Hit by pandemic, cash-strapped MSMEs need an enabling environment to regain their foothold

As the MSME sector accounts for around 30% of India’s GDP, the provision of clean and uninterrupted electricity will provide a huge boost to micro-entrepreneurs in rural areas.

Electric line. Image courtesy of Tony Boon / Wikimedia Commons

Micro-entrepreneurship has always been one of the main engines of economic growth in India over the past five decades. As the country reeling from the devastating impact of COVID-19[female[feminine From both a health and economic point of view, all possible measures must be taken to support this vital sector. Not only will this be critical to India’s economic recovery, the sector also employs millions of people, many of whom have reportedly been hit hard by the pandemic.

Providing reliable electricity has the potential to be a game-changer for microentrepreneurs, as the savings and guarantees it brings to cash flow can enable horizontal and vertical expansion. Providing clean energy, especially solar energy, is one way to achieve this and would provide a huge boost to micro-entrepreneurs in rural areas.

It is difficult to overstate the importance of micro, small and medium enterprises (MSMEs) to the growth of the Indian economy. The MSME sector accounts for around 30 percent of India’s GDP. According to the 73rd round of the national sample survey in 2015-16, there were up to 633.88 lakh of unincorporated and non-agricultural MSMEs engaged in a variety of activities employing a total of 1,109.89 lakh of people.

The MSME sector is also dominated by micro-entrepreneurs – up to 99% of MSMEs were micro-enterprises (630.52 lakh). It is important to recognize that these figures do not recognize any MSMEs registered under Indian laws like the Factories Act, 1948 or the Companies Act (1956 or 2013).

The rural-urban split is roughly equal – 51% versus 49% respectively – so for the sake of simplicity, one could argue that any measure targeting rural micro-entrepreneurs affects 15% of India’s GDP. And electricity is an important factor in the operating costs and overall productivity of rural microentrepreneurs. Although India has reached almost 100% of village electrification, reliability, quality and last mile access remain critical issues. These constraints significantly hamper micro-entrepreneurs who often have to rely on diesel generators to maintain continuous operation, despite rising fuel costs.

Providing clean and reliable energy allows micro-entrepreneurs to save above all on the expensive operating costs of diesel generators. Then, more importantly, the guarantee provided by reliable power allows them to scale up their operations or expand into other businesses without having to deal with uncertainties and unreliable increases in electricity on their own. cash flow. This will be of vital importance for policy goals such as Vocal for Local, Make In India and Aatmanirbhar Bharat.

However, for this to happen, we need to move towards a more equitable and inclusive definition of energy access. India only achieved its goal of 100% village electrification because villages meet the criteria for “electrification” if the power cables from the grid reach a transformer in the village and supply 10% of households as well as schools and health centers. This definition leaves 90 percent or nearly 31 million households without access to electricity and does not materially affect the lives of most villagers. Only 7 percent of villages have 100 percent electrification of all households.

Access to energy must be thought of in more inclusive terms so that policy measures have an impact on the realities on the ground. The recent Saubhagya program which aims to electrify households 100% is a positive step. But again, the program relies on households willing to pay an electricity bill at the meter, which is unlikely to be attractive to many. In addition, the scheme only covers households and does not target MSMEs whose electricity needs differ considerably from those of households. The only way to achieve real and meaningful change on this front is for different government departments of energy ministries and MSMEs to coordinate to provide a consolidated mechanism to support rural electrification efforts for microentrepreneurs.

Clean energy will be one of the easiest ways to scale up electrification efforts in rural areas. Whether through decentralized solutions such as solar micro-grids or more centralized options, renewables are the fastest growing sector in the energy sector. The government will need to support investments in renewable energy, through measures such as the recently announced production-linked incentive program for battery manufacturing, as well as subsidies for deployment in rural areas. A push towards capacity building will be vital to ensure that clean and sustainable energy can reach even remote communities. These measures will be win-win for governments as they will have the added benefit of boosting local economies with jobs and income in addition to the spillover effects they will have on MSMEs.

It is also important to recognize the devastating impact COVID-19[female[feminine has had on both rural and urban MSMEs. The liquidity shortage resulting from several lockdowns has caused hardship for many of them, and it will be vital that the entire ecosystem around micro-entrepreneurs from ministries, banks, microfinance institutions and the National Rural Livelihood Mission help them get through this time. In addition to providing credit, the provision of reliable electricity will go a long way in revitalizing this crucial segment of the Indian economy and help jumpstart India’s economic recovery as we, and the rest of the world, slowly emerge from the crisis. pandemic.

The author is CEO, SPI

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