Making Our SMEs to Smile

Presented by Dr Ramakrishnan Ramachandran at the 16th Thinkers and Writers forum ( 32nd SKOCH Summit 2013 - An Agenda for 8% Growth On 7th June 2013 at Mumbai, India

13 Pages Posted: 3 Aug 2013

Date Written: June 7, 2013


Small and Medium Enterprises (SMEs) are vital and of paramount importance in the development of any country. They play a pivotal role and can be considered as a back bone of national economy. SMEs are critical components of economic and social stability in a country. They can be seen as a significant component of the solution for India’s development issues.

Over the years, the sector has accounted for a major share of India's industrial output, exports and employment, besides influencing the country’s inclusive growth process and balanced regional development initiatives.

Indian Government has realized the importance and potential that these SMEs can unfold from time to time and therefore has been quite proactive in protection and nurturing of these budding SMEs.

The number of SME’s has shown tremendous growth after the liberalization in 1991 and especially in the last five years the number of SME’s has increased from 261.2 Lakhs to 311.52 Lakhs in 2010-11.

SMEs in fact do have the potential and momentum to inculcate innovations, competition-both domestic and international, job creation and stability in an economy. SMEs in emerging markets rely on more labour-intensive production processes than large enterprises, boosting employment and leading to more equitable income distribution. It is evident that nurturing the SMEs in any country would have fruitful results on the income generation and employment in an economy.

Indian SMEs also play a significant role for nation development and economy as under:

• Contribution of 35-40% to the GDP

• 90% of all industrial enterprises in India are SMEs

• More than 40% to Domestic Production,

• Significant Earnings by way of foreign exchange to the tune of almost 50% of total exports

• Generating employment - more than 45% of India’s industrial employment are by SMEs

Further, SME’s, which are more labour intensive are more suitable for India as they provide Operational Flexibility, Location Wise Mobility, Capacities to Develop Appropriate Indigenous Technology and Low Investment Requirements.

The success of SME’s have resulted in Low Intensive Imports, Import Substitution, Technology – Oriented Industries, Competitiveness in Domestic and Export Markets and Generate new entrepreneurs by providing knowledge and training.

SMEs would be well placed to drive India's sunrise industries, and develop products that find ready global markets. Food products and Wearing apparel constitute the major production of India SMEs. On the other hand, there have been many failures in the case of SME’s.

Churchill and Lewis (1983) identified five stages of growth: existence, survival, success, Take-off and resource maturity. In each stage of development a different set of factors is critical to the firm's survival and success. The Churchill Lewis model gives an insight into the dynamics of SME growth, including the distinguishing characteristics, problems and requirements of growing SMEs and explains business growth processes among SMEs.

The major five factors for failure has been identified as:

Internal environment Access to finance Management skills Location and networking Investment in information technology and cost of production

SMEs have tough time rolling through the processes and circumstances. Government of India and state governments have taken many measures and actions to safeguard them, though many times these initiatives may be due to social and political considerations and not on economic grounds.

This paper would look into the opportunities and challenges faced by the SMEs in India and how it will accelerate India’s growth to more than 8% and sustain the same.

Suggested Citation

Ramachandran, Ramakrishnan, Making Our SMEs to Smile (June 7, 2013). Presented by Dr Ramakrishnan Ramachandran at the 16th Thinkers and Writers forum ( 32nd SKOCH Summit 2013 - An Agenda for 8% Growth On 7th June 2013 at Mumbai, India . Available at SSRN:

Ramakrishnan Ramachandran (Contact Author)

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Vanagaram-Ambattur Road, Aynambakam
Chennai, Tamilnadu 600095
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