Energy Efficiency and Sustainability in MSMEs in India

Wishing you a very happy and colorful Holi!

We are excited to bring you the latest edition of our newsletter focused on MSME energy efficiency in India. The Indian MSME (Micro, Small and Medium Enterprise) sector is critical to the country's economic growth and development, but it faces several challenges. The need of the hour for Indian MSMEs is to adapt and innovate to stay competitive in a rapidly changing global economy. Based on our recent sectorial experience, here are some key areas where MSMEs need to focus on:

Embracing digital technologies: Digital technologies are transforming the way businesses operate, and MSMEs need to embrace them to stay competitive. This includes using e-commerce platforms to reach new customers, adopting digital marketing strategies, and implementing cloud-based solutions for accounting, inventory management, and other business functions.

Improving product quality and innovation: MSMEs need to focus on improving the quality of their products and services and innovating to meet changing customer demands. This requires investing in research and development, developing new products and services, and adopting best practices in quality management.

Enhancing energy efficiency: MSMEs need to adopt energy-efficient technologies and practices to reduce their production costs and become more sustainable. This includes investing in renewable energy solutions, improving energy management practices, and implementing energy-efficient technologies in production processes.

Accessing financial support: MSMEs often face challenges in getting finance for technology up gradation or for raw material sourcing, which can limit their growth and expansion. The need of the hour is to find innovative ways to access finance, such as collateral free loan with lower interest rates, quicker loans and less paper work, and partial risk sharing models, etc.

Enhancing competitiveness through collaboration: MSMEs can enhance their competitiveness by collaborating with other businesses, research institutions, and industry associations. Collaboration can help MSMEs access new markets, share knowledge and expertise, and access new technologies and resources.

In this edition, we have delved into the government's efforts to promote energy efficiency in the MSME sector, including policies and initiatives aimed at facilitating the adoption of energy-efficient technologies and practices. We highlight the benefits of such initiatives, both for MSMEs and the larger society, including improved productivity, reduced costs, and a cleaner environment.

We hope that this newsletter provides valuable insights and practical information for MSMEs looking to improve their energy efficiency, as well as policymakers, energy experts, and other stakeholders interested in promoting sustainable industrial growth. Along with this, we have also included the insights of green building domain to this GreenLetter.

Happy reading,

Introduction

India’s energy generation and consumption have been growing in recent years, reflecting the country’s rapid economic development and increasing population. India is the world’s third-largest energy consumer after China and the United States.

Micro, Small and Medium Enterprises (MSMEs) make a significant contribution to the Indian economy as well as the country’s energy consumption. The MSME sector is one of the largest energy consumers in India, accounting for a significant portion of the country’s industrial energy consumption.

MSMEs use energy for a variety of purposes, such as production, conversion, heating, lighting and cooling. Energy consumption in the MSME sector is mainly driven by the manufacturing segment, which includes sectors such as textiles, food processing, chemicals and engineering.

In India, the industrial sector is one of the largest consumers of energy, accounting for approximately one-third of the country’s total energy consumption. The industrial sector includes various industries such as iron and steel, cement, chemicals, textiles, and food processing.

According to the data from the Ministry of Power, in the financial year 2020-21, the industrial sector consumed approximately 45% of the total electricity generated in the country. The remaining electricity was consumed by the residential, commercial, and agricultural sectors.

In India, energy is consumed by various sectors, including the residential, commercial, transportation, agricultural, and industrial sector. Here is a breakdown of the energy consumption by sector in India:

MSMEs in India

Micro, Small and Medium Enterprises (MSMEs) are an important contributor to India’s economy and also to the country’s energy consumption. The MSME sector is one of the largest energy-consuming sectors in India, accounting for a significant portion of the country’s industrial energy consumption.

The MSME sector is also a heterogeneous region in terms of products produced, scale, production processes, output and technologies used in production. MSMEs involved in the manufacturing sector account for about 33% of India's manufacturing output and contribute about 28% to the overall GDP.

