Government Policy for Greening MSME Operations Announced

The Government of India is set to introduce a new policy aimed at greening the operations of Micro, Small, and Medium Enterprises (MSMEs). This initiative comes as part of India’s commitment to achieve net-zero carbon emissions by 2070. The Ministry of MSME has proposed this policy to the Union Finance Ministry, which will offer financial, technological, and regulatory support to small businesses. A dedicated body will be established under the MSME ministry to ensure effective implementation of the policy.

Background of the Policy

The policy is being developed in response to increasing global emphasis on sustainability. With the European Union’s Carbon Border Adjustment Mechanism (CBAM) imposing higher taxes on carbon-intensive imports, Indian MSMEs face pressure to reduce emissions. The policy aims to prepare these businesses for compliance with both domestic and international environmental standards.

Support Mechanisms for MSMEs

The government plans to provide a multi-faceted support system. This includes financial assistance for smaller enterprises and technological support for medium-sized businesses. The approach will vary based on the size of the entity. For instance, micro enterprises with revenues up to ₹5 crore may require more financial aid, while medium-sized enterprises with revenues over ₹50 crore will benefit more from technological oversight.

Focus on Sustainable Practices

Sustainable practices will include the use of renewable energy, waste management, and circular economy initiatives. The policy encourages MSMEs to adopt eco-friendly measures. This shift is essential for businesses to remain competitive in a market that increasingly values environmental, social, and governance (ESG) compliance.

Challenges Faced by MSMEs

MSMEs contribute to India’s industrial production but also account for a notable share of carbon emissions. They generate approximately 134 million tonnes of CO2 annually. The challenge lies in balancing the transition to sustainable practices while managing costs. The government acknowledges that greening operations may incur additional expenses.

Implementation Framework

A new institutional framework will be established to oversee the policy’s implementation. This body will ensure compliance with environmental norms and provide guidance to MSMEs. The framework aims to facilitate the transition to sustainable practices while maintaining competitiveness in the global market.

Financial and Regulatory Support

The policy will also include the establishment of dedicated funds to support technological upgrades. MSMEs must modernise to meet high-quality standards demanded by global markets. The government is working on schemes to enhance energy efficiency in small and medium enterprises, with a budget allocation of ₹1,000 crore.

Global Context and Future Outlook

India’s commitments at international climate summits underline the urgency for MSMEs to adapt. With over 64 million MSMEs employing more than 112 million people, the stakes are high. The government is committed to facilitating the transition towards a sustainable future for these enterprises.

Questions for UPSC:

1. Critically analyse the implications of the Carbon Border Adjustment Mechanism on Indian MSMEs.
2. Estimate the role of Micro, Small, and Medium Enterprises in India’s industrial emissions and their potential impact on sustainability goals.
3. Point out the significance of technological upgrades for MSMEs in the context of global market competitiveness.
4. What are the challenges faced by MSMEs in adopting sustainable practices? How can these challenges be addressed?

Answer Hints:

1. Critically analyse the implications of the Carbon Border Adjustment Mechanism on Indian MSMEs.

1. CBAM imposes higher taxes on carbon-intensive imports, affecting competitiveness of Indian MSMEs in the EU market.
2. It incentivizes MSMEs to reduce carbon emissions to comply with international standards.
3. Non-compliance can lead to reduced market access and potential loss of exports, impacting revenue.
4. Indian MSMEs must invest in sustainable practices to avoid penalties and remain viable in global trade.
5. The mechanism may also drive innovation and adoption of greener technologies among MSMEs.

2. Estimate the role of Micro, Small, and Medium Enterprises in India’s industrial emissions and their potential impact on sustainability goals.

1. MSMEs contribute to approximately 10-15% of India’s total industrial emissions.
2. They generate around 134 million tonnes of CO2 annually, indicating environmental impact.
3. Five sub-sectors (textiles, steel re-rolling, paper, foundry, food processing) account for 50% of these emissions.
4. Transitioning to sustainable practices is crucial for meeting India’s net-zero carbon emission target by 2070.
5. MSMEs’ modernization can enhance their competitiveness while contributing to national sustainability goals.

3. Point out the significance of technological upgrades for MSMEs in the context of global market competitiveness.

1. Technological upgrades enable MSMEs to improve efficiency and reduce emissions, aligning with global sustainability standards.
2. Modernized operations can enhance product quality, making Indian MSMEs competitive in international markets.
3. Access to advanced technologies can help MSMEs comply with stringent ESG regulations imposed by global buyers.
4. Investment in technology can lower production costs in the long run, improving profit margins.
5. Technological advancement encourages innovation, enabling MSMEs to explore new markets and opportunities.

4. What are the challenges faced by MSMEs in adopting sustainable practices? How can these challenges be addressed?

1. High initial costs of adopting sustainable technologies can be a barrier for many MSMEs.
2. Lack of awareness and expertise in implementing sustainable practices hampers progress.
3. Regulatory compliance can be complex and burdensome, especially for smaller enterprises.
4. Access to financing for green initiatives is often limited, making it difficult to invest in upgrades.
5. Government support, such as dedicated funds and training programs, can help MSMEs overcome these challenges.