Indian economy may be looking at fastest growth since 2016
According to projections from the World Bank and the International Monetary Fund (IMF), India is expected to be the world’s fastest growing economy for the rest of the decade. Estimates suggest that it could overtake Germany to become the fourth largest economy in the world by 2020, behind only USA, China and Japan. With a GDP growth of over 7% during the last two years, it’s safe to say that the country can witness its fastest ever economic growth in the upcoming days.
It may come as a surprise for many that the most powerful engine fuelling this sustained growth of India’s economy has been the contribution of small and medium sized enterprises (SMEs). There are around 42.5 million SMEs in India that provides employment to about 40% of the total workforce in the country and contribute to around 17% of India’s GDP. In a nutshell, they form the backbone of the Indian economy.
Balanced economic development
There have been numerous effective reasons behind the rise of SMEs as the most powerful drivers behind the economic growth of India. The most important contribution among them is promoting balanced economic development in the country. The trickle-down effects of large enterprises are very limited in contrast to small industries where the percolation of economic growth is much more visible.
SMEs have helped in industrialization of rural and backward areas, thereby reducing the regional imbalances and assuring more equitable distribution of national income. Among the registered small-scale industries, more than 45% of total enterprises are located in rural areas. This has not only contributed to overall development of India but also helped urban industries with the supply of ancillary products.
Countering urbanisation with industrial development
It’s an established truth that the urbanisation of rural India cannot be prevented. It can only be countered by the success of businesses and by providing basic facilities in all parts of the country. The Indian SMEs have taken a huge leap by either taking the business opportunities to such remote locations or by providing a mobile platform to the villagers to access employment, in-situ.
Right now, around 65% of the population is engaged in agriculture. The SMEs have identified the enormous business growth opportunities in terms of both, agricultural production and improving the lives of people. They have solved the problems of rural India like lack of liquid money, lack of technology and market access. These dynamic changes are enabling the country to make rapid strides towards becoming the world’s biggest economy.
Challenges faced by the SMEs
Despite employing 40% of India’s workforce and evolving rapidly over the last few years, these small and medium scale enterprises have their own set of challenges to deal with. The first major hurdle for SMEs starts with financing. In a survey conducted with over 15,000 companies from diverse sectors, it was found that a major chunk of SMEs are falling behind on funding their business owing to high interest rates charged by the banks.
However, after the initiatives undertaken by the government such as the MUDRA scheme to provide easy and affordable financing to the SMEs and a helping hand lent by the Non-Banking Financial Corporations (NBFCs), the situation is improving steadily. Reliance Money, as a leading NBFC in India is also providing easy SME loans to young entrepreneurs at low interest rates and flexible repayment options, to continue this sustained growth, well into 2019.