Europe and India: A Common Interest
to Foster Startups and SMEs

Europe and India: A Common Interest
to Foster Startups and SMEs

Ankita Tyagi | 27th Jan 2023

The growth of the Indian start-up ecosystem over the past few years has been fueled by elements such as investment, developing technologies, and a growing local market. For the deep tech, fintech, services (IT, business outsourcing, software), telecom, agriculture, and capital markets sectors, India is a desirable and lucrative commercial target market. This is a result of India’s strong consumer market, stable economy, corporate reforms, and laws that encourage foreign investment.

The Government of India has initiated and implemented financial and policy support for strengthening technology incubation activities on the premise that it will result in the indigenous development of products and packages in these various sectors. Flagship programmes like Digital India, Gatishakti for supply chain and multimodal logistics, and E-procurement portals such as the Smart City Mission, have resulted in higher acceptance for procurement of innovative and efficient solutions within the administration at the central, state and municipal levels. Jointly, they are contributing to being the largest consumer of such solutions and technologies. A paradigm shift is visible with the launch of the Software Product Policy aiming towards creating a product and innovation-based IT ecosystem in the country.

As a result, there was an increase in interest from other economies, particularly from the European industry, in joining forces and looking for new markets. There is an inherent trust of European technologies and solutions in the Indian market. European as well as foreign funds have realised India’s potential where they can develop, market and sell increasing cutting-edge products & services at a low cost, thereby generating higher returns. The EU is also a leading investor in India accounting for 22 per cent (about €10 billion) of the total FDI inflows in 2019-20. India’s bilateral trade with the EU amounted to USD 116.36 billion in 2021-22. Despite the global disruptions, the bilateral trade achieved an impressive annual growth of 43.5 per cent in 2021-22. Ensuring a high-level of investment protection in order to remain attractive destinations for new investments is a key dimension of the EU-India Partnership.

SMEs: Focus on Technology Adaptation

With increasing innovation, India’s stature in global markets has drastically improved. The first time that Indian exports exceeded $400 billion was in March 2021. The top five exports from India were engineering goods, petroleum products, gems and jewellery, chemicals, and ready-made clothing of all fabrics. The high-quality items that India produces, and the lack of international suppliers has contributed to this increase. India is already exporting an increasing number of high-end, value-added goods, but there is still room for much more.

Small and medium-sized enterprises (SMEs) already contribute to 30 per cent of India’s GDP and 40 per cent of India’s exports . They are crucial for local economic development, and play a noteworthy role in job creation, poverty alleviation and economic growth. Their capacity to identify new markets and to then prepare customised solutions to meet these demands is a key factor in its growth trajectory. European markets, for example, search for consistency and certifications on quality; transparency; ethical conduct; technology suitability; and sufficient compliance with local legislation. Green, low-carbon manufacturing has recently become a crucial demand as well.

The EU was India's third-largest trading partner in 2018, accounting for about 11.1 per cent of all commerce with India. In 2022, the EU traded products and services worth €95.562.8 billion to India. After the USA, the EU is the second-largest market for Indian exports (14% of the total).

In order to move up the Indian SMEs in the value chain, an Indian Central Government Scheme known as the Rising and Accelerating MSME Performance (RAMP ) was established in partnership with the World Bank, for five years FY22 to FY26 in order to boost productivity and financing for Covid-hit MSMEs, through active involvement of the states. The Indian SMEs sector has especially recognised the role of technology as a key enabler for enhanced productivity and a way to meet the demand of their services and manufacturing capabilities. They are re-organising their structure and manufacturing units to adapt to such emerging technologies, and the opportunities it creates. Further, e-commerce platforms are also providing SMEs the opportunity to compete with big players which was a tedious task earlier. RAMP will be crucial to improve the quality, transparency and processes in facility management to such businesses. This will also open the door for collaboration with international partners, especially European businesses.

Way Forward

Indian businesses need to urgently focus on key elements of sustainability across its supply; standardisation; value addition; packaging; IP protection and much more. Partnerships with European businesses can be a crucial enabler in achieving the same. Further, it is also necessary to create harmony between urban and rural India, hence the adoption of scale-up Labs to create a mutual platform towards establishing a connection between urban and rural lifestyles is crucial. The essential blocks of this framework can create a circular economy, digital transformation, and indigenous self-adequacy while facilitating sustainable living.

To realise the above-mentioned potential and vision of bilateral collaboration, a few challenges need to be taken care of by both Indian and Europe sides. A lot of initiatives under major frameworks have been established. In order to implement these, there are a few critical issues and challenges on both sides, which need to be embedded in projects or models.

In India, active participation of relevant stakeholders, under respective schemes, is lacking or in silos without any connection which holds true in the majority of cases. This creates a lack of transparency and trust due to the non-availability of real-time data or regulatory framework. This highlights the urgent need for technology adaptation in various value chains, with local vendors. Therefore, there is a need to train manpower with relevant skill sets.

With the European market now nearing saturation, the latest research and development and innovative technologies need to explore new markets. India, with its burgeoning middle-class, stable policies and growing economy is one of the most sought-after destinations. For market access, technology pricing and adaptability are very crucial. Hence, this creates a significant role for bilateral bodies like business support organisations, chambers, project facilitation organisations, consultancies and market entry specialists.

European businesses must also assess their willingness to lower prices for mass adoption. Collaboration with Indian partners can go a long way in mitigating risks, understanding the Indian market and tailoring specific strategies for the country. Businesses must also understand the differences in administrative structure and cultural nuances. These issues, though seemingly secondary, have the potential to create time delays for approvals or implementation. Patience is also key, from both ends, to fructify the sustainable collaboration and realise this massive Indian potential.

Europe, India, common, interest, foster startups