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Demonstration Effect: Empowering Micro-Enterprises through Just Transition


Energy Review, Vol 5. Issue 06. 2023

The diversity of India’s Micro, Small and Medium Enterprises (MSMEs) is the driving force of India’s growing economy, generating formal and informal employment opportunities, fostering local development, and keeping several traditional arts and crafts alive. For many MSMEs, addressing the challenges of infrastructural inputs such as high energy cost, compounded by issues of reliability and adequacy of electricity supply, is a key factor for their competitiveness and survival. Exploring energy transitions in the MSME sector opens up a huge avenue to affordable and reliable clean energy that can potentially help accelerate India's dedication and commitment for enhancing its renewable energy capacity to 500 GW by 2030, while also creating new jobs.

MSMEs in all sectors can benefit from and contribute to transition towards environmentally sustainable economies and societies. However, the transition needs to be ‘Just’ which is a complex task and is closely linked to the existing intrinsic barriers and challenges. Hence, MSMEs need support not only from the government but also from various stakeholders across the value chain to operationalize the clean energy transition to enhance productivity and resilience and to create an enabling environment for business growth.


The on-going Sustainable Energy in Micro-enterprises for Income and Livelihood Enhancement (SMILE) programme, a collaborative effort implemented by The Energy and Resources Institute (TERI) supported by IKEA Foundation is an attempt to facilitate such seamless deployment of energy efficient renewable energy technologies, specifically tailored to empower productive utilization. This initiative adopts a multifaceted and pragmatic approach which includes technical assistance, devising financial instruments, supporting market linkages, new partnerships, and up-skilling entrepreneurs.

Notably, the SMILE Programme has identified numerous micro-enterprise clusters, primarily concentrated in the state of Uttar Pradesh, which has the largest share of estimated MSMEs in the country, accounting for 14.20 per cent, of which a significant proportion are micro-sized and cottage/household-based, which aligns with the program's focus. Additionally, Uttar Pradesh is one of the most economically challenged and technologically marginalized regions in India, which has been on a path of progressive economic growth and transformation in recent times. The SMILE programme's intervention strategy encompasses diverse micro-enterprise clusters with the potential to adopt renewable energy technologies for production and business enhancement. Noteworthy examples include Brass clusters in Moradabad, Silk-weaving clusters in Varanasi, and Moonj rope-making clusters in Amethi and Sultanpur, among others.


The programme places paramount importance on empowering enterprises from marginalized sections, particularly those facing socio-economic challenges, encompassing considerations of economic and gender-based disparities.  Micro-enterprises within marginalized communities often operate as cottage or home-based businesses, characterized by limited profit margins and meagre financial resources. Such businesses are generally dependent on wholesalers and retailers to market their products, resulting in poor wages for their exclusive craftsmanship. It was evident during programme implementation that though the marginalised communities were interested to adopt renewable energy technologies, their inherent vulnerability renders these enterprises risk-averse, and there is a sense of trepidation and apprehension.

Despite the immense potential for transformative growth offered by clean energy solutions, particularly mature technologies like solar power interventions, the fear of incurring debt and the possibility of credit risks loom large. Their small scale of operation exposes them to financial instability, making them hesitant to undertake potentially transformative but uncertain and unheard-of endeavours. Their sense of business perceives investments in new technologies not useful when compared to investing in raw materials that could help improve their production and hence, profits. Inclusive community mobilisation efforts, technology display along with awareness on the potential costs versus benefits to business alone will not inspire the risk-averse marginalised communities to accept a new technology.  Neither would government schemes and programs supporting technology infusion in the MSME sector attract these communities, as these are accompanied by additional challenges such as lack of awareness of actual benefits, immense paperwork, and long waiting times, making availing schemes cumbersome.


Therefore, to address these formidable barriers, the SMILE program adopts an innovative and practical pathway. During the process of community mobilisation and implementation it was recognized that relatively larger and more stable micro-enterprises exhibit greater propensity to undertake transformative endeavours, serving as pioneers for change. By empowering these enterprises with renewable energy technologies and showcasing the tangible benefits that ensue, they can turn out to be compelling examples for their marginalized counterparts. Leading by example in this manner initiates a powerful ‘Demonstration Effect,’ wherein the transformative outcomes realized by the pioneering micro-enterprises instigate a ripple effect of enthusiasm and interest among their marginalized peers.


The success of the pilot projects demonstrated in the larger micro-enterprises has given the opportunity to the smaller micro-enterprises managed by the marginalised communities to witness first-hand, the positive impact on productivity, reliability, and cost savings. Word-of-mouth on the success of technology deployment in the short-term and benefits in the long-term significantly builds confidence. The initial reservations are gradually replaced with newfound conviction and eagerness to embrace sustainable energy solutions which also offer cost benefits. This strategic emphasis on inspiring micro-enterprises through examples sets in motion a virtuous cycle, where the 'Spillover Effect' comes into play. Energized by the successes of the pioneering enterprises, neighbouring micro-enterprises are emboldened to adopt renewable energy interventions, creating a momentum that permeates throughout the micro-enterprise clusters.

The strategic utilization of the Demonstration Effect' and 'Spillover Effect' not only expedites the pace of sustainable energy adoption but also enhances its comprehensiveness within micro-enterprise clusters. By building on the successes of relatively larger and stable micro-enterprises, the SMILE initiative will be able to achieve its objectives and targets much faster and more comprehensively. Though it was planned initially to target mostly the micro-enterprises within marginalized communities, its mid-course correction of demonstrating the pilot in large micro enterprises has empowered the small players to overcome challenges and take proactive steps to adopt new technologies. 

This proactive and adaptive approach will not only push further India's progress towards its ambitious renewable energy goals but also provides an opportunity for micro-enterprises from marginalized communities to participate actively in the country's transition to sustainable energy. As it is, the concept of demonstration projects could potentially contribute to the formulation of public policy by virtually gaining the approval of the community for replication at scale. As the SMILE program advances towards its ultimate goal of fostering a 'Just Transition' for all micro-enterprises, transcending economic and social boundaries, it serves as a beacon of hope for inclusive growth and sustainable development. Through such well-targeted initiatives, the SMILE program stands as a testament to the transformative power of collaboration, innovation, and inclusivity in India's journey towards a greener and more sustainable future.


(Dr Mini Govindan is a Senior Fellow, Ms Rashmi Murali is a Fellow, and Dr Amit Kumar Thakur is the Associate Director and Head of CSR at The Energy and Resources Institute (TERI), New Delhi.   Mr Abhinish Boora is a student at Dr B. R. Ambedkar School of Economics University, New Delhi.) ■□■


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