By Ateesh Singh
The 2023 Global Sustainable Development Report (GSDR) finds that at this critical juncture, midway to 2030, incremental and fragmented change is insufficient to achieve the Sustainable Development Goals (SDGs) in the remaining 7 years. The report further goes on to say that implementation of the 2030 agenda requires a systematic and structured approach through deliberate and desirable transformations.
The Panchamrit targets and the Nationally Determined Contributions provide a systematic and structured approach at the macro level. MSME participation and engagement are fundamental as they contribute significantly to the economic process across sectors. However, participation and engagement are still insufficient, unfinished, undeveloped, and incohesive.
The environmentalists are very fond of using the term “Hard to Abate” sector for those industries where the transition to lower emissions is not straightforward due to technology limitations or high costs. I would like to argue that the MSME is the “Hard to Debate” sector.
The MSMEs operate in the full spectrum of the industrial landscape – the high-end ones who understand sustainability and have adopted the green mantra in their business strategies and operations, and the ones at the bottom of the pyramid where their very survival and existence are at stake.
In the middle are the units that have acknowledged the criticality of the subject but have no wherewithal or support to get there. The ones at the bottom and the middle, which may be nano, micro, small, or medium, depending on their respective region and sector, are “Hard to Debate”.
The central question, therefore, that needs to be answered by any strategy or policy is “What is in it for MSME?”. And, therein lies the crux of “Hard to Debate”. How does one argue with the MSME to get into the Green Arena?
The possible answers to the primordial question are social responsibility, mindfulness of the future, and conservation of resources. “A sustainable business strategy is not just a choice but a responsibility” is an oft-cited argument.
While that may be true the reality is different. The real answer lies in what sustainability brings to the MSME. In my view, the critical factors are profitability and growth. Profit is a function of cost and revenue. The cost of production can be reduced by bringing in operational efficiency and resource optimization. Revenue can be enhanced by deploying the 4 Ps (Product, Price, Positioning, and Promotion) of marketing among other things.
Further, since climate change is emerging as a new threat to business, it is important that resilience is built into the growth trajectory. Climate action calls for identifying climate-related risks that may arise from climate change or from efforts to mitigate climate change, their related impacts, and economic and financial consequences.
Any business strategy, policy prescription, or government support must necessarily build in elements that provide those levers into the transformation process.
The metamorphoses must intrinsically factor in three ground realities – enterprise lifecycle, sectoral diversity in manufacturing and services, and regional heterogeneity. The 4 stages in the development cycle of an enterprise, ideation and start-up, growth and expansion, maturity and renewal or exit, need customized solutions. Similarly, the distinct production process and service delivery models of 1,300 plus five-digit NIC codes sub-classes for MSMEs demand a blend of individual and mixed interventions. The aforementioned two realities must inevitably be read through the lens of regional variation and characteristics.
The government in its role as an enabler, facilitator, and provider bears the responsibility to develop the transition roadmap for MSME, through the instruments of policies, programmes, frameworks, regulations, institutions, and capacity building. Presently the ongoing effort towards greening and sustainability is disconnected, asymmetrical, and limited. While all this is good, for the “Hard to Debate”, good is not enough, its baseline. To make good great it is imperative to deploy the whole of government approach by synergizing with state governments, private corporations, non-profit organizations, academia, regulators, and international agencies.
The starting point could be to set up a strong institutional arrangement in the form of a hub and spoke model, with the Centre of Green Policy for MSME at the national level and branches at the state level. It would act as the central agency for conceptualizing, developing and implementing the transition roadmap for MSME by partnering with all stakeholders on a continuous basis.
The Centre of Green Policy for MSME will be a dedicated institute that will act as a hub for innovation, and capacity building of green practices and will equip MSME with knowledge, tools, and support for adopting sustainable solutions across sectors and regions in a bespoke mode.
Lack of scale at a unit level is a huge challenge for the MSME in adopting green transition. Any government strategy aimed at bringing in elements of sustainability into the MSME ecosystem must be cognizant of this hard reality. The key to breakthrough lies in harnessing the aggregation model. The introduction of green technologies, demonstrating their usefulness and replication at a large scale can only be attained through industry clusters and supply chains.
According to a report by NITI Aayog, five sectors (textiles, steel rerolling, foundry, food processing, and paper) cover approximately 60 per cent of total MSME emissions. The focus of the transition roadmap could be on the energy-intensive sectors so that the best effort to impact is attained.
The effort to incentivize could come from programmatic action on both the demand and supply side through financial and non-financial benefits. The former would include working with instruments of capital subsidy, interest subvention, credit enhancements, tax relief, and accelerated depreciation. The latter, on the other hand, would entail the provisioning of energy-efficient technology, infrastructure, labelling, marking, certification, business reporting and disclosures, diagnostic studies, green premium, handholding, training, capacity building, and awareness.
In all the push towards the green agenda, various programmes and frameworks have been developed. On account of the non-availability of a singular recognized definition of “Green” or “Sustainability,” Greenwashing is fast becoming a big stumbling block in making good great. Clear and unambiguous definitions are urgently required in the green taxonomy for financing and marketing.
The Ministry of MSME has launched several initiatives such as Zero Defect Zero Effect (ZED), Green Investment and Financing for Transformation (GIFT), and Scheme for Promotion and Investment in Circular Economy (SPICE) to promote the adoption of green and sustainable practices.
Yet hindrances such as limited financial access, technological gaps, and regulatory and compliance burdens persist. Looking ahead, MSMEs must also prepare for upcoming obstacles such as EPR compliance, CBAM, and ESG regime. Beyond these visible challenges, a key intangible challenge lies within the core of the MSME sector, which has traditionally prioritized cost-cutting and output over sustainability, often perceiving green initiatives as expensive and complex.
The key to winning this “Hard to Debate” argument is to create a holistic strategy to expedite the transition with an aim to accelerate the momentum for green growth in the country by strengthening and synchronizing the existing programmes and fostering new-age reforms along with finding solutions to current challenges.
Ateesh Singh is Joint Secretary (AFI) at the Ministry of Micro, Small & Medium Enterprises. Views expressed are personal. Reproducing this content without permission is prohibited.