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    What India’s MSMEs want from the budget to scale up renewable energy adoption

    Synopsis

    This year, MSMEs expect more from the Union Budget, to enable them to also become a part of the transition to cleaner energy sources. While the government has taken some steps in this direction, what is required are policies that integrate clean energy adoption by MSMEs as a part of budgetary allocations and policies.

    Untitled-1Agencies
    India’s 64 million small business community is the backbone of its economy. It contributes to a third of the country’s GDP, while providing employment to over 11 crore people. But the MSME sector is in the throes of change, debilitated by the economic impact of Covid-19 restrictions, and is desperately seeking ways to adapt to a changed reality.

    This changed reality is reflected in the dissipated and hybrid economic space that this sector is also part of now – a space that is at once catering to online and physical retail, or being part of supply chains that are virtual. All of this has forced MSMEs to find ways to increase operational efficiency and minimise costs, as margins and profits shrink.

    At COP26 last November, Prime Minister Narendra Modi pledged to get the country to carbon neutrality (means sucking out as much carbon as India emits into the atmosphere) by 2070, and announced an ambitious plan to produce half the energy the nation consumes from renewables. The country’s growing renewable sector is expected to play a leading role in bridging this gap, and indeed, benefit from policies that would enable accelerated renewable energy production. But to scale the adoption of renewables requires robust participation from the country’s MSME sector.

    Last year, Union Road Transport Minister Nitin Gadkari highlighted the untapped rooftop solar production potential of MSMEs at an online event titled 'Atmanirbhar Bharat – Opportunities in Solar & MSME'. However, from our work at several MSME clusters in various parts of the country, we have understood the challenges these small businesses face in adopting renewables. These challenges include limited or lack of access to finance, insecurity over long-term profitability, competitiveness, and sustainability of the sector itself. Small businesses are often unaware of the government’s rooftop solar schemes, financing options and the most optimal renewable technology and infrastructure that might suit them.

    A survey by Deloitte on solar rooftop awareness indicates that over 75 percent of small businesses in the paper, textile, and pharma industries are unaware of any schemes. Moreover, on-ground realities on the growth of solar rooftop systems reveals several bottlenecks to speedy adoption, undermining government’s ambitious targets. Apart from a lack of awareness, businesses we have worked with on renewables adoption and energy efficiency said they lack collaterals to pledge for loans for renewables infrastructure as their assets – plant and machinery – are committed to other financial instruments. Many of them also complained of high interest rates, lengthy processing time for loans, and extensive documentation.

    Rise in Solar project cost by 15-20%
    Steep decline in the cost of solar modules has driven the sector’s rise as the fastest growing energy source. But after plunging by 90% over the previous decade, solar module prices have risen by 20% since the beginning of 2021. The government has also planned to levy a 40 percent basic customs duty (BCD) on solar modules and a 25 percent BCD on solar cells from April 1 st 2022. This increase in cost would also deter the MSME sector, already reeling from losses, from adopting renewables.

    Ambiguity in Schemes and Policies
    While these challenges for MSMEs persist, there have also been frequent and abrupt changes in policies that have discouraged consumers. A new rule by the TNERC, for instance, has slowed down solar rooftop adoption by the MSME sector in that state. The DISCOM in Tamil Nadu have decided to attempt net billing instead of net metering (In net billing the prosumer sells the excess power at standard feed-in tariff while the energy they buy will be charged at slab rates, the savings for prosumers are far lower under net billing than under net metering). This arrangement is largely impacting the low tension (LT) commercial and industrial consumers. This eventually increases the overall payback on investment.

    MSME Expectations from Union Budget 2022-23
    Despite these challenges, MSMEs are interested in adopting cleaner energy technologies, but as mentioned above, they lack the financial and technical knowledge. The last Union Budget allocated INR 15,700 crore for MSMEs to recover from the detrimental effects of the pandemic. However, the budget did not prioritise technology upgradation schemes, incentives for clean energy adoption and creating a framework for green finance.

    This year, MSMEs expect more from the Union Budget, to enable them to also become a part of the transition to cleaner energy sources. While the government has taken some steps in this direction, what is required are policies that integrate clean energy adoption by MSMEs as a part of budgetary allocations and policies. These allocations must reduce the upfront cost of clean energy transition, incentivise renewables adoption through tax breaks, and enable easy financing of capital expenditure of clean energy infrastructure.


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    (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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