ISBN - 978-93-81583-46-3

Role of SME in Indian Economy

Ruchika Jeswal Institute of Management Studies, Ghaziabad ruchikajeswal@yahoo.com

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ROLE OF SME IN INDIAN ECONOMY

ABSTRACT- Small and medium enterprises play a very important role in the economy of any country and it is more so in a developing country like India. They play a role in boosting the economy of a country. The role of small and medium enterprises in the economic and social development of the country is well established. SME s emerges leaders during the period of recession, restoring jobs and business activity lost during the time despite a slow and fragile economy. The small-scale industries sector plays a vital role in the growth of the country. It contributes almost 40% of the gross industrial value added in the Indian economy. It has been estimated that a million Rs. of investment in fixed assets in the small scale sector produces 4.62 million worth of goods or services with an approximate value addition of ten percentage points. The small-scale sector has grown rapidly over the years. The growth rates during the various plan periods have been very impressive. The number of small-scale units has increased from an estimated 0.87 million units in the year 1980-81 to over 3 million in the year. When the performance of this sector is viewed against the growth in the manufacturing and the industry sector as a whole, it instills confidence in the resilience of the small-scale sector. This paper would study the role of SME s in Indian Economy and its contribution to the economic development of the country as a whole. Keywords- SME, Indian economy, performance.

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INTRODUCTION The small and medium enterprises today constitute a very important segment of the Indian economy. The development of this sector came about primarily due to the vision of our late Prime Minister Jawaharlal Nehru who sought to develop core industry and have a supporting sector in the form of small scale enterprises. SMEs sector has emerged as a dynamic and vibrant sector of the economy. The Indian economy is expected to grow by over 8 per cent per annum until 2020 and can become the second largest in the world, ahead of the United States, by 2050, and the third largest after China and the United States by 2032. The turnaround in manufacturing and other sectors, which has occurred in the face of increased global competition, is due to improved efficiency following the various policy reforms in recent years. Small and medium enterprises (SMEs) constitute 6 per cent of GDP, 34 per cent of national exports and account for the employment of more than 30 million people. This paper is divided into three sections- the first section deals with the definition aspect of the SME s and Indian economy s general aspects, the second section deals with the challenges faced by SME s and the third on their impact on the Indian Economy. SME is the abbreviation for Small and Medium Enterprises. These enterprises can be rightly called as the backbone of the GDP of India. The SME sector in India is growing at an exceptionally fast rate due to which it is proving to be beneficial to the Indian Economy. Following are some of the current figures related to the SME sector in India: The contribution of the SME sector to the entire output of the country is 40%. Currently, there are over 11 million SME units in India that produces more than 8000 products. 90% of the Industrial Units in India belong to the SME sector. These SME units contribute 35% to the Indian Industrial Export. Following are some of the factors that have contributed to the growth of SME sector in India. SME units in India are being funded by foreign and local fund providers.
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The advancement in technology has also contributed highly to the SME sector. There are numerous business directories and trade portals available online that contains a rich database of manufacturers, sellers and buyers.

To start and maintain these units, minimal investment is required. These SME units are now being funded by many government and private banks. The SME sector is one of the greatest contributors of domestic production as well as the export earnings. Many major mergers have taken place recently.

Though the SME sector is flourishing and expected to grow further in the near future, there are however certain challenges that the SME sector will have to face. DEFINATION OF SMESME s are the engines of growth of any countrys economy. They are an essential source of a countrys jobs, create entrepreneurial spirit and jobs in a country and are crucial for fostering competitiveness and employment. According to the Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified as: 1. Manufacturing Enterprises: The enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and regulation Act, 1951). The Manufacturing Enterprises are defined in terms of investment in Plant & Machinery. 2. Service Enterprises: The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment. Manufacturing Sector Enterprises Micro Small Medium Investment in plant & machinery less than Rs 25 lakhs over Rs 25 lakhs but not exceeding Rs 5 Crores over Rs 5 Crores but less than Rs 10 Crores

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Service Sector Enterprises Micro Small Medium Investment in equipments less than Rs. 10 lakhs over Rs. 10 lakh but not exceeding Rs. 2 crores over Rs. 2 crore but not exceeding Rs. 5 crores

With the recent pronouncement of the MSMED Act, 2006, the Indian government has explicitly recognized the dynamic role to be played by the MSMEs in an increasingly globalised world.