Status of MSMEs in India

The Micro, Small and Medium Enterprises (MSME) sector has become a very vibrant and vibrant sector of the Indian economy over the past five decades. It contributes significantly to the economic and social development of the country by promoting entrepreneurship and creating many job opportunities at a relatively low cost of capital. MSMEs are expanding their reach across sectors of the economy, producing a wide range of products and services to meet the needs of national and global markets.

MSMEs in India number around 63 million. This sector has great potential to promote energy efficiency and upgrade technology in conventional processes. The energy efficiency of the SME sector in India can be improved by accelerating the adoption of energy efficient technologies, sharing knowledge, building capacity and developing new technologies. innovative financial mechanism.

Maximum Industrial Growth: Maharashtra

The Micro, Small and Medium Enterprise (MSME) sector in India has witnessed significant growth in recent years. This sector plays an important role in the Indian economy, contributing to job creation, manufacturing output and exports. According to MoMSME, among the top five Udyam registrations by state, Maharashtra recorded the maximum number of registrations with 16.29 lakh units, followed by Tamil Nadu (8.55), Gujarat (6.48), Uttar Pradesh (6.32) and Rajasthan (6.30) (as of March 31, 2022).

Maharashtra has an estimated number of MSMEs of 47.78 lakh which is about 8% of the total number of MSMEs in the country. According to recent information, MSME units contribute 29% of the national GDP and have a 48% share of the export market.

When it comes to Udyam registrations by MSMEs, Maharashtra comes out on top with almost 3.8k registrations. It should be noted that service sector MSMEs account for a higher percentage of Udyam registrations than manufacturing-related MSMEs.

Energy Saving Potential & Carbon Emission

Successful energy efficiency programs often install and operate a range of energy-efficient technologies. These technologies can benefit SME sectors by reducing energy demand and improving energy reliability in a sustainable way. Upgrading to high-efficiency equipment and appliances is one of the most cost-effective and proven ways to reduce industrial energy consumption and related greenhouse gas emissions. The overall impact of upgrading from outdated systems to the latest energy-efficient technology can be enormously high for the SME sector as well as supporting the country’s NDC target. Achieving such a level of sustainability depends on finding the right solutions for a typical SMEs specific environment and ensuring they are implemented correctly with the system to ensure its performance.

The majority of MSME clusters use traditional and inefficient technologies and practices. Energy audits conducted at representative units of MSMEs and cluster profile reports clearly show that there are significant improvements in energy efficiency in these areas. The technologies such as Microturbine, Variable Frequency Device (VFD), Heat Pump, Recuperator, Energy Efficient Furnace, Induction Billet Heater etc. have significant scope for energy saving. The total energy saving potential estimated is 10,26,63,442.40 MWh, about 10% of the total energy consumption of the clusters/ sub-sectors covered as presented in tabulated form.

*Note: The energy-saving potential and carbon emission reduction have been calculated for 07 sectors covering 20 clusters. The total energy consumption covered in the sectors was estimated to be 1,026 million MWh. Given the fact that there are a large number of MSME clusters scattered across India, the total energy consumption will be much higher for the entire MSME sector.

Against the target of 1 billion tons of CO₂ emission reduction by 2030, India has the potential of 8.11% carbon emission reduction (8,11,04,119.50 tonnes of CO₂) by practicing energy efficiency in MSMEs. The potential for energy savings and CO₂ emission reduction in the overall MSME sector is significantly higher as data are not available for some sub-sectors/clusters.

MSMEs, the critical growth driver of the Indian economy, play an important role in the context of energy-intensive industries. Lack of access to the latest technologies makes this sector vulnerable to energy security and competitiveness in the global market. To achieve large-scale deployment and scaling up of proven technologies, technology providers and agencies like SIDBI, NABARD, industry association needs to play critical role in promoting such concept in the cluster.

