Primarily, MSMEs in India suffer from a knowledge deficit. Many firms that have the requisite capital, land, and, essentially, the inclination to enter this budding market are not firmly attuned with the ground realities and complications that can arise in the course of an undertaking such as setting up a solar equipment manufacturing plant or erecting a solar energy farm.
Geo-political turmoil and burgeoning concerns over rising crude oil prices mark today’s global macroeconomic scenario. In this context, Hardeep Singh Puri, Union Minister of Petroleum and Natural Gas, re-emphasized that in a strained economic matrix, where the world swings wildly across the recession and inflation spectrum, India will confidently push ahead with its switch towards green energy.
The minister’s statements are well-founded. His confidence in the innate capacity of India to switch over to cleaner energy sources is a reflection of the exponential progress being charted on ground zero. A green-clean energy revolution is underfoot in India, one that will help the country meet its longterm 2030 commitments of generating 500 GW of energy from renewable energy sources like solar, wind, and hydropower. As of mid-2022, India’s energy matrix is dominated by coal-based thermal power plants that account for 50% of the cumulative energy production. Renewable energy sources comprise 28%, but this skewed ratio is changing quickly, evident from the increased production of solar and wind power equipment and their elevated demand.
Sure, a transition so critical to the health of the domestic economy will not be executed in a quarter or even a fiscal year. The actual metric, herein, is that of incremental steps taken by the government that is amply bolstered by several subsidies and schemes. As these incremental measures come together over a relatively long timeline, India will not only successfully switch over to cleaner energy sources, but vast sections of its population that rely on fossil-fuel energy generation sectors will also be able to find fruitful employment in other lucrative industries. A report titled, Getting India to Net Zero shines ample light on the economic positioning India can target if it boldly executes a net zero emissions game plan. The report states that in its commitment toward achieving net zero emissions by 2070, India’s economy could be boosted by as much as 4.7% over the projected baseline GDP growth of 2036. The net zero emissions push can help add a whopping $371 billion to India’s economic muscle.
Boosters and brakes in the clean energy landscape
Of course, like any new project being groomed from the ground up, the Indian clean energy narrative will encounter its fair share of teething hurdles. A key determinant of whether the country is receptive to clean energy sources boils down to the final costs a consumer will be asked to fork out. Market dynamics for the power industry are no different from other segments; the power sector, if anything, reinforces the importance of costs, both operational and production, and demonstrates the significance of anchoring a business with the customer at its center. Clean energy, irrespective of how long its virtues run, will find no takers if the final cost to the consumer is not competitive vis-a-vis the power sourced from conventional energy sources. With higher costs than fossil-fuel-based energy, companies and firms operating in the solar and wind power generation milieu will either not funnel adequate investment into new projects or backpedal from investing in massive projects.
The game-changer that is the PLI solar manufacturing scheme
The Indian government, thankfully, knows that without the right kind of incentive, private players will not be as keen. Consequently, the Union Cabinet cleared the deck by approving a massive Rs 19,500 crore PLI scheme for manufacturing high-quality solar equipment. This, in effect, will have a multiplicative impact within the niche segment while triggering seismic changes in the power production game. This was the second tranche to be unveiled by the central government. The first scheme was worth Rs 4,500 crore, announced at the end of 2021. Both methods have been designed to materialize India’s international energy commitments and, more notably, create a cheaper energy source that is far less taxing to the environment while fostering economic growth for years to come.
For the record, the release of the second tranche of Rs 19,500 crore is expected to yield investments of Rs 94,000 crore, direct employment for close to 2 lakh, and indirect employment for an incredible 7.8 lakh people. In the coming years, India will create an additional capacity of 65 GW.
Manufacturing equipment being in tegral to the setting up of solar power farms, some of the largest brands in India forayed into the solar industry space. With clarity emerging on the margins in the business, one can expect other big companies to also get into the ecosystem and compete for a larger share of the clean energy pie.
How can SMEs help propel clean energy growth?
Indubitably, India is on an ever-evolving path regarding creating clean energy assets, and its march towards its goal is unrelenting. The more significant challenge for entrepreneurs in India is tapping into the virtuous cycle that will be released from the opportunities emanating from such schemes. But before MSMEs brainstorm on how they can benefit from the plan, they will have to make a complete reckoning of the numerous supply chain obstacles that can hamstring their lofty goals.
Primarily, MSMEs in India suffer from a knowledge deficit. Many firms that have the requisite capital, land, and, essentially, the inclination to enter this budding market are not firmly attuned with the ground realities and complications that can arise in the course of an undertaking such as setting up a solar equipment manufacturing plant or erecting a solar energy farm. What’s more, without the use of analytics, big data, machine learning, and AI, many firms will be unable to scale up their facilities to match future demand. This leads to a quandary. The SME in question, bold enough to step into foreign terrain, will either become a local player with a limited scope or will find its market share being swallowed up by a more significant corporate rival that could anticipate market changes and prepare accordingly. Otherwise, small MSME firms rarely have a fallback option to raise working capital, even when they desperately need it. This fate is not that of large corporates who get red-carpet treatment at banks, NBFCs, and other financial organizations.
This is not to deter MSMEs from jumping into the playing field. On the contrary, having a bird’s-eye view of the obstacles in the path can help these firms prepare better when facing them. There are a select few startups today in India that can arm these MSMEs with the latest in supply chain expertise, logistical efficiency, and digitized procurement and aid them in creating a framework of harmonized operations across several plants. In contrast, ensuring processes perform at optimum efficiency.
What does the future hold?
The clean energy opportunity in India is truly alluring, considering the vastness of the demand landscape and the current poorly serviced market demand. The Indian solar energy market stands fifth in size, while wind energy is the fourth largest in the world.
Between FY16-22, India’s renewable energy sector grew by an impressive 15.92% CAGR. Given that the latest Union Budget has only added more ammo to the industry’s arsenal, the development will continue at the same blistering speed. MSMEs across India must leverage this remarkable opportunity and take their business to the next level while simultaneously playing a cardinal role in nation-building.