Rapid shift to solar energy is key to enhancing MSME productivity and exports

India’s gross domestic product (GDP) growth numbers for Q4FY23 have brought much cheer and optimism in the economy and industry as it paints a rosy picture of the growth prospects in the current fiscal year (FY24) as well. The stellar show in Q4 has also lifted the overall growth in FY23 above 7%. 

In all likelihood, the current fiscal year’s growth numbers would also come close to 7%, which makes India again the fastest-growing economy in the world.

Amid all these positive vibes and exuberance, a matter of grave concern is the slow growth in the manufacturing sector. It is only 1.3% for the full year (FY23) and, notably, much lower than agriculture that has registered a 4% growth during the year. Despite the enormous thrust on domestic manufacturing through the ‘Make in India’ initiative and PLI schemes in the recent past, manufacturing remains the slowest growing sector in the economy.

The issues plaguing the manufacturing sector are complex and diverse. The slow pace of technology adoption in the MSME sector is one among them. 

A significant part of the country’s manufacturing output comes from the MSMEs, which contribute more than 30% to India’s GDP and around 48% to the country’s exports. The MSMEs consume about 25% of the total power utilized in the industrial sector. But the sector’s productivity enhancement is moving at a snail’s pace and it acts as a major drag on the overall manufacturing revival.

Surging energy cost is another component that bleeds the MSME sector. A majority of MSMEs are power-intensive and they shell out a substantial part of their income for energy expenses. 

A sustainable solution to this is to tap renewable energy sources like rooftop solar installations. Most MSMEs spend either between 5% and 10% or between 10% and 20% of their operating income on electricity, says a Deloitte Touche Tohmatsu India- CIF study in 2019.

Hence, the rejuvenation of the manufacturing sector can’t be achieved without re-energizing the MSMEs. Transitioning to clean energy practices is the best option at this juncture. According to the latest Mercom India Research’s Rooftop Solar Market Report Q1 2023, India has installed 485 MW of rooftop solar capacity in the first three months of this calendar year. In this, rooftop solar solutions comprise 26% of total solar installations, a 6.4% growth year-on-year. The industry anticipates an accelerated growth trajectory in the coming quarters on strong fundamentals.

According to the study, residential rooftop solar installations are on a stable growth track but industrial and commercial (I&C) installations are not showing a significant rise. In Q1, residential consumers contributed nearly 58% of the added capacity while industrial and commercial consumers accounted for 28% and 14%, respectively.

Though the rooftop solar projects are now commercially viable, they have not been adopted widely due to a host of issues, including a lack of dedicated financial instruments. 

Notably, India has missed its 2022 green energy target of achieving 175 GW. Only 121 GW of renewable energy capacity has been installed by the end of last year, which is about 69% of the target, the Parliamentary Standing Committee on Energy said early this year. The committee noted that “against the overall target of 40 GW to be achieved by the end of this year (2022), 5.87 GW of rooftop solar projects have been installed, which is an achievement of less than 15% of the target.”

India is committed to increasing its non-fossil energy capacity to 500 GW by 2030 and achieving the Net Zero target by 2070. With this pace in the implementation, achieving the 2030 target appears as an arduous task as the sector is not out of the woods completely. 

The Parliamentary panel report adds: “It has been observed that the rooftop systems are not proving to be attractive for the consumers due to non-availability of information at the grassroots level, lack of awareness about the schemes among the masses, time-consuming and complicated procedures for setting it up, and delays in disbursement of subsidy.”

Further, lack of clarity on regulations, net metering issues, high import duties on solar cells and modules, lopsided power purchase pacts, open access charges, state-specific variations in transmission and distribution policies, and financing issues, to name a few, are still plaguing the sector.

The power demand is increasing, and it is becoming pricey, too. The magnificent growth in the electric vehicles (EV) segment is a major demand driver and it prompts individuals to look for less-costly energy sources like renewables. To facilitate a clean energy transition, the country needs stable and uniform power policies across the states. Pro-market and structural reforms in the field of power distribution and transmission are vital to achieving the green goals.

The biggest incentive in pushing the rooftop solar projects in the MSME clusters is that it will bring a sizable part of India’s manufacturing under the green protocols. Additionally, it offers the micro-enterprises, which are jointly situated in the industrial clusters, an opportunity to unlock value by making use of their rooftops and vacant spaces for harnessing clean energy.

Widening the area under the rooftop solar panels in the MSME clusters will fetch additional benefits for small entrepreneurs as the clean energy initiatives always create enormous goodwill for them in the export markets. The US and European markets are ready to pay a premium for sustainably manufactured products.

Until and unless the MSME sector accelerates its transition into a green energy ecosystem and reduces its carbon footprint substantially in a time-bound manner, the country’s manufacturing output will remain more or less stagnant or see only marginal growth. A sustainable solution is the rapid adoption of cleaner technologies in the areas of renewable energy, energy efficiency, waste management, carbon emission, and clean transportation.