The clear thrust of the recent policy initiatives has been three-fold:

i) enhance competitiveness through encouraging an innovative ethos amongst firms and being quality conscious; ii) increase links with multiple stakeholders with a view to benefit from networks both nationally and globally; and iii) strive for a larger market presence beyond the domestic. The policy attaches importance to networking with stakeholders both upstream and downstream in the entire global value chain, from raw material procurement to processing/manufacturing to marketing to customer services. For one thing, the Act has identified the category of medium enterprises as a vital section in the manufacturing stream and, for the other, it has taken special note of distinct roles to be played by what are termed business service enterprises . CLASSIFICATION OF SME ( Source :MSME online Govt. of Tamil Nadu) :The SME can be classified into two types: Manufacturing enterprises and Service Enterprises. Which can be further classified as follows:
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MANUFACTURING ENTERPRISES (i) Micro Manufacturing Enterprises: The investment in plant and machinery does not exceed Rs.25 lakhs (Rupees twenty five lakhs only) (ii) Small Manufacturing Enterprises: The investment in plant and machinery is more than twenty five lakh rupees but does not exceed rupees 5 crores (Rupees five crores only). (iii) Medium Manufacturing Enterprises: The investment in plant and machinery is more than rupees 5 crores but not exceeding Rs.10 crores (Rupees ten crores only).

(B) SERVICE ENTERPRISES (i) Micro Service Enterprises: The investment in equipment does not exceed rupees 10 lakhs. (ii) Small Service Industries: The investment in equipment is more than 10 (Ten lakh rupees) but does not exceeds rupees 2 crores. (iii) Medium Service Enterprises: The investment in equipment is more than rupees 2 crores but does not exceed rupees 5 crores.

BASIC ISSUES OF SME s , PAST, PRESENT AND FUTURE: Today, small and medium industry occupies a position of strategic importance in the Indian economic structure due to its significant contribution in terms of output, exports and employment. The small scale industry accounts for 40% of gross industrial value addition and 50% of total manufacturing exports. More than 3.2 million units are spread all over the country producing about 8000 items, from very basic to highly sophisticated products. The SMEs are the biggest employment-providing sectors after agriculture, providing employment to 29.4 million people. However SMEs, which constitute more than 90% of total number of industrial enterprises, are now facing a tough competition from their global counterparts due to
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liberalization, change in manufacturing strategies, technological changes, and turbulent and uncertain market scenario. This contribution is despite the sector being exposed to intensified competition since liberalization of Indian economy in 1991. Small industry in India has been confronted with an increasingly competitive environment due to: (1) Liberalization of the investment regime in the 1990s, favoring foreign direct investment (FDI); (2) The formation of the World Trade Organisation (WTO) in 1995, forcing its membercountries (including India) to drastically scale down quantitative and non-quantitative restrictions on imports, and (3) Domestic economic reforms. The cumulative impact of all these developments is a remarkable transformation of the economic environment in which small industry operates, implying that the sector has no option but to 'compete or perish'.

THE SMEs IN INDIA: PRESENT SCENARIO

In the recent past, small companies have performed better than their larger counterpart. Between 2001-06, net companies with net turnover of Rs. 1 crore 50 crore had a higher growth rate of 701 per cent as compared to 169 per cent for large companies with turnover of over Rs. 1,000 crore (Business World Jan. 2007). The total SSI production, which had reached the all time high of Rs. 1,89,200 crores in 1989-90 dropped dramatically in the next 10 years and only in 2001-02 the level of production was surpassed. But after 2002, the production has risen at a faster rate. Since 2000, there is a continuous growth in number of units, production, employment and in exports. The average annual growth in the number of units was around 4.1%. Table I : Performance of Micro and Small Enterprises

No. of Units (In Lakh) Year Reg d. 15. 91 Unreg d. 93.58 Total 109.49 (4.1)

