The road to economic growth passes through the tunnel of SME sector, major impact on country’s economy

Economic growth and SME sector- a beneficial relation

Any country nowadays is relying on its small and Medium Enterprises (SMEs). SMEs are a worldwide phenomenon that is emerging spontaneously across the nation. However, uncertain and unknown crises leading to declining in the SME sector may have a deep impact on the country’s economy. It will not be a desirable situation for any country. But why is the SME sector so important for a country? How its decline may affect a country’s economy? Let’s figure out, together. 

The SMEs facilitate ease of doing business. They can easily emerge and scatter in small cities and rural areas. They can thus help facilitate decentralized economic growth and balanced regional development. All of this leads to a reduction in the number of people migrating from rural to urban areas in search of work.

Economic Growth - ESID
The growth of an SME has several benefits for the economy. The first and most important advantage is that they employ a large number of skilled and unskilled labor, therefore reducing the problem of unemployment in the country. Unemployment is a problem which the policy makers of the country are trying to solve for many years and the SME’s have been successful in reducing the level of unemployment in the country.

Another benefit of setting up an SME is that they are less capital intensive and more labor-intensive which means setting up an SME requires comparatively fewer funds and can be easily set up. Even a household with very basic savings can set up its own small enterprise, with local resources and skills. And not only for the rural people, but the young entrepreneurs can also start their own businesses with limited funds with ease. This will reduce their need of getting a loan and they could start their businesses without external financing.

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The facilitation of a decentralized economy by the SME reduces the rate of migration as it ensures that people get enough employment in their villages. The current rate of migration from rural to urban areas is very high due to the unavailability of jobs in the villages. However, if an unprecedented economic crisis arises, it may lead to the re-migration of laborers across the country.

Time is a valuable fund for any business. A business can shine if everything is done on time. The SMEs have a meager gestation period and can be started in a short period of time. The reason behind this is that they require very less investing and absorbs both skilled and unskilled labor. SMEs have often been opened by the ex-employees of the big firms because they have enough talent but fewer funds and SMEs help them to start their own firms at very less cost.

In today’s world, we witness a rise of entrepreneurs across the globe. They do not have to work under anybody and can run their business on their own. With this rise, the growth of SMEs in the country has also risen, often from the skilled employees which achieve expertise in their work in a firm. This, in the end, leads to the nation’s economic growth.

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How and why SMEs are popular for innovation ventures? Well, the answer is here. SMEs are the sources as well as the outcome of the innovations. Through innovations, new products or processes are introduced which brings new ventures, and therefore new SMEs are opened. There are several qualities of SMEs which make them better than large businesses. Ease of communication, simple organizational structure, small size, and flexibility in its operations are some of these qualities.

The SMEs’ contribution to a nation’s economy is very huge. The innovations further create new ventures which are recognized by the policy makers, both in the developed as well as developing economies. SMEs are known as the cradle of innovations as they help people with fewer funds to innovate and create new ventures for the development of their country.

Well, how have these big firms been established, especially because they require a huge amount of funds? Many of these big firms, which are even listed in the fortune 500 companies, have established their businesses through small enterprises. SMEs are considered the seedbed of the now big companies. All these big companies once had small ventures when they started and these small ventures have now grown to big firms. Many Indian MNCs have also started their businesses on a small scale and their steady growth has led to their success.

Talking about the sources of employment, SMEs provide employment to both skilled and unskilled labor force. In urban cities, SMEs are the sources of the skilled labor force for a lot of MNCs. SMEs also perform one other major task, teaching the unskilled workers. Many unskilled workers who join SMEs get trained over a period of time, with the more efficient ones leave their SMEs to work in big multinational firms. Therefore, it can be concluded that big firms gain from SMEs.

SMEs have contributed a lot to this country. We have witnessed so much growth in the economic growth and much of its credit can be given to the SMEs. They are of key importance to the Indian economy. A surprising fact is that they have the second-largest workforce in the country after the agriculture sector. Their growth started in FY2010-11 and has not failed till now. India is currently an exporting hub and SMEs contribute to 40% of the total export from India.

SME’s total contribution to the GDP is huge. The manufacturing segment of the SMEs alone contributes to 7.09% of GDP. Their contribution to the service sector is 30.50%. The total contribution by SMEs to the country’s GDP is 37.54%.

To bring everything to an end, the growth of SMEs has been multi-faceted. Their growth, till now and in the future will contribute to the growth of the country. The policymakers of the country have also been considering SMEs a major part of the development of their country. The new policies have been made for the SMEs and their promotion. However, the fact that an unprecedented crisis can affect the economy very heavily. Therefore, the government should make enough policies for their protection which can help them to avoid these unseen crises in the future.

Simerleen Kaur

Talk to me about economics, trade, and all things India.

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