MSMEs and startups: converging for growth

MSMEs and startups: converging for growth

New Delhi, Sept. 30 -- As entrepreneurial energy plays an ever-larger role in India's success story, we present a package of weekly opinion articles by members of TiE, a global organization for startups and entrepreneurs.

From the rural reach of India's startup revolution and the easing of capital and compliance challenges to the role of angel investors, how startups and micro, small, and medium enterprises must grow together and how best to track innovation, TiE authors cover a wide spectrum of relevant issues.

Micro, small and medium enterprises (MSMEs) form the backbone of Indian economy, contributing over 30% of gross domestic product (GDP), 45% of exports and employing more than 110 million people. In an increasingly deglobalizing world, they represent India's core capacity to produce and serve its large, diverse population.

Over the past two decades, startups have emerged as a key engine of innovation. Be it breakthroughs in enabling marketplaces, driving efficiency or responding to sovereign technology requirements, startups are increasingly seen as an integral driver of India's march towards a developed economy.

Given the different timelines of when MSMEs and startups rose to prominence, India has had very different cultural connotations and policy support towards these two. However, both these waves are now interfering in ways that can be leveraged constructively.

It is no longer unusual to compare a Zepto with a Dmart or an Urban Company with a Eureka Forbes. Startups and traditional MSMEs have synergized effectively in combining innovation and capacity when it comes to critical sectors like defence and agriculture. More importantly, the aspirations of both the startup and MSME entrepreneurs are aligning, in effect blurring the old distinctions between profitability and growth, or impact and influence.

As an ecosystem, we have an opportunity to rethink the support architecture for these two engines of the economy. MSME development ecosystems-including industry clusters and associations-currently sit disjointed with the startup ecosystems centred around mentoring, bootcamps and investors. Integrated ecosystems could bring the power of mentoring and risk capital to the MSME world, as well as the benefit of established value chains to the startup universe, could amplify the outcomes.

We are beginning to see some of these take shape in our interaction with entrepreneurs at TiE-smart business owners are crossing the divide organically and leveraging the best of both worlds. This synergy must be made available to every entrepreneur as the standard construct of ecosystem support.

The implications of an integrated policy outlook can be even more foundational. MSMEs and startups fall within different ministries today, each with its own worldview and incentives. While the same company can register in both places, the benefits are often incongruous, besides imposing a dual overhead on fledgling companies.

The boundaries between production, job creation and innovation are blurring, and the policy architecture must respond to it. Policies must be aligned for impact-without having entrepreneurs to trade off CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) against CGSS (Credit Guarantee Scheme for Startups), procurement benefits against prior experience limits, and state level stamp duty subsidies against corporate tax holidays.

These steps are not cosmetic in nature. They determine how we view our entrepreneurs and what beliefs we wish to inspire in them. Do we want every MSME entrepreneur to believe that they have a shot at innovation and breakthroughs? Do we want every startup entrepreneur to believe that they have an entire value chain around them to bring their innovations to scale? Do we see the potential in harnessing their respective strengths? For a generation exemplified by its aspirations, the answer must be an unequivocal "Yes!" The ecosystem builders and policymakers must step up to this great convergence.

Alok Mittal is a TiE charter member and global trustee at TiE.

This is the fifth part in the series. Next week: Madan Padaki on why India's angel ecosystem must be built on informed trust.

Read the previous part: Why a unified compliance stack could unlock India's startup potentialDisclaimer Published by HT Digital Content Services with permission from MINT. For any query with respect to this article or any other content requirement, please contact Editor at contentservices@htdigital.in