Why reliable electricity is key to revitalise pandemic-hit MSMEs and boost Indian economy


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

Jaideep MukherjeeJuly 01, 2021 14:51:53 IST

Micro-entrepreneurship has historically been one of the big drivers of economic growth in India in the last five decades. As the country reels from the devastating impact of COVID-19 , from both a public health and economic perspective, all possible measures need to be taken to support this vital sector. Not only will it be critical to India’s economic revival, but the sector also employs millions of people, many of whom would have faced the brunt end of the pandemic.

The provision of reliable electricity has the potential to be a gamechanger for micro-entrepreneurs as the savings and guarantees it brings to cash flows can allow for horizontal and vertical expansion. The provision of clean energy, especially solar energy, is one way to ensure this and would provide a huge fillip to micro-entrepreneurs in rural areas.

It is hard to overstate the importance of micro, small and medium enterprises (MSME) to the growth of India’s 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 as many as 633.88 lakh unincorporated, non-agricultural MSMEs engaged in a variety of activities employing a total of 1,109.89 lakh people.

The MSME sector is also dominated by micro-entrepreneurs — as many as 99 percent of MSMEs were micro-enterprises (630.52 lakh). It is important to recognise that these numbers don’t recognise any MSMEs registered under Indian statutes like the Factories Act, 1948 or the Companies Act (1956 or 2013).

The rural-urban split is fairly equal — 51 percent vs 49 percent respectively — so for the sake of simplicity, it could be argued that any measure targeting rural micro-entrepreneurs has a bearing on 15 percent of India’s GDP. And one significant bearing on operating costs and overall productivity for rural micro-entrepreneurs is electricity. Though India has achieved nearly 100 percent electrification of villages, 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 operations, despite the increasing costs of fuel.

Providing clean and reliable energy allows micro-entrepreneurs to first and foremost save on the expensive operating costs of diesel generators. Then, more importantly, the guarantee provided by reliable energy allows them to increase the scale of their operations or expand into other businesses without having to navigate the uncertainties and increases unreliable electricity has on their cash flows. This will be of vital importance to policy goals like Vocal for Local, Make In India and Aatmanirbhar Bharat.

However, in order 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 percent electrification of villages because the villages meet the ‘electrification’ criteria if power cables from the grid reach a transformer in the village and supply 10 percent of households as well as schools and health centres. 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.

Energy access needs to be thought of in more inclusive terms so that policy measures have a bearing on ground realities. The recent Saubhagya scheme which aims for 100 percent electrification of households is a positive step. But again, the scheme relies on households willing to pay a metered bill for electricity, which is unlikely to prove attractive to many. Furthermore, the scheme only covers households and does not address MSMEs whose electricity requirements drastically differ from households. The only way that true and meaningful change is achieved on this front is if different government departments from the Ministries of Power and MSMEs coordinate to provide a consolidated mechanism to buttress rural electrification efforts for micro-entrepreneurs.

Clean energy will be one of the easiest ways to scale electrification efforts in rural areas. Whether it be through decentralised solutions like solar micro-grids or more centralised options, renewables are the fastest-growing sector in the energy sector. The government will need to support investment in renewables, through measures like the recently announced production-linked incentive scheme for battery manufacturing as well as subsidise rollouts in rural areas. A push towards capacity building will be vital in ensuring that clean and sustainable energy can reach even remote communities. These measures will be a win-win for governments as they will have the added benefits of boosting local economies with jobs and revenue on top of the knock-on effects they will have on MSMEs.

It is also important to recognise the devastating impact COVID-19 has had on MSMEs both rural and urban. The cash crunch resulting from multiple lockdowns has caused many of them to struggle, and it will be vital that the entire ecosystem around micro-entrepreneurs from government departments, banks, micro-finance institutions and the National Rural Livelihood Mission rallies around micro-entrepreneurs to help them through this time. Aside from providing credit, the provision of reliable electricity will go a long way in revitalising this crucial segment of the Indian economy and will help kickstart India’s economic revival as we, and the rest of the world, slowly emerge from the pandemic.