Carbon Credits Revenue to Boost Internal Rates of Return of SME Energy Efficiency Projects

Revenue from Carbon Credit is expected to play a critical role in stimulating EE project implementation and ensuring the sustenance of the project performance. SME EE projects are eligible for carbon credits, which are accessible through a regulated mechanism under Kyoto Protocol and voluntary markets. Most of the SMEs and their associations, however, have not been able to access market mechanisms for carbon credits. Vendors and technology providers can also work with industry associations to structure “technology aggregation” based model that can benefits from carbon credits. Carbon finance can provide an additional revenue stream from the sale of carbon credits generated by the project activity; this additional revenue would improve the internal rate of return (IRR), making the EE projects more attractive to investors.

Initiatives taken by Government for MSMEs

The Indian government has been implementing various policies and programs to improve energy efficiency in the industrial, residential, and commercial sectors. These efforts have helped to reduce the growth in energy consumption in recent years.

Policy initiatives for MSMEs

1. UDYOG AADHAAR MEMORANDUM

• Udyog Aadhaar Memorandum (UAM) is a one-page online registration system for MSMEs based on self-certification.
• The information sought is on a self-certification basis and no supporting documents are required at the time of online filing of UAM.

2. MSME DATABANK

• MSME DataBank enables the MoMSME to streamline and monitor programs and transfer benefits directly to MSMEs.
• It is useful for MSMEs to be able to update their business information as needed without going to any government office and update their product/service information.

3. MY MSME

• To enable businesses to enjoy the benefits of various programs, the MSME office has launched a web application module in the form of a mobile application called My MSME.
• This allows companies to build their apps and check diagrams on their mobile phones using the app.

4. TECHNOLOGY CENTRE SYSTEMS PROGRAMME (TCSP)

• In March 2021, the Department of MSMEs through the Development Commissioner (DC-MSME) implemented the Technology Centre System Program (TCSP) to establish 15 new Technology Centres.
• The centres provide support to the industry, mainly MSMEs in the areas of general engineering, automotive, fragrance and flavour, and ESDM.

5. MSME SAMPARK

• Launched in 2018, the MSMR Sampark portal is a digital platform where job seekers (students or interns of MSME Technology Centre) and employers can register for mutually beneficial interactions.

6. DIRECT BENEFIT TRANSFER IN THE M/O MSME

• To reform the delivery system, ensure faster flow of funds, target beneficiaries, avoid duplication and reduce frauds, the welfare and subsidy schemes of the Government of India (GOI) have been brought under a single platform, i.e., the Direct Benefit Transfer (DBT).
• Schemes have been classified by type of benefit for beneficiaries i.e., Cash or Composite, under DBT.

7. DIGITAL PAYMENTS

• Under the Digital India initiative, the Ministry of MSMEs has taken several initiatives for digital activation across the entire MSME ecosystem – all MSME offices are already digitally enabled., efforts have been launched to publicize the benefits of digital payment methods such as BHIM, UPI and Bharat QR Code.

8. MSME-SAMBANDH

• Under the Digital India initiative, the Ministry of MSMEs has taken several initiatives for digital activation across the entire MSME ecosystem – all MSME offices are already digitally enabled., efforts have been launched to publicize the benefits of digital payment methods such as BHIM, UPI and Bharat QR Code.
• The portal helps to track CPSE purchases and allows them to share a list of products or services requested from the MSE.

9. GRIEVANCE MONITORING

• The Ministry of MSMEs has launched the internet-based MSME grievance monitoring system "e-Samadhan" to help track and monitor complaints and suggestions received.
• The Ministry also go through all the grievances on Centralised Public Grievance Redress and Monitoring System (CPGRAMS).

10. MSME SAMADHAAN

• MSME Samadhaan is a portal that provides information on pending payments from Central Ministries, State Governments etc. related to Micro and Small Enterprises (MSE). Government agencies are given usernames and passwords to log in and check for late payments for MSEs.
• The portal also allows MSEs to track their late payment claims online. After 15 days of submitting the online application, the application will be automatically registered with the MFEFC.

11. NATIONAL SCHEDULED CASTE AND SCHEDULED TRIBE HUB

• The National Centre for Scheduled Caste and Scheduled Tribes has been established to provide professional assistance to SC/ST contractors to fulfil the obligations of the Government Public Procurement Policy.
• The Centre is also responsible for collecting, collating and disseminating information related to SC/ST businesses and entrepreneurs, building capacity for current and potential SC/ST entrepreneurs through vocational training and EDP, promoting the participation of SC/ST entrepreneurs in exhibitions and organizing special exhibition for this purpose, etc.

