Mint Explainer | Why NITI Aayog wants MSMEs to go green

Subscribe to enjoy similar stories. NEW DELHI: The Niti Aayog has called for a new mechanism to decarbonise India’s vast micro, small and medium enterprises (MSME) sector to help exporters meet green product requirements as Western economies roll out carbon-linked trade barriers.

In a report dated 22 January, the government think tank proposed setting up a National Project Management Agency (NPMA), offering viability gap funding (VGF), rolling out a rooftop solar scheme for MSMEs, and identifying clusters to adopt cleaner manufacturing practices. The effort is critical for a sector that contributes 45% of India’s exports, 30% of economic output, and employs around 330 million people.

Mint explains the plan being firmed up with the MSME ministry and what it means for small businesses.
MSMEs need to decarbonise operations to remain competitive in exports, with steep trade barriers related to cleaner manufacturing practices kicking in in India’s export markets. For instance, the EU’s carbon border adjustment mechanism (CBAM), a mechanism to curb less sustainable imports into the EU, began its definitive phase from 1 January.

“To fulfil the green ‘level’ product requirement of developed countries and regions, especially Europe and the Americas, etc., MSME processes (manufacturing, etc.) need to be decarbonised," the report said.

The government is looking to bridge the gap between MSMEs, which may have lesser resources to shift to more sustainable operations, according to the report. “Upcoming regulations may necessitate changes to manufacturing processes or products and reshape long-term marketing strategies, affecting supply chains, insurance costs, and increasing financial and political risks," the report said.