While India has a thriving startup ecosystem, with startups being the toast of the country’s growth story, SMEs do not receive even a fraction of the attention that startups do. Why is the buzz and hype missing when it comes to SMEs?
MSMEs have long been acknowledged as the backbone of the economy, contributing a significant 30% to GDP, 35% to manufacturing, and 40% to exports. They are also the second-largest employer after agriculture.
Among the 6 crore+ enterprises registered on the MSME Ministry’s Udyam portal, about 52,000 are medium enterprises with a turnover of up to ₹200 crores. And yet, one struggles to name or recall an enterprise from this sector. While India boasts over 100 unicorns* among its 1.4 lakh+ startups, there are no stars or champions—let alone unicorns—among its 5 crore MSMEs.
This article aims to spark thought and explore what startups have that SMEs lack, as well as what SMEs can learn from the startup playbook. The reality is that startups are about more than just billion-dollar valuations; their stories are rooted in grit, risk-taking, innovation, and market disruption.
*A unicorn refers to a privately-owned startup valued at over $1 billion before going public.
MSME vs. Startups – Profits vs. Purpose
To put things in perspective, let’s examine some key differences between startups and SMEs—particularly in terms of technology, capital, risk, and reward.
According to government classification, a startup should have a turnover of less than ₹100 crores and a market-disruptive business model with innovation at its core to attract investor capital. Notably, profitability is not a prerequisite for raising capital in the startup ecosystem. In contrast, an MSME must be a profit-generating enterprise with a strong credit history to secure funding from banks or through IPOs.
This presents a major roadblock for SMEs—their policies do not encourage a risk-taking mindset, innovation, or thinking big to build a competitive edge. On the other hand, startups are not required to show profits and can become billion-dollar enterprises based solely on ideas and valuations.
What Prevents the MSME Sector from Producing Champions and Stars?
While SMEs face genuine challenges such as limited access to finance and regulatory compliance burdens, the issue must be examined holistically—both internally and externally.
Internal Factors
Capabilities
- SMEs often lack a strong focus on technology and innovation, which are the primary drivers for any startup.
- They have a low risk appetite and are generally unwilling to invest capital for long-term growth.
- Lateral thinking and clarity of vision in business and strategy remain areas of weakness.
Mindset Issues – Content to Stay Small?
SMEs, by and large, adopt a traditional, survivalist approach, often displaying what I call the ‘content to stay small’ mindset. Most enterprises—particularly micro and small businesses—are owner-driven, with no second tier of leadership or talent pipeline. The owner, who serves as the Chief of Everything, is often preoccupied with operational challenges such as cash flow management, working capital constraints, and skilled labor shortages.
Many SMEs lack even basic systems for bookkeeping, financial planning, and forecasting, making it difficult to secure funding from banks. Rather than taking bold steps for growth, they prefer incremental expansion and are hesitant to invest in process improvements, automation, marketing, or online visibility to build a strong corporate identity.
While the government’s Digital Public Infrastructure has transformed the way we shop and do business, it has yet to resonate with SMEs. Many still perceive digitization as a cost rather than an investment, slowing their adoption of automation in business processes.
External Factors – The Missing Ecosystem and Thought Leadership
External factors cannot be ignored when assessing why the SME sector lags behind its ‘sexier’ startup counterpart.
A thriving SME ecosystem—akin to what was created for startups—is missing. The government’s Startup India Initiative, launched in 2016, played a critical role in fostering startup growth by providing incubators, mentorship, investors, and support from various government bodies. This collaborative approach, backed by over $145 billion in private equity investments, has propelled startups forward.
However, for MSMEs, despite numerous government schemes, awareness remains low, and implementation is often inefficient.
Plenty of Schemes, But Where’s the Awareness?
Post-COVID, the MSME Ministry has introduced several proactive initiatives, including:
- The Udyam portal and various credit enhancement schemes
- The World Bank-supported RAMP program, aimed at improving access to capital, technology, and markets
- Green financing, increased credit guarantee limits, and collateral-free loans
- Marketing and promotional reimbursements for SMEs
While these schemes appear promising, challenges remain:
- Lack of awareness – Many SMEs are unaware of the government initiatives available to them.
- Cumbersome compliance processes – Documentation requirements act as deterrents, leaving schemes underutilized.
- Fragmented implementation – Various bodies (central/state MSME offices, NSIC, SIDBI, banks, NBFCs, fintech firms) operate in silos, creating confusion about whom to approach.
- Limited outreach and communication – Government bodies have certain limitations in engaging directly with MSMEs to spread awareness about available support.
- Absence of a mission-driven approach – Unlike the startup ecosystem, the MSME sector lacks a structured, mission-oriented execution plan.
Where Are the MSME Evangelists and Thought Leaders?
Startups have numerous ambassadors and influencers— Deepinder Goyal (Zomato), Ritesh Agarwal (Oyo), Kunal Shah (Freecharge, Falguni Nayar (Nykaa), Aman Gupta & Sameer Mehta (boAt), and the Kamath brothers (Zerodha), to name a few.
By contrast, SMEs lack visible role models. There are many successful SMEs with strong track records, yet their stories remain untold, and they receive little media attention or due recognition.
Celebrating these companies could inspire others to scale up and create greater economic impact.
How Can We Unleash a Boom in the MSME Sector?