20022003

Production (Rs. Crore) (At (At Employment Exports (In Lakh) (Rs.Crore) Current Constant Prices) Prices) 3,11,99 2,10,636 260.21 86013 3 (7.7) (4.4) (20.7) (10.5)

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20032004 20042005 20052006

16. 97 17. 53 18. 71

96.98

113.95 (4.1) 118.59 (4.1) 123.42 (4.1)

101.06

104.71

3,57,73 3 (14.7) 4,18,26 3 6(16.9) 4,76,20 1 (13.9)

2,28,730 (8.6) 2,51,511 (10.0) 2,77,668 (10.4)

271.42 (4.3) 282,57 (4.1) 294.91 (4.4)

97644 (13.5) 1,24,41 7 (27.4) N.A.

Note : Figures in parenthesis Indicate percentage growth over previous years Source: Development Commissioner (SSI)

Today, some of the SMEs are acquiring companies abroad as part of the globalization process. Mostly, these units are ancillaries and are export oriented. The SME sector have transformed to the need of large local manufacturers and suppliers to global manufacturers like Auto Industry. Today some SMEs are investing in R&D in order to compete globally. Outsourcing from multinational companies has played a vital role in the emergence of Indian SMEs as world leaders in specified products. The advantages in labour-intensive manufacturing units, lower transport costs and lose labour policies of the small scale sector have led to major outsourcing in manufacturing and services.

IMPORTANCE OF SME The opportunities of growth in the SMEs sector are enormous due to the following factors: 1. Less Capital Intensive 2. Extensive Promotion & Support by Government 3. Reservation for Exclusive Manufacture by small scale sector 4. Project Profiles 5. Funding - Finance & Subsidies 6. Machinery Procurement 7. Raw Material Procurement
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8. Manpower Training 9. Technical & Managerial skills 10. Tooling & Testing support 11. Reservation for Exclusive Purchase by Government 12. Export Promotion 13. Growth in demand in the domestic market size due to overall economic growth 14. Increasing Export Potential for Indian products 15. Growth in requirements for ancillary units due to the increase in number of green-field units coming up in the large scale sector. CHALLENGES FACED BY SME: Despite its commendable contribution to the Nation's economy, SME Sector does not get the required support from the concerned Government Departments, Banks, Financial Institutions and Corporate, which is a handicap in becoming more competitive in the National and International Markets. SMEs faces a number of problems absence of adequate and timely banking finance, limited capital and knowledge, non-availability of suitable technology, low production capacity, Ineffective marketing strategy, Identification of new markets, Constraints on modernization & expansions, Non availability of highly skilled labor at affordable cost, Follow-up with various government agencies to resolve problems etc.

SME s contribution to ExportsSMEs Sector plays a major role in India's present export performance. 45%-50% of the Indian Exports is contributed by the sector. Direct exports from the sector account for nearly 35% of total exports. Besides direct exports, it is estimated that small-scale industrial units contribute
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around 15% to exports indirectly. This takes place through merchant exporters, trading houses and export houses. They may also be in the form of export orders from large units or the production of parts and components for use for finished exportable goods. The exports from SMEs sector have shown excellent growth rates in this decade. The product groups which dominate the exports from SMEs sector include sports goods, readymade garments, woollen garments and knitwear, plastic products, processed food and leather products. The SMEs sector is reorienting its export strategy towards the new trade regime being ushered in by the WTO. Looking AheadThis sector is ideally suited to build on the strengths of the traditional skills and knowledge, by infusion of technologies, capital and innovative marketing practices. This is the opportune time to set up projects in the sector. It may be said that the outlook is positive, indeed promising, given some safeguards. This expectation is based on an essential feature of the Indian industry and the demand structures. The diversity in production systems and demand structures will ensure long term co-existence of many layers of demand for consumer products / technologies / processes. There will be flourishing and well grounded markets for the same product/process, differentiated by quality, value added and sophistication. This characteristic of the Indian economy will allow complementary existence for various diverse types of units. The promotional and protective policies of the Government of India have ensured the presence of this sector in an astonishing range of products, particularly in consumer goods. However, the bottleneck of the sector has been the inadequacies in capital, technology and marketing. The process of liberalization coupled with Government support will therefore, attract the infusion of these in this sector. The capability of Indian MSME products to compete in international markets is reflected in its share of about 34% in national exports. In case of items like readymade garments, leather goods, processed foods, engineering items, the performance has been commendable both in terms of value and their share within the MSME sector while in some cases like sports goods they account for 100% share to the total exports of the sector. In view of this, export promotion from the small scale sector has been accorded high priority in India's export promotion strategy which includes simplification of procedures, incentives for higher production of exports, preferential treatments to MSMEs in the market development fund, simplification of duty drawback rules, etc. Products
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of MSME exporters are displayed in international exhibitions free of cost under SIDO Umbrella abroad. Performance of Small Scale Industries can be determined in terms of the following criteria: 1. Employment Generation 2. Production 3. Exports 4. Opportunities 5. Economic Indicators

