How digitalization can green the MSME sector
It is evident that the backbone of the Indian economy is the micro, small and medium enterprise (MSME) sector. This sector consists of nearly 64 million companies, second only to China in terms of GDP. MSMEs also created around 600,000 new jobs last year, in addition to employing over 110 million people and contributing nearly 50% of the country’s exports.
But this sector also contributes significantly to greenhouse gases (GHG), because it is energy-intensive. Studies indicate that the energy consumption of the Indian small business sector is equivalent to around 50 million tonnes of oil and gas per year.
As 70% of the country’s electricity consumption is met by coal, the segment’s indirect contribution to global warming is significant. It is therefore essential to determine how to reduce the energy consumption of MSMEs to mitigate climate change.
As the pandemic hits Indian 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 overcome a probable stagflation.
The demand for MSME products is unpredictable, their working capital needs are considerable, they lack a stable labor supply, institutional funding and they struggle to repay their loans. There are other problems, such as the lack of knowledge about the most energy and resource efficient production processes and technologies.
This contributes significantly to the industry’s energy consumption intensity, which often directly impacts profit margins. Several government initiatives aim to reduce GHG emissions in this sector. But scalability, lack of data, capacity building and funding remain major hurdles.
One of the promising solutions is the digitization of small business production processes. Digitization would mean adopting automation and artificial intelligence as integral parts of business strategies. But it is not limited to these alone. Other efforts include the development and adoption of appropriate software for workflow management.
Digitization could accelerate the clean energy transition of the MSME sector, improve energy efficiency and reduce resource use and waste. Here’s how digitization could achieve this:
Mapping Solar Potential Using GIS: Indian Small Businesses Encouraged to Adopt Rooftop Solar Power (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 horizontal surface on the ground.
Since these values measure the solar potential in an area, they are of particular interest to developers of solar photovoltaic panels. Using high resolution satellite images, the total footprint of MSME buildings or available real estate where the RTS could be installed can be mapped. Feature extraction can be scaled using machine learning tools. By correlating feature-mining data to the GHI and peak power consumption, and accounting for peak demand, one can estimate the annual potential for solar power generation in kilowatt-hours.
This will enable small business owners, cluster associations, solar developers and financial institutions to build an evidence-based solar potential estimate and create solutions.
Monitoring, summarizing and analyzing data: Machine learning enables companies to use data to achieve better results. It also fills a gap in sectors without in-depth technical knowledge. Machine learning provides deep understanding of operations in an digestible format. A GIS-enabled SCADA system can allow MSMEs to monitor dynamic processes with fixed geographic locations.
In the event of an error, the SCADA system immediately triggers an alert. This allows for timely fixes. Sensors and site controllers could regularly monitor the health of electronic components. Smart meters would provide past data on energy use, consumer behavior and consumption patterns. This could then predict future demand. This will eventually allow businesses to optimize their production, reduce their consumption, leading to greater revenue margins.
Digital platforms: Digital platforms with or without AI will allow users to track orders, manage warehouses and optimize processes. Data dashboards enable remote monitoring and effective prioritization to find optimal solutions to manufacturing issues.
These are just a few examples of how digitalization can transform Indian MSMEs in the years to come.
The Center and various states have extended their support to the MSME sector. West Bengal has launched a geospatial survey of MSMEs aimed at providing technologically advanced infrastructure.
However, these efforts focus on financial support, marketing, infrastructure and skills development. There is a need to put in place digitization policies, fund technology upgrades and improve technical expertise. We predict that as MSMEs digitize, their already significant contribution to the economy will only increase, while enabling a transition to cleaner forms of energy, thereby reducing GHG emissions.
Kajol is Senior Executive and Akansha Saklani is Head of Energy Program at WRI India
June 26, 2022