India’s SME hub won’t be a metro city much longer

According to the Confederation of Indian Industry (CII), the MSME sector is the backbone of India’s national economic structure, constantly strengthening the Indian economy in the face of global economic meltdowns and adversities. Comprised of more than 51.1 million units throughout the country, the MSME sector contributes up to 7 per cent of the manufacturing GDP. It also contributes 31 per cent of the GDP from service activities, and 37 per cent of India’s manufacturing output to the Indian economy. Apart from that, the MSME sector also facilitates job creation. The sector has provided employment opportunities to more than 120 million people, and counting. In terms of trade, Indian SMEs contribute almost 46 per cent to overall exports from the country, and has maintained a consistent growth rate of 10 per cent.

The rise of the SME sector also managed to accelerate development in Tier 1 and 2 cities, and played a key role in improving the individual economic scenario in each region. In fact, the success of small businesses in these areas eventually inspired many ambitious individuals to capitalize on the host of prospects available in other markets as well, mainly in Tier 3 and 4 cities.

Tier 3 and 4 cities, the emerging SME hubs of India

While the growth and prevalence of SMEs have been generally recorded in Tier 1 and 2 cities, it seems that the trend is now slowly shifting towards Tier 3 and 4 cities as well. Inspired by increasing opportunities for such businesses, many have now begun to invest in small businesses within Tier-3 and 4 cities, and in the process allow such regions to develop at an unprecedented rate.

There are several factors that are contributing to the growth of SMEs within Tier 3 and 4 cities:

a. Little to no competition in new markets

Markets in Tier 1 and 2 cities have been exploited to a point where finding new opportunities have begun to seem like a tedious task. With multiple players competing to be on top in various segments, new businesses hoping to enter this space seem to have a hard time in surviving it in the long run. On the other hand, due to lack of exposure, Tier 3 and 4 cities are increasingly becoming noticed by hopeful entrepreneurs in a bid to create a successful business without having to worry about the competition. These new markets are proving to be a boon to several small business owners, allowing them to set themselves as prominent market leaders when the time is just right.

b. Exposure to new trends and networks via internet

As previously stated, the Internet is one of the most prominent growth drivers of the Indian SME sector. It allows entrepreneurs to explore lucrative markets and latest trends without having to worry about geographical limitations. Furthermore, it is also helping small businesses connect with manufacturers, exporters, suppliers, and buyers to generate value from unlimited online trade opportunities and buyer enquiries via dedicated online platforms.

Apart from the above mentioned factors, improvement in access to financial assistance is also reassuring many SME owners to scale their businesses without any hassle.

Nowadays, it is being observed that the growth and expansion of SMEs is not limited to cities anymore. The CII report states that over 55.3 percent of MSMEs are based out of rural areas, which certainly indicates the utilization of India’s significant rural workforce population in the MSME sector. Furthermore, it also manages to demonstrate the importance of such enterprises in supporting efforts towards sustainable and inclusive development, along with creating large scale employment, especially in the rural regions.

Going by such facts, it can be safely concluded for now that India’s Tier 3 and 4 cities are certainly emerging as the next SME hubs and in doing so, fortifying the position of this sector as the backbone of Indian economy.

Source: Business World