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Indian SMEs are moving up the growth path

Shehla Hasan, CBI Head of Group, India and South Asia, explains how Small and Medium Enterprises (SMEs) are boosting the Indian economy.

13 Feb 2020, 3 min read

The impact of Small and Medium Enterprises in India

SMEs form the backbone of the Indian economy. Big industries rely on SMEs as a support system in their supply chain as they actively strengthen the Indian economy by creating jobs and niche products for the market.

SMEs account for 45% of industrial output and 40% of the total exports in India and given that most of India’s population lives in villages and first tier and second tier cities, SMEs are increasingly seen as a key factor in energising the Indian economy.

India has made remarkable progress in easing processes for business. In the World Bank’s ‘Ease of Doing Business Report 2019’, India further improved its ranking to reach 63rd in the Ease of Doing Business global rankings, up from 142 in 2015 – a rise of 79 positions in just five years.

This improved business climate provides new opportunities for SMEs of the UK to establish their business presence in India.

Last year, the Indian finance minister introduced measures to incentivise SMEs. These include:

  • Lowering the rate of 22% corporate tax extended to companies with an annual turnover up to Rs 400 crore, from an earlier cap of up to Rs 250 crore
  • Extending the pension benefit to about three crore retail traders and small shopkeepers whose annual turnover is less than Rs 1.5 crore
  • Extending the Stand-Up India Scheme to the year 2025
  • Focusing skill development on new-age skills such as AI, the Internet of Things, Big Data, 3D Printing, Virtual Reality and Robotics
  • Setting up 100 new clusters under the Scheme of Fund for Upgradation and Regeneration of Traditional Industries’ (SFURTI) to help 50,000 artisans join the economic value chain
  • A 2% TDS on cash withdrawals exceeding Rs 1 crore in a year from a bank account to encourage digital payments
  • Ensuring businesses with an annual turnover of more than Rs 50 crore offer low cost digital modes of payment; no MDR charges to be imposed on customers/merchants.

There is scope for UK SMEs in India. There are more than 350 British companies in India and the UK is the fifth largest FDI investor in India, having invested around US$ 27bn last year.

These investments include artificial intelligence, manufacturing, the financial services, food processing, defence ancillary, global supply chain for electric vehicle infrastructure and renewables.

The CBI is keen to gauge UK SME interest in India and is exploring opportunities in SMEs with sister organisations.