Hinhalagoda lekamalage pulsi kavindya sandeepani ariyarathna

1.2.2. Evolution of SME in Sri Lanka 
In Sri Lanka, SMEs play a crucial role.As in other developing countries, it accounts for 
a large proportion of the overall number of industrial and corporate establishments..SMEs 
promote economic growth by import substitution as well as through direct exports,and they 
mostly supply goods and services to large directly exporting ventures and thereby contribute 
towards alleviating balance of payments difficulties. (Hewaliyanage R. , 2001) 
According to a study provided to the Industrialization Commission's Development and 
Review Committee on Small and Medium Scale Industries in 1977, there were 50,000 
registered and 125,000 unregistered SMEs.According to a survey performed by the United 
Nations Development Program, SMEs with fixed assets of Rs.16 million or less account for 
90% of all businesses, 70% of total employment, and 55% of gross value added in the private 
sector. (Ponnamperuma E. , 2000) 

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According to the Department of Census and Statistics' industrial census of 1983, there 
were 102,721 registered and unregistered industrial entities in the country, manufacturing a 
variety of products and employing 639256 people.Industrial establishments with fewer than 
five employees accounted for 84 percent of total establishments and 28 percent of total 
employment, but just 7.5 percent of total output and 7.0 percent of value added in the industrial 
sector, according to the survey data.Enterprises with more than 5 employees made up less than 
15.7 percent of all establishments, yet they produced 92.5 percent of total output and employed 
71.6 percent of the workforce (Central Bank of Sri Lanka,1998). 
Table 1.4 
Distribution of the Micro, Small and Medium sector and the persons engaged(Report 
on listing stage Economic Census 2013/14) 
In recent years, the international environment in which Sri Lankan SMIs do business 
has altered dramatically.The open market policy of Sri Lanka, the Indo-Lanka Bilateral Free 
Trade Agreement, the Sri Lanka-Pakistan Bilateral Free Trade Agreement, the pending SAARC 
Free Trade Area, and WTO obligations are only a few instances of how international events 
impact the domestic market. Sri Lanka has made rapid progress toward economic reform and 
increased its competitiveness at the national level.It has undertaken steps to deregulate industry 
and trade, for example, by revising and gradually lowering tariff barriers.Despite substantial 
macroeconomic issues, political turbulence, and government changes, market-oriented reforms 
have been maintained since 1977, and Sri Lanka is now one of the world's most open 
economies.In Sri Lanka, the pro-market policy regime is currently a bipartisan policy.Power 
and decision-making have also been transferred from the national government to provincial 
councils. 
Economic development is the process of transforming a rural-agricultural economy into 
a manufacturing and service-based economy in a city.In an ideal world, that transition would 

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result in higher per capita income, more fair income distribution, and a significant reduction in 
poverty.The agriculture sector, on the other hand, is critical to Sri Lanka's economic 
development, since it provides rural employment, raises rural incomes, ensures national food 
security, and alleviates poverty. 
Table 1.5 
Number of Establishments and percentage distribution economic sector wise(Report 
on listing stage Economic Census 2013/14) 
The scope of the Annual Industrial Survey (AIS) is all operations classified under the 
four industry divisions of the United Nations' International Standard Industrial Classification 
(ISIC), namely mining and quarrying, manufacturing, and generation and distribution of 
electricity, gas, steam & air conditioning and Water supply..This study included all private 
sector firms with five or more employees, state-owned companies, and industries under the 
jurisdiction of the Board of Investment.Out of the grand total of 21260 establishments , 9836 
of establishments fall under to the small enterprises its a 46.26% of the total number of 
establishments across the country.