A pathway to competitiveness

The Micro, Small. Medium Enterprises (MSME) sector has the capability to pull India's growth rate to relatively higher levels from the present moderate levels. India's National Manufacturing Policy aims to accelerate India's GDP growth by increasing the sectoral share of manufac-turing in GDP to 25%, from 16% now, over the next decade. It also aims to generate an additional 100 million jobs in the manufacturing sector. In this scenario, the importance of the MSME sector takes on more significance, since it is the base for manufacturing in India.

There are an estimated 26 million MSME units in India providing employ-ment to over 60 million and accounting for about 45% of India's overall industrial output and 40% of exports. Over 6,000 products, ranging from traditional to high-tech, are being manufactured by these MSMEs. However, while one end of the MSME spectrum shows highly inno-vative and high growth enterprises, on the other side the fact is that more than 94% of MSMEs is unregistered, established in the unorganised sector and use low-end technologies.

The MSME sector is also structurally characterised by the presence of industrial clusters. MSME units producing similar products exist as clusters located within a small geographical region. There are more than 400 such manufacturing clusters across the country, of which nearly a half comprise energy intensive sectors like metallurgy, ceramics, glass, textiles etc. To survive and grow in today's fiercely competitive and globalised world, it is vital for Indian MSMEs to improve the energy efficiency of their manufacturing processes. This is especially so in the face of ever-rising energy costs, when energy accounts for a sizeable portion of manufacturing cost. Energy efficiency measures through tech-nology upgradation and operational improvement are seen as a solution that can ensure both economic and environ-mental benefit to the MSMEs.

Given this background, the government of India has taken certain initiatives to develop programmes and schemes specifically aimed at helping MSMEs improve their energy performance. The Bureau of Energy Efficiency (BEE), established under the Energy Conservation Act, 2001 launched the 'BEE-SME programme' during the 11th Plan. It focused on 29 energy intensive MSME clusters. More than 1,000 compre-hensive energy audits and 350 detailed project reports on energy-efficient technologies were prepared. In addition the, Technology and Quality Upgradation Support to MSMEs (TEQUP) scheme was launched by the ministry of MSME with the main objective to support MSMEs towards adoption of energy efficient technologies. At the state level, subsidies for undertaking energy audits are being offered by state governments, like in Gujarat.

Various bilateral and multilateral agencies have also been working actively towards promoting energy efficiency in the MSME sector. TERI with support from the Swiss Agency for Development and Cooperation has been engaged in R&D, demonstration and dissemination of energy efficient technologies in the major MSME sectors like glass, grey iron foundries, etc. The efforts have resulted in about 700 replications and estimated energy savings of around 170,000 tonnes of oil equivalent (toe) and reduction of 580,000 tonnes of C02 till date. Other agencies like World Bank, Unido and UNDP have also launched programmes focusing on energy efficiency and re-newable energy in the MSME sector. Special lines of credits offering low in-terest loans for energy-efficient projects are being provided by JICA, KfW and AfD through Sidbi.

However, the challenges in promoting energy-efficiency investments are many. MSMEs are large in number and geographically dispersed, awareness about EE technologies and financing options is low among them, and there are few channels of communication between MSMEs, technology providers and bank officials. The Working Group on MSMEs Growth for 12th Five Year Plan (2012-2017) recognises that technology and finance are key factors in enhancing the global competitiveness of Indian MSMEs. The Prime Minister's Task Force on MSMEs too has identified adoption of low technology and difficulties in accessing finance as major reasons for the poor competitiveness of the sector.

One of the lessons of TERI's experience of working in this domain is the need to guard against the tendency of using the 'one size fits all' approach. In order to enable MSMEs to move towards an energy-efficient pathway, it is vital to develop long-term cluster-specific pro-grammes for adoption of energy-efficient and environment-friendly technologies. The broader objective should be to develop supportive conditions and provide new, cleaner technological solutions, easy-to-access financing mechanisms in the MSME sector-leading to energy conservation and reduced impact on global climate.

Tags: MSME, TERI, TEQUP, GDP growth