NITI Aayog's Comprehensive Plan to Green India's MSME Sector
In a significant move to bolster India's export capabilities, NITI Aayog has unveiled a detailed strategy aimed at decarbonising the country's vast micro, small, and medium enterprises (MSME) sector. This initiative comes in response to mounting trade barriers in Western markets, where green manufacturing standards are becoming increasingly stringent.
Urgent Need for Decarbonisation in MSME Operations
The push for greener practices stems from the critical role MSMEs play in India's economy, contributing 45% of exports and 30% of economic output, while employing approximately 330 million people. With regulations like the European Union's Carbon Border Adjustment Mechanism (CBAM) now in effect, Indian exporters face steep barriers unless they adopt cleaner manufacturing processes.
"To fulfil the green product requirements of developed countries, especially in Europe and the Americas, MSME processes need to be decarbonised," states a recent NITI Aayog report dated 22 January. The report highlights that upcoming regulations could reshape marketing strategies, affect supply chains, and increase financial risks for businesses.
Five key subsectors have been identified for immediate action:
- Textiles
- Paper
- Steel re-rolling
- Foundry
- Forging
These sectors are not only energy-intensive but also hold significant potential for improving energy-efficient manufacturing.
Government's Proposed Solutions and Mechanisms
NITI Aayog, in collaboration with the MSME ministry, has proposed the establishment of a National Project Management Agency (NPMA) to spearhead decarbonisation efforts. This agency will work closely with MSME clusters and industry associations to aggregate demand for energy-efficient machinery, green power generation, and alternative fuels.
Key components of the plan include:
- Retrofitting Machinery: Energy Services Companies (ESCOs) will cover upfront costs for new machinery, with MSMEs repaying from operational savings.
- Viability Gap Funding (VGF): A ₹6,000 crore VGF is proposed for manufacturers of energy-efficient technologies that offer over 20% savings.
- Rooftop Solar Scheme: A ₹7,000 crore initiative, modelled after the PM Surya Ghar Muft Bijli Yojana, aims to install solar units in 1-1.5 million MSMEs over five years.
- Renewable Energy Service Companies (RESCOs): These entities will facilitate solar installations, reducing upfront costs for small businesses.
- Natural Gas Adoption: Collaboration with the Petroleum and Natural Gas Regulatory Board to replace coal and other polluting fuels in MSME clusters.
Previous Government Initiatives for Green Transition
This is not the government's first attempt to promote sustainability in the MSME sector. In December 2023, two schemes were launched under the MSME ministry's green portal:
- MSME-Gift (Green Investment and Financing for Transformation): With an outlay of ₹478 crore, it offers interest subvention and risk-sharing facilities, running until March 2026.
- MSME-Spice (Scheme for Promotion and Investment in Circular Economy): Provides capital subsidies for circular economy projects in brownfield projects, valid until March 2027.
These initiatives, with a cumulative outlay of ₹950 crore, lay the groundwork for the current decarbonisation push.
Impact and Challenges for MSMEs
Transitioning to cleaner practices poses significant challenges for MSMEs, which often operate on thin margins and limited working capital. Experts like Gurudas Nulkar, professor at the Gokhale Institute of Politics and Economics, warn that Indian MSMEs will bear the brunt of carbon taxes from importing countries unless they reduce emissions.
"Adapting to cleaner manufacturing is expensive for cash-strapped MSMEs," he notes, emphasising that decarbonisation is essential for maintaining export eligibility. The government's plan aims to bridge this gap by providing financial and technical support, ensuring that MSMEs can compete globally while contributing to India's sustainability goals.
As global trade dynamics evolve, NITI Aayog's decarbonisation strategy represents a proactive step to future-proof India's MSME sector, aligning economic growth with environmental stewardship.
