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Small And Medium-Sized Enterprises are part of a larger category, including micro-enterprises. Together, the MSME sector contributes almost half of the global GDP.
India has a growing economy, and according to a report, it has been growing at 5.5% CAGR for the last 10 years. If we take a closer look at the growth chart, we will find that MSMEs have been a major contributor to the country’s GDP.
MSMEs, or Micro, Small, and Medium Enterprises, are a critical part of the Indian economy, as they give employment opportunities to a large number of Indians, particularly in the rural areas. Recognising the importance of the SME sector, the government has taken initiatives to encourage the businesses.
If you want to get an understanding of the small and medium enterprises in India, read this blog. It will discuss the SME definition and also talk about how it is classified.
What are Small And Medium-Sized Enterprises (SMEs)?
In India, SME meaning in business is simple. It means small and medium-sized enterprises (SMEs). These are businesses categorised under the MSME scheme on the basis of their investment and annual turnover. Small and medium-sized enterprises in other countries like the USA and the European Union are categorised considering their employee strength.
However, in India, SME meaning is not popularly determined on the basis of employee strength, but it has been noticed that a medium-scale business typically employs 20-100 people.
How Many Types of SMEs are There?
The SMEs or small and medium-sized enterprises are put into two categories:
- Manufacturing Enterprises that are involved in goods production. They are further categorised into small or medium enterprises depending on their investment in machinery and plant and annual turnover.
- Services Enterprises include companies or organisations that provide services. Similar to manufacturing enterprises, service enterprises are also further categorised into small or medium-sized businesses based on their annual turnover and investment in equipment.
In simple terms, an SME can be in both the manufacturing business and the service sector. So, now that you have an idea of the broader categories of SMEs, here is more information on how they are segmented into small and medium enterprises. We will also mention the micro-enterprise category because SMEs are a part of the larger umbrella called MSME.
Understanding the Classification of SMEs
The most important scale to measure whether a business will be categorised into micro, small or medium-sized enterprises relies on two crucial factors: the business investment made towards the plant and machinery and the enterprise's annual turnover.
Here is a table that further simplifies the MSME meaning in business and its categories:
Categorisation of MSME |
||
Enterprises |
Investment in plant & machinery |
Annual Turnover |
Micro Enterprises |
Does not exceed ₹1 crore |
Annual turnover not more than ₹5 crore |
Small Enterprises |
More than ₹1 crore but does not exceed ₹10 crore |
Annual turnover not more than ₹50 crore |
Medium Enterprises |
More than ₹10 crore but does not exceed ₹20 crore |
Annual turnover not more than ₹100 crore |
Why are SMEs significant?
Over the years, SMEs have contributed to the growth of the Indian economy. Here are some of the major contributions of MSMEs or SMEs to the Indian economy.
- SMEs are Boon for Rural Development: MSMEs played a pivotal role in the industrialisation of rural areas at minimal capital expenditure. As discussed earlier, the MSME sector has significantly contributed to India’s rural socio-economic growth.
- MSMEs Created Employment: MSMEs, particularly micro and small enterprises, have been some of the main recruiters in rural areas. MSMEs employ over 110 million people across approximately 63 million enterprises.
- Key Contributors to the Make in India Mission: MSMEs have been key contributors to the ‘Make in India’ and ‘Made for the World’ missions. These micro, small and medium-sized businesses produce 45% of India’s manufactured goods. Furthermore, these businesses contribute to over 50% of total exports, spanning from traditional to advanced tech items.
To Conclude
As we discussed, SMEs, along with micro-enterprises, comprise 90% of global businesses and create over 60% to 70% of total jobs in the world. It significantly contributes to global GDP. However, the journey of SME entrepreneurs is not easy anywhere. They often face financial difficulties and market challenges to sell their products. Such challenges can be difficult to overcome, and that is why SME entrepreneurs often buy SME insurance to safeguard themselves, their employees, and their businesses from financial and operational difficulties.
