As of 2024, medium and small scale industries (MSMEs) contributed nearly 30 per cent to India’s GDP, 36 per cent of the manufacturing output and 45 per cent of total exports.
However, irrespective of their economic contributions, all scales of industries need to transition towards green manufacturing and so do the MSMEs.
High energy consumption, lack of access to sustainable technology, limited financial support for green investments and inadequate regulatory incentives have slowed down the MSME’s leap towards sustainability.
The Union Budget 2025-26, while making strong commitments to MSME growth and clean-tech manufacturing, presents both opportunities and lacunae that need to be addressed.
India’s commitment to net-zero emissions by 2070 has led to a surge in green initiatives, including renewable energy expansion, transport electrification, industrial decarbonisation and others.
However, MSMEs lag far behind comparatively larger enterprises in adopting sustainable practices due to high upfront costs, inadequate awareness and limited technical expertise.
It is important to note that the Energy Efficiency Index for MSMEs remains low, with nearly 70 per cent of MSMEs still relying on conventional energy sources.
Government schemes such as MSE Green Investment and Financing for Transformation (MSE-GIFT) and the Zero Effect Zero Defect (ZED) initiative have made some progress, but more focused interventions are the need of the hour.
As noted by Finance Minister Nirmala Sitharaman in her Budget speech, the government hails MSMEs as the second growth engine of the economy after the agriculture sector, the Budget 2025-26 introduces several measures to strengthen the sector, including financial support and ease of doing business initiatives like credit cards for micro enterprises.
A key takeaway is the National Manufacturing Mission, which aims to make industries — small, medium and large— ready for a greener future. While clean technology adoption is a major part of this initiative, a more detailed roadmap is needed.
The Budget speech and its annexure lack clarity on allocation and execution strategy. However, if well-implemented, this mission could help MSMEs transition towards green manufacturing while ensuring compliance with environmental regulations.
Despite these measures, the Budget, overall, seems to fall short in fully integrating sustainability into its MSME development strategy. Few opportunities provided in this budget for greening the sector are:
Clean tech manufacturing push: The Budget allocates resources to promote clean technology manufacturing, including incentives for domestic production of solar PV cells, EV batteries, electrolyzers for green hydrogen, wind turbines, and grid-scale batteries. By enhancing domestic value addition and reducing import dependency, these measures could make it easier for MSMEs to integrate renewable energy solutions into their operations.
Enhanced credit and investment for MSMEs: Credit guarantee cover for Micro and Small Enterprises has been increased from Rs 5 crore to Rs 10 crore. Introduction of credit cards with a credit limit of Rs 5 lakh for micro enterprises on the Udyam portal will help small businesses
Fund of funds expansion: The Rs 10,000 crore allocation for startups under the Fund of Funds
The Budget falls short in providing direct subsidies to help MSMEs adopt costly green technologies, leaving many unable to invest in sustainability.
A structured carbon transition framework is also missing, with no clear roadmap for emissions monitoring or energy efficiency incentives at the MSME level.
Additionally, complex compliance regulations remain a barrier, as no efforts have been made to simplify sustainability requirements for small businesses. While workforce upskilling is emphasised, there is no dedicated initiative to equip MSMEs with expertise in clean technologies and sustainable manufacturing. Moreover, the high cost of cleaner fuels also hinders MSME green growth.
Financial measures like credit cards provide limited availability of funds but the Budget falls short of any focused green financing and there is a n additional need to ensure that all these financing options more accessible and known for MSMEs. Limited access to knowledge, affordable technology, lack of R&D focus and financial access barriers remain major challenges for the MSME sector.
Lastly, circular economy incentives are lacking, despite waste management being crucial for sustainability. Addressing these gaps is essential to making India’s MSMEs key players in the green transition.
As India moves towards its net-zero ambitions, addressing these gaps will be crucial to ensure that MSMEs, the backbone of Indian manufacturing, are not left behind. A more comprehensive and inclusive policy approach is needed to empower MSMEs for a sustainable and globally competitive future.