In recent years, sustainable development and proactive climate action have been primary concerns for the Government of India. Several initiatives such as the ‘Zero Defect & Zero Effect’ and ‘Make in India’ show the government’s commitment to balancing economic growth with sustainable development. Typically, large enterprises have the wherewithal to upgrade their processes and operations to better align with sustainability targets. However, MSMEs face resource and capital constraints, hindering efficient up-gradation.
Despite such endemic constraints, MSMEs play a vital role in the Indian economy, making significant contributions to social and economic development by creating substantial employment opportunities at relatively lower capital costs and nurturing entrepreneurial ecosystems in the country. According to the Federation of Indian Chambers of Commerce & Industry (FICCI), as far as the Indian economy is concerned, the MSME sector makes up 45 percent of the total manufacturing output, 40 percent of the total exports, and 95 percent of the total industrial units. The sector also employs approximately 60 million people in rural areas, making it one of the largest sources of employment after agriculture.
Since MSMEs play such an important role in the Indian economy (MSMEs account for 30 percent of the gross domestic product), the development trajectory of this sector holds the key to achieving the Indian Government’s sustainability targets. A majority of MSMEs and local ‘green’ enterprises have high rates of natural resource ownership because they depend on these resources for their livelihood and sustenance. As a result, they are more environmentally conscious and invested in preserving these resources. Therefore, MSME activities and operations can have a significant positive impact in tackling climate change, preserving terrestrial and water ecosystems, and implementing sustainable production and consumption practices. An example of this is an MSME called Daily Dump, which has developed and deployed a range of composting solutions creating value for individuals and communities, providing ‘green jobs, and addressing the challenging waste management problem plaguing many Indian cities.
MSMEs have immense scope to build sustainable business models without losing profitability, especially in sectors such as decentralized renewable energy and energy-efficient construction practices. It is thus of vital importance that MSMEs have access to capital resources to continue to innovate and allow their business models to incorporate sustainable business practices without compromising capital efficiency.
MSMEs substantially contribute to the Indian economy by providing a three-pronged solution to endemic societal problems—eradicating poverty, providing goods and services, and facilitating economic resilience. In order to allow the MSME sector in India to achieve its full potential, there needs to be an increasing emphasis on technological innovation and tapping new markets. In conclusion, Government of India can incentivize innovation by providing increased access to funding opportunities and encouraging MSMEs in upcoming sectors such as eco-tourism, organic agriculture, hydroponics, and decentralized renewable energy through conducive policy frameworks.