One of the significant characteristics of a flourishing and growing economy is a booming and blooming small and medium enterprises (SMEs) sector. Small and medium enterprises play an important role in the development of a country.
SMEs contribute to economic development in various ways by creating employment for rural and urban growing labor force, providing desirable sustainability and innovation in the economy as a whole . In addition to that, a large number of people rely on the small and medium enterprises directly or indirectly. Most of the current larger enterprises have their origin in small and medium enterprises.
SMEs are different from large scale enterprises in three main aspects; uncertainty, innovation and evolution. SMEs are the starting point of development in the economies towards industrialization. However, SMEs have their significant effect on the income distribution, tax revenue, and employment, efficient utilization of resources and stability of family income. According to the United Nations Industrial Development Organization UNIDO, for developing countries, integration into the global economy through economic liberalization, deregulation, and democratization is seen as the paramount way to triumph over poverty and inequality.Important to this process, is the development of an animated private sector, in which small and medium enterprises can play a central role. SMEs have a propensity to employ more labor-intensive production processes than large enterprises.
Consequently, they contribute significantly to the provision of productive employment opportunities, the generation of income and, eventually, the reduction of poverty. According to the statistics, in industrialized countries, SMEs are major contributors to private sector employment.Empirical studies have shown that SMEs contribute to over 55% of GDP and over 65% of total employment in high income countries . SMEs and informal enterprises, account for over 60% of GDP and over 70% of total employment in low income countries, while they contribute about 70% of GDP and 95% of total employment in middle income countries. In India MSME’s account for almost 45% of the total industrial production.
They contribute to 40% of the Exports of the country. Also statistical data shows that they manufacture over 6,000 products of the country.For India,it is the second largest employer in India after agriculture. The total jobs in the MSME’s in India goes up to 6 crores ( Acc to 11th 5 year Plan). It even provides opportunities for development of technology. For India, MSME’s contributes 5 – 8% of the GDP of the country. SMEs play significant contribution in the transition of agriculture-led economies to industrial ones furnishing plain opportunities for processing activities which can generate sustainable source of revenue and enhance the development process.
SMEs shore up the expansion of systemic productive capability.They help to absorb productive resources at all levels of the economy and add to the formation of flexible economic systems in which small and large firms are interlinked. Such linkages are very crucial for the attraction of foreign investment. Investing transnational corporations look for sound domestic suppliers for their supply chains. The role of SMEs is well acknowledged in all industrialized economies in terms of creating employment, reducing poverty and increasing the welfare of the society. The statistical data and empirical studies about SMEs highlight the bulk share of SMEs in the economy.
SMEs are a distinctive mainstay of the economy that requires owing attentiveness. The evidence shows that small firms are discriminated against relatively large firms. Large scale firms can cope and solve their hurdles due to possessing sound experience and financial position. SME due to their small size and the resulting peculiarities, are far less capable of adjusting and carrying on successful business. They play a vital role in changing the industrial scenario and strengthening the industrial sector tremendously.
They assist the utilization of assets for productive purposes with minimal initial resources.SSIs have contributed greatly in nurturing private enterprise and in hastening the economic development by generating employment, exports, and reducing local unevenness. This sector estimated to possess a huge potential in the growth of trade with the array of products it offers. With 45 percent share in total industrial output and 40 percent share in exports, small scale industries significantly contribute to the fiscal intensification of the country. In a nation like India small scale industries come as boons. They persuade entrepreneurship and help in employment of local populace.The domestic talents are put to good use to produce commodities that have found market worldwide. Small scale industries to a degree avert needless urbanization.
The number of people migrating to cities in search of jobs shrinks by the employment options domestic industries create thereby reducing pollution and over population in cities and also helps in decentralized industrial expansion. The main reason of a small scale industry is to achieve self reliance by utilizing the resources available and harnessing the skills of local people to lay a platform that yields a steady income.The industries are characterized by the wise utilization of labor for the commodity production and the advantage lies in the fact that is consumption of ample laborers who are not qualified to work for the large scale industries and thus reducing unemployment and poverty in the country as well. Small Scale Industries help the financial system in promoting evenhanded development of industries across all the regions of the economy and also in the efficient distribution of money.