Small and Medium Enterprises in India - Analysing the Performance Differential

Abstract

Micro, Small and Medium Enterprises (MSMEs) occupy an important position in the Indian economy. They generate 45% of the manufactured output and 40% of its exports. They provide employment to about 60 million persons through 26 million enterprises and contribute eight per cent of the country’s GDP. Despite its economic significance, the level of research is limited. This paper analyses the relationship between funding source and performance of MSMEs, the role played by the institutional and non-institutional sources of funding in financing MSMEs in India and identifies factors that help enterprises acquire finance with lesser difficulty. We find that there is no significant location-based difference in terms of efficiency and productivity. Non-institutional sources play a very important role in financing enterprises at micro level. Micro enterprises have lesser employee productivity. Micro, small and medium enterprises differ in the way they utilise different funding sources. Enterprises stand a better chance to be financed by institutional sources, if they are registered.