Energy usage in MSMEs - An outlook

Published on Jun 27, 2022

As today(June 27) is MSME day, we wanted to share something important. And this is not just with respect to MSMEs but also shows the present state of energy usage in India.

So what are MSMEs?

MSME is Micro, Small and Medium Enterprises whose net turnover is less than INR 250cr. They include our local Kirana stores, mills, khadi industries, startups, etc.

Why are MSMEs important?

MSMEs in India contribute to nearly 8% of the country’s GDP, accounting to 90% of industrial units, around 45% of the manufacturing output, and approximately 40% of the country’s exports. In fact, they are referred to as the backbone of the country.

It isn’t easy to run an MSME when you are hit by lockdowns, rise in fuel prices, global supply chain issues and inflation in prices of supply goods. But that is where many MSMEs stand out and inspire us by circumventing such situations and making new innovations.

Let’s now understand the Energy usage in these MSMEs:

In India, power per unit costs for industries are lower than in some of the major economies. But that’s just the face value of it. If you compare it along the lines of PPP (purchasing power parity), which gives us a better look at the cost of living, it is 4–5 times the cost in major economies like the US.

In a study by BEE (Bureau of Energy Efficiency), for a cluster of 180 energy-intensive MSMEs, it is observed that their energy consumption is 261.45 bn units annually. This amounts to nearly 20% of total India’s power consumption annually😱

Yet, only 48.2% of MSMEs use electricity as the primary source of energy; 38.6% do not rely on any formal power source at all.

So, there is a clear case to improve Energy Access & Energy efficiency, right? Probably, not yet.

Let’s first talk about problems affecting Energy access.

The biggest challenge MSMEs face is the lack of access to formal credit. Enterprises rely on informal and personal finances for over 50% of CAPEX and 60% of OPEX. The Low (or perceived low) creditworthiness of many MSMEs remains a barrier to adopting measures, which could otherwise help their bottom line.

And how about Energy Efficiency?

MSMEs competing with large enterprises are usually ready to deploy things which help their bottom line. It is reported that ‘MSMEs are three times more likely to carry out an energy-efficiency audit and three-and-a-half times more likely to invest in energy-efficient technologies (EETs).’

Then what’s stopping the adoption of such Energy-efficiency technologies?

One is a lack of awareness. A CEEW survey of 429 MSMEs in 11 clusters in eight states found that only 45% were aware of EETs relevant to their sector. Awareness that such measures could help their bottom line for long periods of time and reduce their impact on the environment, is not vividly present.

The other is such technologies are costly to adapt. In fact, it is reported that the Technology and Quality Upgradation (TEQUP) scheme, responsible for implementing such measures in MSMEs had a budget of less than 1% of the overall budget of the Development Commissioner-MSME (DCMSME) during the 12th Five-Year Plan. And 70% of this tiny allocation remained unspent.

Though the situation looks dire, MSMEs are known to weather out such situations with grit, isn’t it? So, let’s see how our MSMEs shape up in the coming days.

Written by Zodhya

About Zodhya

We are Zodhya, a start-up that provides AI-based tech to reduce energy bills and lower emissions for commercial buildings and industries.