12. MSME-SAMBHAV

• In November 2021, the Ministry of Micro, Small and Medium Enterprises has launched SAMBHAV, a nationwide outreach program to stimulate economic growth by promoting entrepreneurship and domestic manufacturing.
• Through this program, several Department offices will promote entrepreneurship among students from various colleges/ITIs as part of a month-long initiative under the aegis of the Department.

Schemes for MSMEs across the country

A. Schemes targeted at providing credit and financial assistances

1. Prime Minister’s Employment Generation Programme

• The program implemented by KVIC aims to create job opportunities in rural and urban areas by establishing self-employment new microenterprises/projects/microenterprises. The program also aims to provide steady and continuous employment to prospective artisans and unemployed youth, increase the earning capacity of artisans and contribute to rural and urban employment growth.
• The eligibility criteria to avail this scheme are the individual should be 18 years and above and if a project size is above Rs. 10 lakh (US$ 0.01 million) for manufacturing and Rs. 5 lakh (US$ 0.006 million) for service, the applicant must have completed education up to 8th standard.

2. Credit Guarantee Trust Fund for Micro and Small Enterprises (CGTMSE)

• A program initiated by the Government of India (GoI) to provide unsecured credit to the micro and small business sector.
• Fund-based and non-fund-based credit facilities (such as letters of credit and bank guarantees) up to Rs. 200 lakhs per eligible borrower are covered, under the guarantee scheme, provided they are renewed based on the viability of the project without collateral or third-party guarantee.
• The collateral coverage available under the program is 50%, 75%, 80%, and 85% of the credit facility's sanctioned amount. Guarantee coverage is 85% for micro businesses for credits up to Rs. 5 lakhs. Guarantee coverage is 50% of credit facility sanctioned amount for credits of Rs. 10-100 lakh for each MSE borrower for retail business.
• Guarantee coverage is 80% for:
  a. Micro and Small Enterprises run and/or owned by women
  b. All credits/loans in the North East Region (NER) for credit facilities up to Rs. 50 lakhs.

In case of default, trust settles the claim up to 75% of the amount in default of the credit facility extended by the lending institution for credit facilities up to Rs. 200 lakhs.

B. Schemes targeted at providing skill development training

1. Entrepreneurship and Skill Development Programmes (ESDP)

• Under the Entrepreneurship and Skills Development Program (ESDP), the Ministry of MSMEs has organized a number of programs that focus on enhancing the skills and knowledge of entrepreneurs and building capacity to develop, manage and organize a business project.
• The program is implemented by MSME Development Institutes, Technology Centres and Enterprise Development Centres (EDCs).

C. Schemes targeted at Infrastructure Development

1. Scheme of Fund for Regeneration of Traditional Industries (SFURTI)

• This program aims to organize traditional and artisan industries into clusters to make them competitive and support their long-term sustainability, improving the marketing of the products of these clusters., create innovative products, improve technology, etc.
• The Department has established a program steering committee as the supreme supervisory and coordination body with independent responsibilities assigned to statutory bodies such as KVIC and coir thread council to implement the program.

2. Scheme for Micro and Small Enterprises Cluster Development Programme (MSECDP)

• The Ministry of MSMEs has adopted a cluster development approach as an important strategy to improve productivity and competitiveness as well as enhance the capacity of micro and small enterprises (MSEs) in the country.
• The program includes activities such as funding to support the establishment of the “Common Facility Centre (CFC) and Infrastructure Development Project (IDP)”.

D. Schemes targeted at technology upgradation

1. Financial Support to MSMEs in ZED Certification

• Program promotes Zero Defects and Zero Effects (ZED) production among MSMEs and evaluates ZED for certification to encourage MSMEs to continuously improve their quality standards in products and processes, to promote the adjustment of quality tools/systems and energy-saving production, and to stimulate production. by adopting Zero Defect manufacturing processes that have no impact on the environment.
• The scheme is targeted towards MSMEs involved in manufacturing.