1) Employment Generation

SSI Sector in India creates largest employment opportunities for the Indian populace, next only to Agriculture. It has been estimated that a lakh rupees of investment in fixed assets in the small scale sector generates employment for four persons. Some of the interesting observations related to employment in the small scale sector are related to generation of employment according to the industry. It is found that the food products industry ranked first in generating employment. The next two industries are non-metallic mineral products and metal products. Apart from this Chemicals & chemical products, Machinery parts and except Electrical parts, Wood products, Basic Metal Industries, Paper products & printing, Hosiery & garments, Repair services and Rubber & plastic products also contributed to generate employment.

Per unit employment

Per unit employment was the highest (20) in units engaged in Beverages, tobacco & tobacco products mainly due to the high employment potential of this industry particularly in Maharashtra, Andhra Pradesh, Rajasthan, Assam and Tamil Nadu.

Next came Cotton textile products (17), Non-metallic mineral products (14.1), Basic metal industries (13.6) and Electrical machinery and parts (11.2.) The lowest figure of 2.4 was in Repair services line.
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Per unit employment was the highest (10) in metropolitan areas and lowest (5) in rural areas.

However, in Chemicals & chemical products, Non-metallic mineral products and Basic metal industries per unit employment was higher in rural areas as compared to metropolitan areas/urban areas.

In urban areas highest employment per unit was in Beverages, tobacco products (31 persons) followed by Cotton textile products (18), Basic metal industries (13) and Non-metallic mineral products (12).

Rural

Non-metallic products contributed 22.7% to employment generated in rural areas. Food Products accounted for 21.1%, Wood Products and Chemicals and chemical products shared between them 17.5%.

Urban

As for urban areas, Food Products and Metal Products almost equally shared 22.8% of employment. Machinery and parts except electrical, Non-metallic mineral products, and Chemicals & chemical products between them accounted for 26.2% of employment.

In metropolitan areas the leading industries were Metal products, Machinery and parts except electrical and Paper products & printing (total share being 33.6%).

State-wise Employment Distribution

Tamil Nadu (14.5%) made the maximum contribution to employment.

This was followed by Maharashtra (9.7%), Uttar Pradesh (9.5%) and West Bengal (8.5%) the
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total share being 27.7%.

Gujarat (7.6%), Andhra Pradesh (7.5%), Karnataka (6.7%), and Punjab (5.6%) together accounted for another 27.4%.

Per unit employment was high - 17, 16 and 14 respectively - in Nagaland, Sikkim and Dadra & Nagar Haveli.

It was 12 in Maharashtra, Tripura and Delhi.

Madhya Pradesh had the figure of 2. In all other cases it was around the average of 6.

2) Production

The small scale industries sector plays a vital role for the growth of the country. It contributes 40% of the gross manufacture to the Indian economy.

It has been estimated that a lakh rupees of investment in fixed assets in the small scale sector produces 4.62 lakhs worth of goods or services with an approximate value addition of ten percentage points.

The small scale sector has grown rapidly over the years. The growth rates during the various plan periods have been very impressive. The number of small scale units has increased from an estimated 8.74 lakhs units in the year 1980-81 to an estimated 31.21 lakhs in the year 1999.

The transition period of the process of economic reforms was also affected for some period by adverse factors such as foreign exchange constraints, credit squeeze, demand recession, high interest rates, shortage of raw material etc.

