India’s journey to net-zero by 2070 hinges on decarbonising its MSMEs. Strategic interventions, technology adoption, and policy support will be key to this transformation
As India accelerates its economic growth, balancing industrial expansion with environmental responsibility has become a critical challenge. The country's heavy industries and micro, small, and medium enterprises (MSMEs) are at the forefront of this endeavour, aiming to reduce carbon emissions and achieve net-zero status by 2070.
According to Renewable Watch the government's focus on boosting domestic manufacturing presents a unique opportunity to embed sustainability and decarbonisation into the industrial growth strategy. However, achieving this goal requires a concerted effort to address the carbon footprint of India’s vast industrial sector, which includes a diverse range of enterprises.
According to the Centre for Study of Science, Technology and Policy (CSTEP), MSMEs contribute significantly to India's economy, accounting for 31 percent of the country’s GDP, nearly 50 percent of exports, and 57 percent of manufacturing employment. However, these enterprises are highly energy- and emission-intensive, making them vulnerable to rising energy costs. Decarbonising MSMEs is, therefore, crucial for reducing the industrial sector's reliance on fossil fuels.
India's heavy industries, too, play a significant role in the country's economy. The steel industry alone contributes 2.5 percent to India’s GDP and employs 2.5 million people, while the cement industry is rapidly expanding with plans to add 150-160 million tonnes of capacity by 2028. The chemical sector, currently the sixth largest in the world, is expected to grow from $178 billion in 2019 to $304 billion by 2025.
However, this industrial growth comes with significant environmental costs. By 2050, India's annual steel demand is projected to reach 489 million tonnes, potentially adding about 500 million tonnes of carbon emissions. The cement and chemical industries are also major contributors to the country’s carbon footprint. Currently, only 11 percent of the total energy consumption in heavy industries comes from electricity, with the remaining 89 percent reliant on fossil fuels. This presents a significant opportunity to increase the share of electrification in India’s industrial sector to drive decarbonisation.
Decarbonisation Strategies for MSMEs
A recent study by CSTEP, titled “Scope for Decarbonisation in the MSME Manufacturing Sector”, highlighted substantial opportunities for decarbonisation across seven MSME clusters in India. The study revealed that implementing a combination of energy efficiency measures, renewable energy solutions, and advanced technologies could lead to annual savings of 136,581 tonnes of CO2, 385,383 GJ in energy consumption, and Rs 370 million in energy costs.
Despite these potential benefits, the study identified several challenges in decarbonising the MSME sector, including limited access to finance, low compliance requirements for smaller industries, and a shortage of skilled workforce. To overcome these hurdles, CSTEP recommends developing state-wise MSME policies with emission reduction targets, promoting renewable energy adoption, and providing regulatory incentives for fuel switching.
The study evaluated 66 MSME units across five energy- and emission-intensive sectors, revealing the potential for significant reductions in energy consumption and carbon emissions. For example, the Delhi-NCR aluminium die-casting cluster could achieve a 36 percent reduction in energy consumption and annual emission savings of 3,123 tonnes of CO2 with an initial investment of Rs 90 million.
Challenges and the Way Forward
Despite the availability of decarbonisation solutions, several challenges hinder their widespread adoption. High costs and the immaturity of certain technologies, such as green hydrogen and CCUS, limit their uptake.
Additionally, the long lifespan of heavy industry plants complicates rapid transitions to new technologies.
The higher costs of green products also pose a challenge to market demand, underscoring the need for supportive policy measures and financial incentives. Access to financing remains a significant hurdle, particularly for MSMEs, which could be addressed through blended finance models and sustainability-linked loans. A shortage of skilled workers capable of implementing and managing new green technologies further complicates the transition.
A multi-faceted approach is essential to overcome these challenges. This includes strong policy and regulatory measures, such as standardising definitions for low-carbon products, promoting green procurement practices, and setting clear efficiency targets. Financial measures, such as blending grant capital with mainstream financing and offering sustainability-linked loans, will also be critical.
Technological innovation must be prioritised through continuous research and development to lower costs and improve the efficiency of emerging technologies. Collaborative efforts between industry, government, and educational institutions will be key to driving innovation and successfully implementing decarbonisation strategies.
India's energy transition presents an opportunity to create green jobs and develop new markets for green products. The development of a mature carbon market will be crucial to the success of this transition. While the path to decarbonising India’s industries is challenging, the long-term economic and environmental benefits far outweigh the difficulties.