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New Delhi: The government is likely to announce a policy in the upcoming budget for greening the operations of micro, small and medium enterprises (MSME) and lowering their carbon emissions.
Two people aware of the development said that the ministry of MSME has recommended the union finance ministry to roll out the policy under which Centre would provide financial, technological and regulatory support to these small businesses in the backdrop of India’s aim to achieve net zero carbon emission by 2070.
A body would be created under the MSME ministry to oversee its implementation.
Sustainable initiatives or operations would include use of renewable energy and lowering of emissions and more focus towards achieving circular economy including use of recycled products and also adopting proper waste management, among others.
“Under this policy an institutional framework would be created for effective implementation of green and environment-friendly measures. So, a new body would be set up oversee the implementation of the policy, compliance of the norms and handholding the smaller businesses which are yet to move towards these sustainable initiatives,” said one of the two people mentioned above.
“Sustainable measures and greening of operations come with an added cost. The intention is to provide a cushion to these businesses through a multi-pronged approach, fiscal, technology and also regulatory support to ensure compliance with both domestic and global norms.”
Approach based on size of entity
The second person said that the approach may differ as per the size of the entity. A medium-sized enterprise, with over ₹50 crore revenue, would not require much financial support, but would need more of technological support and an oversight to ensure emission compliance, while a micro or small enterprise would require higher financial support along with stringent regulatory oversight, the person said.
Queries sent to the union ministries of MSME and finance remained unanswered till press time.
Businesses with a revenue of up to ₹5 crore are classed as micro enterprises while those with a revenue of ₹5-50 crore are categorized as small enterprises.
Vinod Kumar, president of India SME Forum said: “There is also a need to focus on three aspects — financial needs, technological support and adherence to high quality standards. As global markets increasingly emphasize ESG (environment, social and governance) compliance and quality standards, MSEs must modernize to remain competitive. Failure to upgrade their operations could lead to the dominance of international companies in the Indian market, potentially displacing domestic businesses.”
The industry body in its recommendation to the government has highlighted the need for establishing dedicated funds aimed at supporting the technological upgradation of these smaller businesses.
“Sustainability has evolved from being a mere option to an imperative for Micro, Small, and Medium Enterprises (MSMEs) seeking to remain competitive and relevant in an increasingly eco-conscious global marketplace,” India SME Forum said in its recommendation.
Policy amid CBAM
The consideration to come up with a policy gains significance in the wake of the European Union’s Carbon Border Adjustment Mechanism (CBAM), which mandates higher taxes on imports of products to EU, which have resulted in higher carbon emissions.
Exports form a major chunk of the businesses of Indian MSMEs. So far in FY25, value of India’s MSME exports stands above ₹12 trillion, according to data from the MSME ministry. In the last financial year (FY24), supplies from MSMEs accounted for 45.73% of India’s total exports.
Mint reported on Sunday that the EU is working on projects to support Indian MSMEs on the reporting requirements for CBAM, the Central Securities Depositories Regulation (CSDR) or Corporate Sustainability Due Diligence Directive (CS3D), and the Ecodesign for Sustainable Products Regulation (ESPR).
Anil Bhardwaj, secretary general, Federation of Indian Micro, Small, and Medium Enterprises (FISME) noted that access in both domestic and international value chains is increasingly determined by environmental and climate change concerns underpinned by low carbon intensity, circular economy and sustainable development goals.
Repercussions of commitments
“At (the UN climate change summit) COP26, India has committed that by 2030 it would add non-fossil energy capacity to 500 GW and meet 50% of energy requirement from renewable energy, reduce total projected carbon emissions by 1 billion from now onwards, and reduce carbon intensity by less than 45%. These commitments have huge repercussions for 64 million micro, small and medium enterprises which employ over 112 million people directly in India,” he said.
Bhardwaj noted that MSMEs generated about 134 million tonnes of carbon dioxide annually and account for 3-4% of total CO2 emissions. While they account for 35-40% of industrial production in the country, their contribution to industrial emissions is about 10-15%, he said, adding that five sub-sectors of MSMEs account for 50% of these emissions — textiles, steel re-rolling, paper, foundry and food processing.
Amid global compliance pressures and national energy transition goal, government has been trying to ensure more sustainable operations and also to bring in energy efficiency of MSMEs. The union ministry of power and the Bureau of Energy Efficiency are already working on a scheme to support energy efficiency of small and medium businesses with an outlay of ₹1,000 crore. The government would provide interest subvention to these business for loans to adopt energy-efficient technologies.
In the last union budget, finance minister Nirmala Sitharaman had announced to facilitate an investment-grade energy audit of traditional micro and small industries in 60 clusters which would help in providing financial support to these enterprises.
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