Why Indian small businesses are spurning offers to go green

The MSME Green Investment and Financing for Transformation Scheme (MSME-GIFT) and MSME Scheme for Promotion and Investment in Circular Economy (MSME-SPICE) have barely seen any interest from micro, small and medium enterprises (MSMEs).

Only 629 GIFT applications and four SPICE applications have been approved till June, data on the Union MSME ministry’s performance smartboard showed.

These schemes are only meant for micro and small businesses.

While ₹6.87 crore has been dispensed under the GIFT scheme, SPICE has recorded an outgo of a paltry ₹36 lakh, with the two schemes slated to end in March 2026 and March 2027, respectively.

An email query sent to the ministry of MSME remained unanswered till press time.

Both schemes were launched in December 2023 as part of a World Bank-backed Raising and Accelerating MSME Performance (RAMP) project.

Green investments and emission reduction hold the key to MSME exports that account for 45.73% of the country’s exports, 30.1% of India’s gross domestic product (GDP) and 35.4% of manufacturing—especially in the wake of developed economies imposing carbon taxes.

Under the GIFT scheme, which has an outlay of ₹478 crore, micro and small enterprises can avail benefits in two ways—interest subvention and risk-sharing facilities. The interest subvention component, which has an allocation of ₹350 crore, provides affordable finance to micro and small enterprises for adopting green technologies by offering a 2% interest subvention per annum for a maximum of 5 years on term loans of up to ₹2 crore.

Under this component, micro and small enterprises that have received approvals for loans for green investments can seek interest subvention. Till June this year, a little over ₹6.87 crore had been disbursed, according to the Green MSME portal. which provides information and data about the GIFT and SPICE schemes.

Micro and small enterprises that have availed credit for green investments in renewable energy, energy efficiency, waste management, clean transportation, water management and circular economy practices can be part of the GIFT scheme.

The second component—the risk-sharing facility with an allocation of ₹125 crore—provides partial credit guarantee coverage to lenders, reducing their risk exposure when extending credit facilities to micro and small enterprises for green projects. Till June, no risk-sharing facility application had been accepted, and no loan amount guaranteed under this component, the Green MSME portal showed.

The SPICE scheme, which, with an outlay of ₹472.5 crore, allows micro and small enterprises to make green investments related to a circular economy, has also seen tepid interest from the industry. Only six applications have been filed, and four accepted, till June.

Under the SPICE scheme, the government provides a capital subsidy for circular economy projects in brownfield projects. The capital subsidy is up to 25% of a project cost up to ₹50 lakh. If the project cost is more than ₹50 lakh, the capital subsidy is capped at ₹12.5 lakh.

Circular economy projects eligible under the SPICE scheme include waste-recycling plants for plastics, rubber, electronic waste, municipal waste, compressed biogas, lithium-ion batteries, end-of-life vehicles and solar panels, among others.

India’s massive micro and small enterprise sector, made up of more than 65 million businesses, is a key driver of exports, but faces a critical hurdle in the form of carbon tax policies in developed economies, experts said.

“Indian micro and small businesses exporting to Europe will certainly bear the brunt of CBAM (Carbon Border Adjustment Mechanism). They will have to cut down emissions one way or another to be eligible for exports there,” said Gurudas Nulkar, professor and director, Centre for Sustainable Development, Gokhale Institute of Politics and Economics.

Under CBAM, a European regulation, shipments of steel, aluminium and some other products to the 27 nations of the European Union (EU) face a ‘carbon tax’ if the embedded carbon emission in these products is above what is allowed in EU.

Nulkar said micro and small enterprises that supply to other businesses do not have enough resources to turn their operations green. These are commonly manufacturing sector businesses, which run on low working capital and wafer-thin margins, he said.

On the other hand, micro and small enterprises that deal with consumers directly and are in the services sector may be pushed by investors to turn green. “Such consumer businesses do not want to remain MSEs but compete to be unicorns,” said Nulkar, an expert of industrial sustainability and environmentalmanagement.