2. Support for Entrepreneurial and Managerial Development of SMEs through Incubators

• The objective of the program is to promote and support the creativity of MSMEs and to encourage the adoption of the latest technologies in the manufacturing sector as well as innovative knowledge-based MSMEs.
• This program includes financial support up to Rs. 15 lakhs to develop and nurture ideas; up to Rs 1 crore to purchase and install plant and machinery to enhance technology-related R&D activities; or up to Rs. 1 crore in the form of seed funding for Host Institute (HI)/Business Incubator (BI) to convert worthy ideas into start-ups.

Green Building Market in India

India has witnessed tremendous bend towards awareness around sustainably across diverse sectors in the past decade. The team at GreenTree Global, conducted in-house research to map the trajectory of green buildings across the country. We have conducted an in-depth market progress study for the last quarter Q3 for the financial year 2022-2023. The team sourced data from various green building rating agencies.

For integrative analysis, the levels in various rating systems are merged into common performance level, i.e., Outstanding, Excellent, Marked, Competent Performance as per the data received from GBCI LEED, GRIHA, EDGE, ASSOCHAM GEM and data collected through desk research.

EDGE

As per the data provided by EDGE (Q3: October-December, 2022-23), Maharashtra has topped the charts for registration for green buildings followed by Gujarat, Tamil Nadu and Karnataka. Maharashtra took away the accolades as the state saw the highest number of rated projects as well for green building certification for Q3.

Registered Projects

Rated Projects

LEED

GBCI LEED has rated a healthy number of projects: 97 in the Quarter 3: 2022-2023 (Source: Public LEED Directory). Karnataka has performed exceptionally well in the quarter and set a high target for other leading green states like Tamil Nadu, Maharashtra, Haryana and Delhi.

Rated Projects

GRIHA

GRIHA too has carved a space out for itself, by registering the highest number of projects from Maharashtra, 06 in number, in Quarter 3: 2022-2023 (Source: GRIHA). As is evident with GRIHA rated projects, the State and Central projects are establishing great benchmarks of sustainability for a positive impact on the green buildings industry. Haryana emerges as the state with the highest number of GRIHA rated projects in the quarter, followed by Maharashtra and Gujarat.

Registered Projects

Rated Projects

IGBC

With a modest beginning of 20,000 sq.ft. green built-up area in the country in the year 2003, as on 20th February 2023 more than 10,296 Green Buildings projects coming up with a footprint of over 10.24 Billion sq.ft. are registered with the Indian Green Building Council (IGBC). Out of which 3,260 Green Building projects are certified and fully functional in India. (source: igbc.in)
IGBC has more than 30 variants of green ratings to assess various types of buildings.

ASSOCHAM

ASSOCHAM has a total number of 22 rated projects in the Quarter 3: 2022-2023 (Source: ASSOCHAM). Maharashtra has performed exceptionally well in the quarter and set a high target for other leading green states like Haryana, Odisha and Goa.

Rated Projects

In-house Expert Comments

With the aim of achieving Net Zero carbon emission in India, government has announced the budget of Rs. 35,000 crores towards energy transition and net-zero carbon emissions for FY24. Significant changes were also made to Energy Conservation Act 2001, The Amendment Act introduces new concepts such as carbon trading and mandates that designated consumers use non-fossil sources to ensure faster decarbonization and achievement of the Sustainable Development Goals. The potential that MSMEs hold for contribution towards energy efficiency and CO₂ reductions, we believe that government must plan and implement green actions and transform one of the largest potential holding sector of India.

Note: The team has sourced data through various rating agencies and desk research. Collaboration with other rating agencies are in progress to make the information comprehensive. For any query, please contact: [email protected]

GreenLetter (GLMAR23) Team: Shivani Rani, Shrayoshi Choudhary, Ashish Kumar, Pradeep Kumar, Dhruv Jain, Samvedana, Anurag Bajpai

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