Comparing India’s MSMEs with global benchmarks reveals a stark contrast. Globally, SMEs contribute around 50% of GDP and employ 70% of the workforce, whereas in India, these figures are significantly lower—around 30% and 20–25%, respectively.
If India aims to achieve a $5 trillion economy by 2027, the MSME sector must accelerate its growth and revamp its operational model. While startups drive tech innovation and disrupt markets, SMEs need to evolve into a robust and agile sector that complements them—serving as the yin and yang of economic growth.
At a time when GDP growth is slowing and India faces global trade disruptions, the MSME sector requires laser-sharp focus to become the powerhouse of economic expansion, job creation, and value generation.
The China Model: A Lesson for India?
As always, if there’s one nation we can learn from, it has to be China! According to a recent article in Swarajya Magazine, China has fostered 14,600 ‘little giants’ in strategic industries as part of its grand ‘Made in China’ initiative. Over 80% of these companies operate in the manufacturing sector, particularly in strategic and emerging industry chains such as aerospace and semiconductors.
China’s model teaches us that small enterprises can be mighty too. Today, these ‘small giants’ are driving China’s economic growth and strengthening its ability to compete with global powers like the United States.
From Unicorns to ‘Indicorns’ – A New Perspective
As Kunal Bahl suggests, India should focus on celebrating “Indicorns”—profitable startups that have crossed the ₹100 crore turnover mark—rather than chasing the unicorn dream, which is often an illusory concept.
Out of the 5 crore-plus MSMEs registered on the Udyam portal, 98% are micro enterprises, with only 6 lakh classified as small (turnover up to ₹50 crore) and 55,000 as medium enterprises (turnover up to ₹250 crore, now enhanced to ₹500 crore). Remarkably, it is this minuscule 1% of medium enterprises that account for a significant portion of India’s exports and manufacturing, contributing 45%—a remarkable achievement in itself.
Most of these enterprises generate over ₹100 crore in revenue, along with substantial profits. To accelerate MSME growth, more micro enterprises need to scale up, and the contribution of small and medium enterprises must increase from the current 1-2% to at least 25% for the sector’s overall contribution to reach $2 trillion. Expanding the number of medium enterprises from 55,000 to 5 lakh and small enterprises from 6 lakh to 15-20 lakh could be a game-changer.
To truly unlock MSME potential, India needs to:
- Scale up small and medium enterprises – Increase the number of medium enterprises from 55,000 to 5 lakh and small enterprises from 6 lakh to 15–20 lakh.
- Build a strong platform akin to Startup India – A unified voice for SMEs is essential to drive policy changes, mentorship, capability building, and investor interest.
- Celebrate SME success stories – Recognising and showcasing high-performing SMEs can inspire growth and innovation across the sector.
Building a Strong and Vibrant SME Ecosystem
1) Create, Build & Nurture a Robust SME Ecosystem with the Right Leadership
Given the complexities and challenges faced by the SME sector, strong nurturing and support from the Central Government are essential to drive reforms and unlock its true potential.
- A new initiative, “Rise MSME India,” under the aegis of Invest India, could be explored. Invest India successfully managed the Startup India initiative and could leverage those learnings, along with insights from China’s SME model, to develop a new playbook for MSME 2.0. This initiative could be spearheaded by senior leadership talent drawn from the private sector.
- The Make in India initiative and PLI (Production Linked Incentive) schemes have already generated business worth ₹8.7 lakh crore, including exports of ₹3.4 lakh crore, benefiting 176 MSMEs. With the scheme now expanded to 14 sectors (such as food processing, pharmaceuticals, drones, textiles, steel, electronics, and automobiles), increasing MSME participation could accelerate exponential growth in the sector.
- The MSME ecosystem needs to adopt a more proactive and entrepreneurial approach by improving customer outreach, communication, and engagement with SMEs to address compliance challenges effectively.
- Many MSME bodies and agencies, lack dynamism and professionalism. These organisations require a significant revamp to become more effective and responsive to the sector’s needs.
2) Building a Strong SME Platform for Growth
- Establish a robust platform, similar to Startup India, that serves as the voice of the SME sector and strengthens the overall ecosystem.
- Strategically leverage this platform to drive capability-building initiatives, reward and recognition programs, and foster collaborations and alliances among industry leaders, government bodies, private investors, and corporates.
Celebrating Value Creators and Indicorns
Highlight and celebrate role models—successful SMEs with a strong track record of revenue growth, profitability, and innovative/disruptive go-to-market strategies—to inspire and motivate the sector.
Unleashing the Power of SMEs: From Survival to Leadership
India’s SMEs must evolve beyond survival mode and embrace a hunger for growth to unlock their true potential. The journey from small enterprises to industry champions—and eventually unicorns—requires bold thinking, innovation, and strategic risk-taking.
While government support, investor interest, and policy reforms are critical, the real transformation must come from within the sector itself. SMEs must adopt technology, digitalisation, and collaborative strategies to scale. A dedicated MSME Growth Fund, strategic partnerships with large enterprises, and a nationwide mentorship network can be game-changers in this journey.
Most importantly, India needs an SME leadership renaissance, where visionary entrepreneurs inspire and drive the sector forward. Without storytelling, there is no inspiration. Without inspiration, there is no movement.
The future of India’s economy depends on SMEs daring to dream bigger, scale faster, and lead the way into a new era of growth and global competitiveness.
About the Author: Jyoti Shiralee is Founder Director, Chrysalis Consulting, a Mumbai based strategic growth advisory for SMEs.
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