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Transition to a Green Economy: Scope for MSMEs

Micro, small and medium enterprises (MSMEs) continue to be the engine of growth of many emerging economies. These enterprises require smaller funds to establish their businesses but provide huge scope to enhance employment opportunities to all levels of skilled labour. Furthermore, evidence from various literature observes the contribution of MSMEs to inclusive growth owing to their adoption inclusive business models.  

In the context of India, the sector has emerged as a highly vibrant and dynamic sector of the last few decades. They are actively enhancing their domain across various sectors of the economy, producing and delivering divergent range of goods and services that meet the demands of the domestic and world market. Estimates highlight 63 million MSMEs account for about 45% of manufacturing output, more than 40 per cent of exports and over 28 per cent of gross domestic product. This sector employs about 111 million people of the country.

However, despite their stellar performance and contribution to the developmental outcomes of the country, their commitment to adhere to climate requirements and pivot to carbon-free mechanisms is suboptimal, given their unorganised and vulnerable nature. There exists no strategic framework to guide such enterprises in this regard, even though the global value chains are actively shifting to greener practices and products. This leads to a severe environmental footprint on account of Indian MSMEs. Therefore, in view of the country’s scenario regarding resource extraction and disparate inequalities, it becomes pertinent to adopt pathways to ensure environment sustainability, in addition to robust economic growth. There, thus, exists much scope to establish a system to integrate economic efficiency, environmental soundness, and social equity into emerging business models of MSMEs. Moreover, MSMEs hold the potential to contribute the facilitation of green growth in the country through their products, services and/or business practices.  More concretely, ‘greening’ of MSMEs can be achieved through: (I) implementing a  new  or  significantly improved  product or service, a process,  a  new  marketing  method and/or  a  new organisational  method  in  business  practices,  workplace organisation  or  external  relations lead to reduction of the environmental footprint, (II) seeking new opportunities to provide sustainable solutions to combat the increasing carbon footprint of several industries, and (III) employing environmental friendly frameworks, policies and technologies to their current models of operation. 

In order to facilitate a reduction in the sector’s environmental footprint, MSMEs forming value chains of large companies would be required to be incentivised for measuring and minimising their emissions. Furthermore, producers would have to be encouraged to design environmentally sound products.  Along similar lines, the Small Industries Development Bank of India (SIDBI), established to function as a single window to meet financial and developmental requirements of the MSME sector, and as an accredited agency of Green Climate Fund holds responsibility to streamline funds for green investments and support project management of institutions willing to augment environment friendly solutions in their operations. Over the years, it has achieved several strides in fulfilling the aforementioned needs. The institution has taken focused efforts to contribute to the making environmentally conscious small enterprises. For instance, the bank has been extensively supporting the emerging market of Energy Service Companies (ESCO) through financial assistance substantiated by a risk sharing facility. Additionally, extending financial assistance to MSMEs that desire to implement energy efficiency and conservation measures. More recently, the institution has launched a Sustainable Finance Scheme to establish energy efficient value chains through MSMEs and dedicated a vertical to help MSMEs with high impact, technologically innovative climate change projects. These focused efforts would have severe consequences on the employment generation and holistic growth of the economy. For instance, the monetary assistance would not only lead to additional job creation in innovative environmentally conscious sectors but would also encourage a shift in the manufacturing and the service sector- industries would pivot to cleaner industries and improve the scope of livelihood opportunities. 

Overall, the MSMEs of the country have been resilient and are envisaged to swiftly adapt to green standards and norms. However, there is immense scope in efforts that contribute to this adaptation and help MSMEs transition in line with the green economy requirements. This remains a multi-faceted issue requiring consistent robust research, innovation, awareness, capacity building and inclusion of such enterprises in environment, climate and disaster discourses at various levels.

 This article is co-authored by Srijata Deb and Devika Chawla.