Govt push can help SMEs contribute 22% to GDP in 2012

By Songbedna Bauri: As the small and medium enterprises (SMEs) play quite very significant role in the growth of the Indian economy, accounting for 45% of industrial output, 40% of exports, employing 69 million people, the contribution of these units to GDP may touch 22% in 2012. In 2011, SMEs contribution towards GDP stood at 17%.

While speaking to SME News, A Ramesh Kumar, chairman, SME Chamber of India (Northern Region), said, “Increase from 17% to 22% is a piped dream without putting in place the enabling factor to foster growth of SMEs in India. For this three critical enablers are required. Firstly, better infrastructure, second is increased access to risk capital and third is creating a culture of innovation.”

Nowadays, more and more people wants to become self reliant and hence, they are turning to business to sustain long-term growth.”
Reports suggest that there are more than 26-million MSME units in the country and in the coming three years, 12-million more people may become part of the workforce of SME sector.

Over the years, MSMEs are considered as the fountain head of different innovations in manufacturing and service sectors. SMEs have better opportunities for expansion and diversification across various sectors. As the Indian market is moving ahead at a strong pace, Indian entrepreneurs are making considerable progress in different industries with the help of different steps taken by government. The profitability levels of the small units can further go up if government keeps on adopting steps and initiatives to enhance the booming sector.

Manoj Agarwal, CEO of Spiro Gears, an SME engaged in manufacturing precison gears, industrial gears, ratchet tools, said, “The SMEs GDP contribution has potential to touch 22% during this year. The SMEs are posting good growth rates despite the global meltdown. One of the major reason for their growth is government offering subsidies, which is proving to be highly beneficial. But, government needs to create awareness about these subsidies among the SMEs."

Prashanth Jairam, manager of another SME CS Aerotherm Private Limited, said, “Although there are certain bottlenecks such as marketing cost and branding. It is causing trouble for SMEs. Since, the small units are considered as one-man army, they have often to do everything on their own. The figure of 22% is achievable if government takes initiatives and steps to strengthen its presence by creating awareness about schemes and exhibitions.”

This rise in SMEs GDP share has come in direct contrast to the slowdown witnessed in the manufacturing sector during last month - the weakest growth rate since November – due to the moderation in local and export orders coupled with global crisis. The HSBC India Manufacturing Purchasing Managers' Index (PMI) - a measure of factory output – slipped to 52.9 during July as against 55 in July.

The slowdown was also seen in India's exports as it fell 5.45% to $25.1 billion during June and imports slipped 13.46% to $35.4 billion, which left a trade deficit of $10.3 billion, according to government data. Exports between April and June declined 1.7%, totaling $75.2 billion.

Despite facing pressures from various quarters, the Indian SMEs have been able to stay afloat due to different reasons such as flexibility in operations, high domestic output coupled with competitiveness. The SMEs have bright future due to the rising purchasing capacity and high disposable income of the Indian middle class.

But, it does not mean that government can turn a blind eye towards the different problems encountered by these units such as funding, technology upgradation, infrastructure and marketing.