India / SMEs employ close to 40% of workforce, but contribute only 17% to GDP

Small and medium enterprises (SMEs) have been the backbone of the Indian economy. That is both a good and a bad thing.

The good part first. Employing close to 40% of India’s workforce and contributing 45% to India’s manufacturing output, SMEs play a critical role in generating millions of jobs, especially at the low-skill level. The country’s 1.3 million SMEs account for 40% of India’s total exports.

The bad thing is that SMEs in India, due to their low scale and poor adoption of technology, have very poor productivity.

Although they employ 40% of India’s workforce, they only contribute 17% to the Indian GDP. Why? Too many firms stay small, unregistered and un-incorporated in the unorganised sector so that they can avoid taxes and regulations. “The firms have little incentive to invest in upgrading skills of largely temporary workers or in investing in capital equipment,” says the latest Economic Survey.

Chosen excerpts by Job Market Monitor

via SMEs employ close to 40% of India’s workforce, but contribute only 17% to GDP – The Economic Times.