Building a green India: How MSMEs can power a resilient, inclusive economy

India’s pledge to reduce emissions intensity by 45% of its GDP by 2030 from 2005 levels puts the country on an inevitable shift towards an economy that is reliant on renewables, rather than carbon-intensive mechanisms and fossil fuels. Responsible for 10-15% of the overall industrial sector emissions, MSMEs have the potential to catalyse this green transition; accelerating it by adopting energy-efficient technologies and circular economy principles. For years, India’s MSMEs have been the backbone of the country’s economic development, accounting for over 30% of GDP and 45% of exports.   

Apart from their respective default purpose that comprises strengthening and supplying to large-scale industries, MSMEs find themselves within an interlinked system of India’s manufacturing and service clusters, from textiles and foundries to food processing and IT services, making them critical nodes for energy and resource use.

At the same time, they are highly vulnerable to climate shocks like water scarcity, heat stress, and supply chain disruptions, which threaten livelihoods and business continuity. However, MSME’s have been signalling a clear shift towards sustainability. According to a Sustainability Perception Index by SIDBI and Dun & Bradstreet published last year, 89% of surveyed businesses reported a positive correlation between sustainable practices and profitability, thereby ensuring a concrete scope for green productivity.      

MSMEs: Anchors of green growth    

A bio-economy spearheaded by MSMEs ensures inclusivity and increased employment. Most MSMEs are predominantly located in rural areas and Tier II and III cities, where they serve as crucial pillars of job creation and community development. In these areas, farmers or workers create employment and enterprise opportunities. They may generate new green jobs in sectors like solar installation, waste recycling, water treatment, and sustainable agriculture by investing in green technologies and circular models, which would ensure higher rural incomes and reduced carbon footprints. According to media reports, clusters such as Moradabad and Ludhiana, that are associated with raw-material-intensive industries, benefit from common effluent treatment plants or shared rooftops. This helps cease pollution and energy costs for multiple units while also ensuring local employment opportunities in the fields of operation and maintenance.    

A climate-resilient economy would be built upon factors like agri-processing, handicrafts as well as sustainable tourism, through methods that promote circularity. Additionally, MSMEs that implement sustainable standards can advance up value chains, command premium rates, and secure long-term contracts as global customers increasingly demand ESG compliance. In addition to strengthening company resilience, this promotes the advantages of green growth to local communities, suppliers, and employees.   

However, the challenges associated with the implementation of sustainability measures in the MSME sector have been the outcome of a fragmented regulatory framework, the arduous task of securing trained labour, and obtaining low-cost funding for green projects. For example, according to a CEEW report published in November 2025, it has been observed that some small-scale MSME paper mills contribute towards excessive black liquor distribution and increased water consumption as a result of inefficient technologies.   

In order to bridge the gaps in finance, skilling, and market linkages, the expansion of digital literacy initiatives and streamlining compliance frameworks is necessary. Centring sustainability as these enterprises' core objective can turn climate action into a driver of competitiveness, jobs, and inclusive growth, not just a compliance burden. Apart from this, ensuring inclusivity and opportunities for women entrepreneurs would help curb the existing gender imbalance within the higher-value segments in circular economies.      

The way forward   

The Union Budget 2026 outlined a roadmap aimed at fuelling the country’s long-term economic growth, placing MSMEs, among others, at the centre of the government’s strategy. To boost the sector, the finance minister announced a proposal to set up a dedicated ₹10,000-crore growth fund to back enterprises based on select eligibility criteria. The Budget also proposed an additional ₹2,000 crore infusion into the Self-Reliant India Fund to extend equity financing to MSMEs with high growth potential. These measures are expected to strengthen access to capital for the MSME sector, the second-largest contributor to India’s GDP, employing nearly 280 million people as of July 2025.    

The government’s support aims to steer MSMEs towards the usage of sustainable technologies, access to better infrastructure, and to be able to set up common facility centres for testing, training, and accumulation of raw materials.    

By integrating green technologies and circular economy practices, such as energy-efficient machinery, recycling processes, and renewable energy, MSMEs can reduce their environmental footprint while enhancing competitiveness. For India to achieve its net-zero target by 2070, it is vital to back small and medium enterprises with targeted incentives, capacity building, and access to finance. This will generate employment in rural regions and localise green manufacturing across the renewable energy, bio-based products, and circular economy sectors.    

India’s journey towards a Viksit Bharat and the envisioned $30 trillion economy by 2047 cannot be achieved through the growth of large corporations alone. It requires the collective momentum of millions of small units. By centring sustainability, we transform climate action from a cost centre into a generator of competitiveness. For MSMEs to operationalise their green ambitions, it is imperative that government policies, private investments, finance flows, and civil society are all in alignment.        

(The author is vice chairman & MD, Emami Limited. Views are personal.)