Analyzing the Policy Landscape for Supporting the Clean Energy Transition in Small and Medium Enterprises in India

This Working Paper is part of WRI India's work on Energy.

In India, the micro, small, and medium enterprise (MSME) sector plays a significant role, contributing to 45 percent of the country's manufacturing output and 40 percent of its total exports. This sector is responsible for approximately 25 percent of the overall energy consumption within the industrial sector (MoMSME 2016).

This paper delves into policies, schemes, and programs geared toward bolstering energy efficiency, fostering the adoption of clean energy sources, and mitigating SMEs' carbon footprint, whether through direct implementation or indirect facilitation. The existing body of work on the energy transition in SMEs focuses largely on financial and technological impediments, whereas this paper explores the impact of clean energy policy uptake and the resulting benefits for SMEs. This paper undertakes a comprehensive review of the policies announced by the central government and state governments for SMEs over the period 2010-20 and analyzes them by developing a quantitative and qualitative assessment framework. The paper also examines previous policies to learn from ministry officials and state nodal agencies about initiatives in selected states (Haryana, Rajasthan, Gujarat, Tamil Nadu, and Himachal Pradesh) that have helped steer the energy transition in SMEs.

Key Findings:

• Governments, both the central government and state governments, are embracing the shift toward clean energy. This steadfast commitment is clearly mirrored in schemes and programs specifically intended to uphold environmental preservation and encourage sustainable development. These schemes are currently being revised to embrace and advance the adoption of clean energy technologies, energy efficiency, and renewable energy sources.
• A small set of schemes explicitly focus on promoting the adoption of clean energy and energy-efficient technologies and practices through direct financial incentives, grants, or subsidies and technology upgrades. Nevertheless, considerable challenges, such as lack of awareness, exist, necessitating swift action to accelerate the uptake of clean energy solutions. The reduction in subsidies and incentives, especially for schemes directed at clean energy initiatives, is a consequence of multiple factors, such as the impact of COVID-19, economic downturns, market volatility, global political complexities, and surging energy costs. These factors have widespread repercussions for SMEs across different sectors. Currently, SMEs' priorities revolve around stimulating business expansion and creating jobs as part of their pandemic recovery efforts. This has slowed down the rate of clean energy adoption by SMEs.
• Among SMEs, a substantial awareness gap persists concerning available schemes. Even given sufficient awareness, the procedures for applying for incentives and grants, receiving incentives, and accessing grants are perceived to be burdensome.
• Integration of central schemes with state initiatives amplifies the support provided, boosts adoption, and leads to observable outcomes. Conversely, uptake of stand-alone state-specific programs is limited.
• A comprehensive and robust framework that systematically evaluates the effects and outcomes of the clean energy transition is an integral component of policy and scheme guidelines.