Small
and Medium Enterprises, popularly known as SMEs, have
for long remained an integral part of businesses in
India. In fact, globally too, be it the developed nations
like the US and UK or the developing nations like Malaysia
and Indonesia, SMEs have been recognized as a vital
component of the domestic economy. What makes SMEs so
important? A host of factors, from their sheer number
to employment generation capability to their complementary
role in supporting the large enterprises to the multiplier
effect of their performances on the growth of a country's
economy in which they operate. For instance, in India
alone, SMEs grew to over three million units compared
to 80,000 units in the late 1940s. Further, the sector
created close to 25 million jobs and contributed about
7% to the GDP growth; they account for 80% of employment
and 35% of overall exports in the country.
Even
internationally, SMEs have played significant role in
terms of contribution to the domestic economy and employment
generation. According to a report by the World Bank,
in low-income countries with GNP per capita between
$100 and $500, SMEs account for over 60% of GDP and
70% of total employment; in middle-income countries
they produce close to 70% of GDP and 95% of total employment.
However, in the era of globalization and liberalization,
the SMEs face increased challenges.
Given
SMEs' special role in the development of the Indian
economy and also poverty reduction, they have enjoyed
due protection with the advent of the planned economy,
since 1951. Experts say that SMEs seemed to fit the
bill as they represented the model of socioeconomic
policies of government, which emphasized judicious use
of foreign exchange for import of capital goods, labor-intensive
mode of production, employment generation and non-concentration
of economic power in the hands of few.
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