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When the performance of this sector is viewed against the growth in the manufacturing and the industry sector as a whole, it instills confidence in the resilience of the small scale sector.

The estimates of growth for the year 1995-96 have shown an upswing. The growth of SSI sector has surpassed overall industrial growth from 1991 onwards. The positive trend is likely to strengthen in the coming years. This trend augurs a bright future for the small scale industry.

3) Export contribution

SSI Sector plays a major role in India's present export performance. 45%-50% of the Indian Exports is being contributed by SSI Sector. Direct exports from the SSI Sector account for nearly 35% of total exports. The number of small scale units that undertake direct exports would be more than 5000.

Besides direct exports, it is estimated that small scale industrial units contribute around 15% to exports indirectly. This takes place through merchant exporters, trading houses and export houses. They may also be in the form of export orders from large units or the production of parts and components for use for finished exportable goods.

It would surprise many to know that non traditional products account for more than 95% of the SSI exports.

The exports from SSI sector has been clocking excellent growth rates in this decade. It has been mostly fuelled by the performance of garment, leather and gems and jewellery units from this sector. The lucrative product groups where the SSI sector dominates in exports, are sports goods, readymade garments, woollen garments and knitwear, plastic products, processed food and leather products.

4) Opportunities

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Small industry sector has performed exceedingly well and enabled our country to achieve a wide measure of industrial growth and diversification. By its less capital intensive and high labor absorption nature, SSI sector has made significant contributions to employment generation and also to rural industrialization. This sector is ideally suited to build on the strengths of our traditional skills and knowledge, by infusion of technologies, capital and innovative marketing practices.

The opportunities in the small scale sector are enormous due to the following factors :

- Less Capital Intensive

- Extensive Promotion & Support by the Government

- Reservation for Exclusive Manufacture by small scale sector

- Project Profiles

- Funding

- Finance & Subsidies

- Machinery Procurement

- Raw Material Procurement

- Manpower Training

- Technical & Managerial skills

- Tools & Tools utilization support

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- Reservation for Exclusive Purchase by Government

- Export Promotion

- Growth in demand in the domestic market size due to overall economic growth

- Increasing Export Potential for Indian products

- Growth in Requirements for ancillary units due to the increase in number of greenfield units coming up in the large scale sector. So this is the opportune time to set up projects in the small scale sector. It may be said that the outlook is positive, indeed promising, given some safeguards. This expectation is based on an essential feature of the Indian industry and the demand structures. The diversity in production systems and demand structures will ensure long term co-existence of many layers of demand for consumer products / technologies / processes. There will be flourishing and well grounded markets for the same product/process, differentiated by quality, value added and sophistication. This characteristic of the Indian economy will allow complementary existence for various diverse types of units.

The promotional and protective policies of the Govt. have ensured the presence of this sector in an astonishing range of products, particularly in consumer goods. However, the bug bear of the sector has been the inadequacies in capital, technology and marketing. The process of liberalization will therefore, attract the infusion of just these things in the sector.

5) Economic Indicators The Small Scale Industry today constitutes a very important segment of the Indian economy. The development of this sector came about primarily due to the vision of our late Prime Minister Jawaharlal Nehru who sought to develop core industry and have a supporting sector in the form of small scale enterprises.

Small Scale Sector has emerged as a dynamic and vibrant sector of the economy.
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- Today, it accounts for nearly 35% of the gross value of output in the manufacturing sector and over 40% of the total exports from the country.

- In terms of value added this sector accounts for about 40% of the value added in the manufacturing sector.

- The sector's contribution to employment is next only to agriculture in India. It is therefore an excellent sector of economy for investment.

