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Role of SMEs in the Indian Economy: 4 Noteworthy Observations

Role of SMEs in the Indian Economy

Role of SMEs in the Indian Economy: An Overview

In India, a quiet revolution is taking place. If you glance around the corner, you could just catch a glimpse of an India that is rapidly transforming in front of your eyes. The role of SMEs in the Indian Economy is unavoidable. This is India as seen through the eyes of SMEs, or Small and Medium Enterprises. The larger organisations often spring to mind when we talk about firms that create change. Billion-dollar companies are eager to innovate and challenge conventional business structures and practices. The SME sector, on the other hand, has around 36 million units, all of which are attempting to push the boundaries a bit farther. It appears as though a few million drops of water have merged to produce an ocean of transformation.

In different regions of the globe, SMEs are characterised differently based on their net worth, assets, staff strength, owners, and finance structure, among other factors.

In India, SMEs are divided into two groups based on the type of their operations:

These are the categories:

1. Manufacturing Enterprises are businesses that are involved in the manufacture of goods (in any sector)

They are classed depending on their investment levels, such as:

  1. Micro: INR 25 Lacs and above
  2. Small: less than INR 5 crores yet more than INR 25 lacs
  3. Medium: above INR 5 crores but less than INR 10 crores

2. Services Businesses are those that provide services to others (in terms of investment in equipment)

Within this, businesses are categorised according to their investment levels, such as:

  1. Micro-finance: up to INR 10 lakhs
  2. Small: less than INR 2 crores, but more than INR 10 lacs
  3. Medium: above INR 2 crores but less than INR 5 crores

While SMEs will likely experience a setback as a result of the pandemic, because of the cheap availability of SME financing and a strengthening economy, they will quickly recover.

role of SMEs in the Indian economy

What role of SMEs in Indian Economy Development will we see in 2022?

Here are 4 major observations that are expected to come into play due to the role of SMEs in the Indian economy:-

1. Ensuring equality in development

The role of SMEs in the Indian economy strictly states that the SME sector has been successful in eliminating regional imbalances by distributing resources more evenly across the country, and it will continue to do so in 2022. Apart from directly benefiting rural regions, this industry has played a significant role in serving as an auxiliary unit to big businesses. This is due to the fact that major enterprises mostly serve the country’s more developed regions. They can reach a broader and more remote area through SMEs, which contributes to growth and development in these areas.

2. Expanding employment prospects

At a relatively cheap cost of capital, the SME sector is claimed to be the greatest generator of job possibilities in our country. When compared to larger sectors, the sector is reported to employ four times as many people. SMEs are known as the “Engine of Growth” since they employ thousands of people from even the most remote places. Furthermore, the role of SMEs in the Indian economy will continue to spend on improving staff skills and training.

3. Increasing the manufacturing sector’s profitability

The SME sector encompasses a diverse range of sectors, the bulk of which come within the manufacturing umbrella. SMEs in manufacturing are investing heavily in modernisation, technological upgrades, and infrastructure development as India moves closer to self-sufficiency, a trend that will continue in 2022. All of these exploits need a large amount of money. Small and medium firms can continue to strengthen this industry in the years ahead thanks to the simple availability of SME loans today.

4. Improving competitiveness in exports

SMEs can greatly boost commerce by exporting a diverse variety of items abroad. Increased profitability can help companies become less dependent on government subsidies and protections. Ready-made clothing, leather products, engineering items, and processed commodities are some of the high-performing items exported by SMEs. Due to fewer limitations, the percentage share of its exports is predicted to increase in 2022.


Based on present trends, India appears to be on the verge of surpassing China in terms of SME volume. However, it is critical for India’s SMEs to improve the quality of their product offerings and pass the savings on to the end-user. It is much easier to start a business today than it was previously. Accelerators, incubators, investors, and mentors are all available to assist a startup in getting off the ground. The ever-increasing internet/mobile penetration has opened up both foreign and rural markets in ways that have never been seen before. While the environment is full of obstacles, it is also full of opportunities. The moment has come for us as a country to sow the seeds and develop a support structure that will enable our small businesses to reach their full potential.

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