The significance and input of the SME sector to the economic growth and prosperity is well recognized. Their role in terms of employment creation, upholding the entrepreneurial spirit and innovation has been decisive in fostering competitiveness in the economy. Small and medium enterprises (SMEs), particularly in developing countries, are the backbone of the nation’s economy. Small and Medium Enterprises (SMEs) have played a vital role in India’s economic growth. With over 30 million units, SMEs accounted for 17 per cent of the country’s GDP in 2011. Small & Medium Business Development Chamber of India projects the share of SMEs in the expansion of the Indian economy to increase to 22 per cent of the GDP in 2012. The estimate is backed by its assumption of 12 million additional people joining the SME sector over the period 2012-14; SME units currently employ 60 million people. According to the Ministry of Micro, Small and Medium Enterprises, the number of MSME units in India has grown at a CAGR of 4.5% during 2007 – 2011, and stood at 31.2 million at the end of 2011. The cumulative investments in these units rose at a CAGR of 11.5% during the same period. STowards meeting the National developmental objective of a growth rate of over 9% on a sustained basis, it is essential for the industrial sector to grow at a faster pace supported by a vibrant SME sector. To provide greater access to funds the idea of setting a SME exchange has been discussed plentiful number of times. Rationale for Setting up SME Exchange • To endow with platform for trading of stocks belonging to SME’s • To enable them raise funds at relative cheaper rates. • To improve the visibility of performing organizations to generate interest. • Though SME contribute to GDP, their contribution is neither duly recognized nor they have access to cheaper funds resulting in index realization of their potential growth. For listing, SMEs should have a paid-up capital of not more than Rs 25 crore. To evolve a sustainable and feasible business model for such exchanges following needs to be done: • Support from the government, industry (industry chambers) both in terms of funds/ infrastructure & trained professionals. • Workable regulatory and functional environment. • To provide mechanism for market making to enable adequate/ reasonable liquidity on sustained basis. • Imparting education/ awareness of these SME’s and the services offered. • To create access and reach across the country for investors. • These exchanges may be extension arm of existing exchanges with pre defined threshold limit below which the securities should be compulsory dealt only through such arms. • To built confidence among the investors, transparent way of relevant information/ disclosures should be accessible on website. • • Exemption of charges such as STT/Stamp duty/Service Tax to make transactions affordable for at least 3-5 years.
(The orinal Article was published in IMS Ghaziabad Blogs)