SME s CONTRIBUTION TO INDIAN ECONOMY: Growth of the Indian economy has accelerated to 8% and efforts are on to further propel it to 10%. Undoubtedly, all the segments of the economy, viz. agriculture, industry and services have to improve their contribution to the economy. Growth of small and medium enterprises (SMEs) is a sine qua non for the growth of industry, exports and other segments of the economy. Furthermore, promotion of entrepreneurship is also vital for sustenance and upward movement of the current growth trajectory of the economy. The SME sector acts as a catalyst in upholding and encouraging the creation of the innovative spirit and entrepreneurship in the economy, thereby helping in laying the foundation for rapid industrial development. Moreover, the sector also serves the vital objectives of employment generation and balanced regional development. Globalization and liberalization of the Indian economy have also brought a host of opportunities for the industrial sector, particularly the SME segment. While SMEs have responded to competition reasonably satisfactorily, there is scope for increasing their export potential, domestic market share and developing them as serious players in the global value chain. SME s represents the largest proportion of the manufacturing sector in every country. In India, 95 percent of the industrial units are in small- scale sector with 40 percent addition in the manufacturing sector and 6.29 percent contribution to the Indian Gross Domestic Product ( Times of India, 2002) .

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Current Issues i. Lending Facilities to SMEsThe mind set of banks towards SMEs have somewhat changed in the recent past. With the entry of private banks, increased competition has led to a rush for lending to prime customers. The multiple financial options from the capital market have also compelled banks to take more risks in the case of SMEs. The increased lending to SMEs is propelled by the compulsion of the market as well as by the rapid expansion of these companies. The lending to the SME sector grew by 69% between 2000-01 and 2005-06. But there exists a stark disparity amongst small players and big players within the SMEs sector. Loans to bigger companies are growing at a faster pace than loans to the SSI sector. By the end of 2006, the proportion of SSI loans to total loans has remained small at 6.4%.The Small Industries Development Bank of India (SIDBI) was set up in 1990 under the Act of Indian Parliament as the principal financial institution for promotion, financing, development of industry in the small sector and coordinating the financial activities of other institutions engaged in similar activities.

ii. Marketing Next to finance, marketing is the big problem area for small entrepreneurs. The survival of small entrepreneurs very much depends on sound marketing techniques. One of the most important tools in the hands of small entrepreneurs for promoting their sales is low prices coupled with credit to buyers, which give rise to number of problems at a later stage. Marketing as a profession has not yet developed in the SME sector. Professional agencies are not engaged by small entrepreneurs on account of paucity of funds. The concept of marketing is not known to the majority of small entrepreneurs. For majority, marketing means advertisement or personal contacts. There are many ad-hoc initiatives taken by the Government to promote marketing of products/services of small units but no concrete action plan has been chalked out or targets made.

iii. Technological Up gradation

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Modernization, technological and quality up gradation have assumed great significance in the present day context. With the inflow of latest technology reducing the cost of production and the increasing competition from within and outside, the small scale sector will have to attach more importance and pay attention to the areas of technology up gradation and modernization. However, due to lack of information on the areas of technology up gradation, entrepreneurs who have plans for technical up gradation are not to go ahead.

iv Sickness in SSI Sector A host of developmental schemes launched by the Government for solving the problems of small scale industries have yet to achieve their goals to arrest sickness in SSI sector. The plight of existing small scale industries is visible in many industrial complexes wherein the industrial sheds have been converted into allied activities like showrooms, banquet halls, Restaurants, etc. There seems to be some lacuna in the implementation part of the developmental schemes.

v. Removal of Inspector Regime and Simplification of Procedures One of the major grievances of the small scale sector is that the frequent inspections by multiple government agencies are a source of harassment. At present, 55 inspectors of different levels are visiting the small scale units, which is a cause of major concern to the small scale units. It is suggested that the government should stream line the inspection procedure. It should also include repeal of laws and regulations applicable to the sector that has become redundant.

Future Policy Frame Work

i. Priority Sector Lending The target fixed for priority sector lending by domestic and foreign banks is 40% and 32% of their net bank credit (NBC) respectively. The declining share of the SSI sector in the outstanding priority sector advances of public and private sector banks since 1999-2000 is a cause for concern. The share of SSI advances in the NBC declined from 16% at the end of March 2000 to
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11% at the end of March 2003 in respect of public sector banks. For the private sector banks, the share declined from 19% to about 8% in the same period. The limited access of SSI sector to funds needs to be addressed on a priority basis. Large corporate are able to access bank loans at below PLR besides accessing international markets. But, for the SSI sector, the cost of funds continues to remain high despite falling deposit rates.

