Abstract
Micro, Small, and Medium Enterprises (MSMEs) have emerged as a vehicle of economic growth in several emerging countries in the world. The SMEs significantly impact nations' growth in terms of their contribution to exports, employment generation, and Gross Domestic Product (GDP). It has been witnessed that these small enterprises help countries to sustain in times of economic recession. This chapter presents the significance of MSMEs, a critical review of the challenges they face, and the futuristic vision which is required by these firms so as to multiply their economic contribution in special reference to India. The chapter would serve as a resource for policy makers while bringing attention of key stakeholders to the potential of SMEs in paving the future growth curve for emerging economies in the global context. Through a critical review of secondary literature, the chapter also discusses the vision for the future which is needed for SMEs to achieve the various long-term objectives keeping in view the dynamic external environment where the world is a global village.
TopBackground
Countries and agencies across the world have adopted different parameters for defining SMEs. World Bank defines SMEs as those enterprises with a maximum number of 300 employees, $ 15 million in annual revenue and $15 million in assets. As per the European Union (European Commission, 2015) SMEs are defined based on three major thresholds namely head count, annual turnover and annual balance sheet total. OECD (2005) defines SMEs as “non-subsidiary independent firms which employ fewer than a given number of employees”. However, this number also largely differs across countries. The definition of MSME varies between countries and often within the same country (Das, Singh and Rao, 2006; Beck, 2013; Gopal and Ramesh, 2014). In some countries the definition of the sector based on only number of employees while others define based on asset value or annual revenues (Table 1). Further, even the composition of SME/MSMEs differs widely across countries. For instance, some countries, like UK, China, considers only small and medium enterprises under MSME sector while some, like Malaysia, Australia, Indonesia, India, considers micro, small and medium enterprises as part of SMEs. The wide disparities in SME definitions have led to differences in MSME measurement and understanding resulting in formulating the MSME policy virtually random (Gibson & Van der Vaart, 2008).
Table 1. MSME/SME defining parameters across various countries
| Country | Defining parameters |
| Australia | Number of employees |
| Brazil | Number of people employed and gross annual income |
| China | Sector specific, number of employees, total assets, annual revenue |
| India | Investment in plant and machinery |
| Indonesia | Number of employees |
| Korea | Number of workers, capital or sales |
| Malaysia | Sales turnover and fulltime employees |
| United Kingdom | Turnover, balance sheet and number of employees |
| United Nations | Number of employees, turnover |
Source: Compiled by authors from various sources
Key Terms in this Chapter
Ministry of Micro, Small and Medium Enterprises: The Ministry of Micro, Small and Medium Enterprises, a branch of the Government of India, is the apex body for the formulation and administration of rules, regulations and laws relating to micro, small and medium enterprises in India.
Collateral: Property (such as securities) pledged by a borrower to protect the interests of the lender
Working Capital: The capital of a business which is used in its day-to-day trading operations, calculated as the current assets minus the current liabilities.
Non-Performing Assets (NPAs): A Non - performing asset ( NPA ) is defined as a credit facility in respect of which the interest and/or instalment of principal has remained 'past due' for a specified period.