entrepreneur creates new products or resources with enhanced potential of creating wealth (Drucker, 1985). Innovation has always been the characteristic of SMEs. The prime focus in the economic change is the introduction of innovation (Schumpeter, 1927) there were problems during the earlier stage of innovation but leading to learning, innovation was good effort for the success of the economy.

According to the studies of US Department of Commerce, since the Second World War, 50% of innovations come from the new and small enterprise (Pavitt, 1990). More than 99% of all enterprises in the world are SMEs including India.

Ramaswamy, K.V. (1994) “Small Scale Manufacturing Industries” found that due to the criteria as export, employment and value capital, SMEs was good in basic characteristics of the industry. SSI provides more employment in compare the large enterprise.

Birch (1979) argued that SMEs are generally important for the job creation. He also argued that after 1970s, out of ten eight creates new jobs. But however a wide range of evidence eight rejects the view that SMEs are the engine of the new job creation (Dunne, Roberts and Samuelson, 1989) while Davis, Haltiwan and Schuh (1993) studied 100 companies in the small industry and found that that job opportunities are higher in small firms but there were no systematic relationship between job foundation and size of enterprise.

For the high technology SMEs, the role of senior manager is very important as he should be expert in the area of marketing, technological knowledge in practice and strategy to take investment decision. Tidd et al(2001) argued that it is the managers ‘level of technical and organisational skills’ which states that they should be able to take quickly and good decision of investment or any other, in short they should be experts in their field, so culture and organisation design need to be developed to maintain the small firms.

The non-availability of “Institutional” finance on affordable and easy terms is hindering access to new technologies (Kacker, 2005). He states that SMEs suffer from the problems of latest technology and financial institution. India faced competition from their global parts due to uncertain market conditions, liberalization and changed in manufacturing strategies.

Mukherjee, Neela (2002) examined and say more about their study that the performance of Small scale industries in India, he stated that SMEs occupy a crucial position in the Indian Economy. They contributed to exports and employment, job creation and GDP income. It is good for the new entrepreneur for investing in the SMEs because it also provides self employment and opportunities to survival in the market.

The firms those are inexperienced or knowledge of internationalization of the SME sector may not have the capital or resources to identify networks though the large scale industries. It is good for the SMEs sector to have good knowledge and skills of internalization for survival the market. LE Gales et al (2004)

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