It is apparent that the Indian economy’s backbone is the Micro, Small and Medium Enterprises (MSMEs) sector. This sector consists of nearly 64 million enterprises, second only in size to China’s in terms of GDP. MSMEs also created about 600,000 new jobs this past year, besides employing over 110 million people and contributing to nearly 50 per cent of the country’s exports.
But this sector also contributes significantly to greenhouse gases (GHGs), as it is energy intensive. Studies indicate that India’s small business sector’s energy consumption is equivalent to about 50 million tonnes of oil and gas annually.
As 70 per cent of the country’s power consumption is met by coal, the segment’s indirect contribution to global warming is significant. So addressing how to reduce MSMEs’ energy consumption is vital for climate mitigation.
With the pandemic hitting India’s small businesses hard, exacerbated by the global economic slowdown and inflation induced by Russia’s invasion of Ukraine, the MSME sector urgently needs solutions that could help it tide over a likely stagflation.
Demand for MSMEs’ products is unpredictable, their working capital needs are considerable, they lack a steady labour supply, institutional finance, and they find it hard to repay loans. There are other problems, like lack of knowledge of the most energy and resource efficient production processes and technologies.
This significantly contributes to the sector’s energy use intensity, which often has a direct bearing on profit margins. There are several government initiatives to reduce GHG emissions in this sector. But, scalability, lack of data, capacity building and finance are still major barriers.
One of the solutions that holds promise is digitalisation of small businesses production processes. Digitalisation would mean embracing automation and artificial intelligence as integral parts of business strategies. But it is not limited to these alone. Other efforts include developing and adopting appropriate software for workflow management.
Digitalisation could accelerate the MSME sector’s clean energy transition, improve energy efficiency and reduce resource use and waste. Here’s how digitalisation could do this:
Mapping solar potential using GIS: India’s small businesses are being encouraged to adopt rooftop solar (RTS). Global Horizontal Irradiation (GHI) can be calculated using satellite data products. GHI is the total amount of shortwave radiation received from the Sun by a surface horizontal to the ground.
Since these values measure the solar potential in an area, they are of particular interest to solar PV developers. Using high-resolution satellite images, the total footprint of MSME buildings, or, available real estate where RTS could be installed, can be mapped. Feature extraction can be scaled using machine learning tools. By correlating the feature extraction data to GHI, and peak power consumption, and allowing for a spike in demand, one can estimate the yearly potential for solar electricity generation in kilowatt hours.
This will allow owners of small businesses, cluster associations, solar developers, and financial institutions to build an evidence-based solar potential estimation and create solutions.
Data monitoring, synthesis and analysis: Machine learning enables businesses to use data for better results. It also fills a gap in sectors without deep technical knowledge. Machine learning provides in-depth understanding of operations in a digestible format. A GIS enabled SCADA system can allow MSMEs to monitor dynamic processes with fixed geographical locations.
When there is an error, the SCADA system immediately raises an alert. This enables timely fixes. Sensors and site controllers could regularly monitor the health of electronic components. Smart meters would provide past power consumption data, consumer behaviour and consumption patterns. This could then predict future demand. This will eventually allow businesses to optimise their production, reduce consumption, leading to greater revenue margins.
Digital platforms: Digital platforms with or without AI, will allow users to track orders, manage warehouses, and optimise processes. Data dashboards allow for remote monitoring and effective prioritisation to find optimal solutions for manufacturing problems.
These are just some examples of how digitalisation can transform India’s MSMEs in the coming years.
The Centre and various States have extended support to the MSME sector. West Bengal has begun a geospatial survey of MSMEs aiming to provide technologically advanced infrastructure.
However, these efforts focus on financial support, marketing, infrastructure and skill development. There is a need for digitalisation policies, funding for technology upgrades, and improving technical expertise. We envisage that as MSMEs digitise, their already significant contribution to the economy will only increase, while also enabling a transition to cleaner forms of energy, thereby reducing GHG emissions.
Kajol is a senior manager, and Akansha Saklani is a manager at WRI India’s Energy Program