How to unshackle small enterprise growth in India

The micro, small and medium enterprises (MSME) employ more than 80 million people in India and contribute to around 40% of total exports and 37% of total GDP. Yet it is not easy for most of them to thrive owing to lack of funds, obsolete technology and poor production capacity. It is, therefore, not surprising that Indian small enterprises are unable to withstand global competition.

Small enterprises are known to support the vitality of markets by complementing large-scale industries, provide a large number of low-cost jobs (especially for low- or medium-skilled workers), create wealth by contributing appropriately to the GDP, and go on to become large enterprises in the future. With India needing to do significantly better in all these areas, it is imperative to build competitiveness in this sector.

Countries that have competitive small industries witness a high degree of innovation. For example, the US has had 50% of all innovations and 94% of all radical innovations—since the Second World War—coming from new and small firms. The number of patent applications, another indicator for innovation, validates this theory further. Small enterprises in China, which due to their low product prices have worried Indian MSMEs, file 80% of intellectual property applications in China, as compared to a mere 15% by Indian small enterprises in India.

Studies reveal that small enterprises which achieve better innovation performance also achieve better economic performance in the form of higher growth in sales turnover. The Global Innovation Index (GII) placed India at the 66th spot globally in 2016, and it can be safely assumed that building innovative capacities of small enterprises will go a long way in enabling India to leverage the full potential of its industries.

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