SMEs, a Key Component of ‘Make in India’

The Indian Prime Minister, Narendra Modi, launched his ‘Make in India’ campaign in September last year. He visualizes the transformation of India as a global manufacturing hub. This project has been rolled out with high expectations. But, it is not only the big corporates that will expedite the ‘Make in India’ process. The innumerable SMEs present across the country will also be significant contributors.

Contribution of the SMEs

The role of SMEs in development of India’s economy cannot be ignored. 45% of the industrial output is produced solely by SMEs. Their manufacturing base is strong enough and thus they contribute for more than 42% of exports from India. They produce over 8000 items in all.

40% of India’s workforce is associated with SMEs. They have employed 73 million people across the country. Besides, 1 million jobs are created by this industry on a yearly basis. As employment generation is a focus of ‘Make in India’ campaign, SMEs will play a vital role.

Encouragement from the government

The Centre is taking several measures to boost the SMEs. It has asked all the public sector companies to acquire a minimum of 20% of material from the SMEs. This will be effective for the companies from 1^st April 2015.The government had recognized 25 sectors for the ‘Make in India’ initiative. It later on added 5 more and SMEs is one of them.

Strength of SMEs

SMEs help to enhance the growth and development at thegrassroots level.  The key reasons why SMEs will act as a catalyst in the ‘Make in India’ campaign are:

• These industries adapt to new technologies easily and are swift in their decision-making process.
• With cheap labor and diminished overhead costs, SMEs are able to perform better than the big companies.
• The investment needs of SMEs are low.
• The worth of services and goods produced by SMEs is more than 4 times its investment.

SMEs have about 31 million units in India. This is 90% of the total industrial units in India. They account for 40% value addition in the manufacturing sector. Besides, they comprise over 80% of the total number of industrial set ups in the country.

Seeing their large volume and strengths, it is evident that they will play a vital role in the ‘Make in India’ initiative. Being the backbone of industrial development, SMEs are the best way to promote entrepreneurship and thus boosting manufacturing in the country. 

SEBI to ease SME Listing Norms

With an aim to promote the ever-growing three year old segment, the Securities and Exchange Board of India (SEBI) will soon review the norms related to trading and listing of SMEs.

Expected changes

As per stock exchange officials, this step is taken after the market participants demanded a reduction in the trading lot size of  Rs.100,000 after being listed. SMEs feel that the current amount discourages a lot of genuine investors and thus should be revised. They have also asked SEBI to review the listing requirement of 25% minimum equity dilution as there is a huge gap between the valuation of niche companies of SMEs and their urgent funding requirements. Merchant bankers want it to be reduced to 10%.They suggest that when SMEs wish to shift to the main board, 25% public float should be applicable.

After being listed for more than 2 years, companies can shift to the main board. It has been over 2 years that the SME segment was launched. Hence, companies like SRG Housing Finance Ltd., Bronze Infratech Ltd., Anshu Clothing Ltd., etc. have given an application to get on the main board of BSE.

SEBI wants the issuers and investors to greatly benefit from SME segment. At an investor seminar held in mid-January, whole-time member of SEBI Rajeev Agarwal informed that the regulator wants many SMEs to feature in the list and be able to explore the capital market for funding.

SME platform

SEBI has been dedicatedly working to assistthe SMEs. It had announced simpler norms for listing for the SMEs in the past too. Later, in March 2012, both Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) rolled out distinct SME platforms. At present, there are 83 SMEs listed on BSE’s SME platform and 6 on NSE’s platform.

Stock Exchange suggestions

The stock exchanges are of the opinion that the investors’ class should be widened. It should include wealthy individuals, corporate bodies, non-institutional investors and merchant bankers unlike the current rule that allows only institutional investors to invest in companies listed on the SME platforms. 

Some experts suggest that SEBI should also consider lower underwriting levels, which are appropriate safeguard for liquidity and investor protection. SMEs are allowed to choose from BSE and NSE and be listed in either of the two. They should be able to choose both. Besides, BSE suggested that the current market making period of three years should be extended to 5-10 years.