Small and Medium Enterprises in India: A Perspective over Time

The ‘big-boys’ of Indian manufacturing have been the auto majors, large engineering companies, steel, cement manufacturers, FMCG & FMCD giants, however the contributions from the SMEs cannot be ignored.

Since independence, economic growth and a road to self-reliance had been largely undertaken by the large manufacturing companies. These companies were either Public Sector Undertakings or led by Indian business families- such as Tata, Birla, Goenka etc. This trend in manufacturing continued till the70’s-80’s when India was not exposed to global manufacturing firms, technologies, and practices.

With the liberalization of the economy, the Indian manufacturing sector started to bloom. This was driven by the availability of skilled blue and white colored staff, raw materials, labor arbitrage, access to international markets, growing domestic economy. The entire ecosystem fueled entrepreneurial mindset that was earlier blocked by a license ‘Raj’. This enabled proliferation of SMEs. Indian SMEs contributed immensely in providing livelihood, growth of productive capacities and in overall Gross Domestic Product. This is evident in the early 2000s when the SMEs (Companies with turnover of INR 1-50Cr) accounted for a phenomenal 7x in growth as compared to large companies.

The SMEs after having tasted robust growth rates, are today challenged on may counts. Emergence of China as a hub of global manufacturing, sudden shift in technologies like in Power Generation (focus on renewables from Fossil fuels) and an overall dip in global demand have had a cascading negative impact on SMEs.

So how should the SMEs overcome these challenges and emerge more competitive.

The immediate area to focus would be to become more ‘Lean’ and thus ‘Profitable’.  To attain these two levers, SMEs in manufacturing space will have to embrace cutting edge technology. Traditionally SMEs have perceived implementation of technology to have significant high upfront cost and transient- shorter lifecycles. They have alienated themselves from digital transformations since it was not part of their core businesses.

The onus is now on Technology companies to successfully build solutions for SME manufacturers and partner them in their quest for SUSTENANCE & GROWTH.