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RELEASE – Financial Incentives, Awareness Could Boost Energy Transition among MSMEs: WRI India Study

New Delhi, June 26, 2024: Ahead of Micro, Small and Medium Enterprises (MSME) Day, WRI India launched a new working paper, titled, ‘Analyzing the Policy Landscape for Supporting the Clean Energy Transition in Small and Medium Enterprises in India.’ The paper assesses policies, schemes and programs introduced between 2010-2020 to spur clean energy transition among MSMEs. The study was presented during a webinar, which brought together policymakers, civil society and research organizations to discuss the policy and financial aspects required to enable energy transition among SMEs.

In India, the MSME sector plays a significant role in the economy, having contributed to around 29.15% in Gross Value Added in the country’s Gross Domestic Product in FY21-22. These businesses have significant energy consumption needs and are responsible for approximately 25% of overall energy consumption within the industrial sector.

The working paper analyzes policies meant to encourage SMEs to adopt sustainable energy sources, uptake of energy efficient technologies, and resource efficiency by developing a quantitative and qualitative assessment framework that gauges their real-world impact. The study identifies existing gaps and offers suggestions to design policies that assist SMEs to switch to clean energy at a faster rate. The paper also examines state-level policies from five states - Gujarat, Haryana, Himachal Pradesh, Rajasthan and Tamil Nadu.

Key findings from the report reveal:

  • A small set of schemes across clean energy, energy and resource efficiency explicitly offer financial incentives, grants or subsidies to MSMEs.
  • At the time of the study, MSMEs were focused on pandemic recovery efforts, which has slowed down the rate of clean energy adoption. This is further derailed with any reduction in subsidies or incentives meant for clean energy initiatives.
  • Integrating central schemes with state-specific initiatives improves adoption and leads to observable outcomes. The inverse is also true: schemes which are implemented solely at the state level see limited uptake.
  • A comprehensive framework that evaluates the effects and outcomes of the clean energy transition is an integral component of policy and scheme guidelines.

"MSMEs play a crucial role in India’s economy not only in terms of the employment the sector provides but also Gross Value Added to the economy. However, given their vulnerability, MSMEs will need policy consistency; government backing; awareness of the benefits of clean energy and a supportive regulatory environment to decarbonize and survive the challenges that come with energy transition and a climate-stressed world,” said Gowthami T.S., lead author and Senior Project Associate, Energy, WRI India.

Following the launch, the panel delved into the need for a policy push required to transition towards clean energy, the public and private finance essential to make this happen against the current backdrop.

Speaking at the webinar, Sanjeev Chawla, Additional Development Commissioner, MSME, Development and Facilitation Office, Karnal and Development and Facilitation Office, Ludhiana emphasized, “For energy transition to be effective among MSMEs, the government is engaging with clusters. This will enable clusters to collectively invest in clean and efficient technologies thereby increase their savings and increase the uptake of clean technologies. Moreover, this will also reduce the transaction cost for the government.

Reflecting on the financial incentives needed to encourage MSMEs to adopt clean practices, Manilal Chaudhary, Regional Manager Gurugram, Small Industries Development Bank of India said, “Working closely with state government and nodal agencies at the SME cluster level would not only make it easier for lending institutions such as ours to reduce risks that come with lending to SMEs, but also make it easier for clusters to take advantage of government schemes in adopting the cleaner practices for sustainability.”

The informal nature of many MSMEs, particularly micro enterprises, face several obstacles from limited technical capabilities, financial constraints, everyday operational challenges, lack of information regarding existing policies, making it difficult for them to transition to clean technology. However, the sector’s carbon-intensive activities make decarbonization efforts essential to achieving India’s net zero emissions goals.

Link to the working paper:

About WRI India

WRI India, an independent charity legally registered as the India Resources Trust, provides objective information and practical proposals to foster environmentally sound and socially equitable development. Our work focuses on building sustainable and livable cities and working towards a low carbon economy. Through research, analysis, and recommendations, WRI India puts ideas into action to build transformative solutions to protect the earth, promote livelihoods, and enhance human well-being. We are inspired by and associated with World Resources Institute (WRI), a global research organization with more than 400 experts and other staff around the world.

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