ii Reformation of Labor Laws Multiplicity of labor laws is responsible to a large extent for slow growth of industry in our country. Labor laws provide too much protection to labor force by the provision of minimum wages, PF, bonus, gratuity and ESI etc. On the other hand, the employers are required to seek prior permission even for getting overtime work from labor, on payment and in spite of mutual consent. There has to be performance or productivity linked wage structure. The more efficient and hard workers may be suitably rewarded, and there should be a provision to deduct the wages for shirking and laziness. Supportive labor laws are an important pre-requisite for Indian industry to face the international competition.

iii The Opportunity Globalization and liberalization need not affect Indian small industry only adversely. It would have created beneficial opportunities as well. The removal of the quantitative restrictions and the reduction of import duties, particularly after the setting up of WTO in 1995, have opened up foreign markets to Indian small industry as much as the Indian market has opened up to foreign goods. Many efficient and export-oriented small firms would have gained out of this development. Such opportunities should act as an incentive to many a small firm in India to enhance their competitiveness to penetrate the global market. This could also be achieved by small firms becoming vendors or subcontractors to foreign large scale industries. The trend is outsourcing of supplies by TNCs and they are always on the lookout for firms that could supply reliable and quality products. iv. Networking of SMEs for Competitiveness
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The promotion of inter-firm linkages is another issue deserving more recognition. The increasing presence of transnational corporations (TNCs) in the country would open up new opportunities for subcontracting / outsourcing. This is because FDI has flowed into industries such as telecommunications, transportation, electrical equipment (including computer software), metallurgical industries and automobiles, among others, where opportunities for obtaining subcontracting / outsourcing are high for small industry. The potential of such outsourcing opportunities must be tapped to the maximum possible extent to the advantage of small and medium industry. Infrastructure of SME is the route to growth of world economy.

CONCLUSION: MSME is an important sector and plays a critical role and has an important place in the Indian economy, in terms of employment generation, exports and economic empowerment. As per 4 th Census of MSME sector , this sector employs an estimated 59.7 million persons spread over 26.1 million enterprises. It accounts for about 45 % of the manufacturing output and around 40% of the total export of the country which is next only to the agricultural sector. Therefore high priority has been given to this sector in order to achieve balanced, sustainable, more equitable and inclusive growth in the country. MSMEs will continue to play a very important and vital role in our economy where the twin problems of unemployment and poverty constitute a major developmental challenge. In fact, if India were to have a growth rate of 8-10 percent for the next couple of decades, it needs a strong micro, small and medium sector. MSMEs are the best vehicle for inclusive growth, to create local demand and consumption. The MSMEs of yesterday are the large corporates of today and could be MNCs of tomorrow. Thus, the banks and other agencies should take pride while servicing the MSMEs as they are playing an instrumental role in the formation of MNCs of tomorrow. MSMEs themselves have to be on their toes, in this rapidly changing business environment, and keep evolving to stay clear of all the potential pitfalls that confront them in their progress from small enterprises to large corporations. Bibliography Gilmore, A et.al. (1999), Added value : a qualitative assessment of SME marketing , Irish Marketing Review , Vol. 12 No. 1 ., pp.27-35.
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Kulkarni, P R (2008), A New Deal for Small and Medium Enterprises in India, The ICFAI Journal of Entrepreneurship Development, Vol. V, No. 1 Vadera,Shaili and Kulshreshtha, Nimisha ( 2010) Role of SMEs Sector in the Emerging Indian Economy SME world, Venkataramanaiah , S.; Parashar, S. P Enhancing the competitiveness

of SME s through industrial clusters: The Indian Experience. International Journal of Technology Management & Sustainable Development, 2007, Vol. 6 Issue 3, p227-243. Singh K. Rajesh, Garg K. Suresh, Deshmukh S.G. (2005) Development of Flexible Strategies by Indian SME s in Electronics Sector in Emerging Economy. Global Journal of Flexible Systems of Management 2005, vol.6, No. 2pp.15-26.

KD Raju, Small and Medium Enterprises (SMEs): Past, Present and Future in India

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