An overview of Indian MSME

1. Cluster business development units and development of a SIDBI energy project management unit (SIDBI)Nov 18, 2009

2. An overview of Indian MSME • MSE Sector Contribution to Indian Economy • 40% of Industrial Production • 32% share of exports • More than 1000 products • Second largest sector after agriculture • More than 13.3 million units • Largest employer after agriculture in India. • Accelerates the growth of Economy • Recorded growth rate of 13% in FY 2008 (12.6% in FY 2007) • Growth higher than GDP & industrial growth MSMEs drive the Indian Economy 2 Source : SIDBI annual report

3. An overview of Indian MSME FEATURES – • Very small in size (majority are MSE units) • Majority of units are proprietorship / family owned concern • Obsolete technology, production process • Lack of awareness of on energy efficient production options / technology • Lack of adequate finance for investments Tradition drives the MSMEs 3

4. Indian MSMEs : Challenges • Slow down in world economy -Severely affecting export based MSMEs in leather, textile, gems & jewellary, auto components, etc. • Financial crisis - Liquidity crunch for MSMEs • Dereservation of products - Threat from large corporates • Opening up of Economy -Increased overseas competition • Environmental protection issues - Threat to shut down / relocate • Small economic size - High production cost / uncompetitive in market MSMEs growth : High on Govt. Agenda 4

5. Indian MSMEs : Opportunities • Opening up of global market – Explore new markets • Outsourcing by large units - Opportunity to scale up • Recession - Right time for technological upgradation / improvement in production processes • Survive & Grow - Reduce cost to be competitive • Growth Mantra - Investment in Energy Efficient (EE) equipment/manufacturing processes as a tool to cut cost, protect margin and remain competitive. 5

6. Approach for EE lending in MSMEs • MSMEs are in all major industries & spread across the country in clusters. About 77% of 13.3 million MSMEs exist in clusters generating 72% of total employment and 61% of total investment in the MSME sector. • MSMEs at each cluster/industrial sector has its own specific characteristic. • To promote the EE in MSMEs, Cluster based approach could be an effective solution 6

7. Lending potential for EE in MSME clusters Cluster based approach – Pre-requisite • Identification of energy intensive MSME clusters – out of list of 388 clusters listed by UNIDO about 150 could be described as highly energy intensive and 162 with medium energy intensity • Energy saving potential of the cluster / Financial health of the sector • Availability of proven / commercial technologies suitable for the cluster • Replicability potential – service providers • Strong local association 7

8. Definition of Energy Efficiency • Energy Efficiency (EE) encompasses all changes that result in a reduction in the energy used for a given energy service (heating, lighting...) or level of activity. This reduction in the energy consumption is not necessarily associated to technical changes, since it can also result from a better organization and management or improved economic efficiencyin the sector (e.g. overall gains of productivity). by World Energy Council • This definition indicates at both - investments as also no investment / low investments for achieving EE.

9. No Investment / Low investment solutions • Lack of documentation of best practices (even basic practices) • Unwillingness of MSMEs to use experts :- • Low awareness • Non availability of experts at the field level • Unskilled manpower • High costs associated / non benchmarking of fees ( example of SMERA) • ‘AUDIT’

10. Investment solutions • Only a few Banks have schemes to fund EE financing • Sometimes EE proposal would involve replacement of certain fixtures / tools etc. which may result in asset coverage dilution • MSMEs looking for certain pull factors like concessional interest rates • Capacity building of bank officials

11. Promotional efforts • Awareness creation – • 40 workshops under JICA • Handbooks on EE – 4 no. • Partnership with BEE – 25 clusters – shelf of EE technologies • Capacity building of BDS providers/ energy experts • Cooperation with WB – use of Ind. assn/SPV for EE lending • Create a national level integrated mechanism to promote & Finance EE

13. Energy Efficiency in BDS Clusters • Activities include: • Exploratory – awareness, workshop / seminar, feasibility study • Experimental – Walk through audits, trainings etc. • Deeper implementation – energy audits, ISI, BEE rating etc. • More than 50 activities covering about 1000 MSMEs are planned upto March 2010. • Focus on documentation • Linkages with other schemes like ISI, Star rating etc.

14. WB – GEF project • To co implement with BEE • To generate 500 investments in energy efficiency in MSME sector from 5 clusters • Budget allocation of about $ 9 mio for 5 years • To work with • MSMEs • Banks / FIs • BMOs • Intermediaries – both financial and technical

15. SIDBI’s Assistance for EE Projects • Under KfW LoC SIDBI provided assistance to MSMEs in textile processing, foundry, forging, ceramics, tanning, CETP for investing in energy efficient clean production technologies to the tune of US$ 21 million (Rs. 103 crore). • LoC from JICA, Japan of JPY 30 billion for promoting EE projects in MSME sector. • sanctioned approx. 927 MSME proposals for EE projects totaling approx.US$ 55 million (Rs. 255 crore) under JICA • refinance facility to banks at concessional rates to encourage them to lend for EE projects in MSE sector. • New LOCs from KfW and AFD for financing energy efficiency in MSME sector 15

16. Thank You

17. Energy Management professionals - distribution Concentration in Western zone PUNJAB – LOW PENETRATION HP & UTTARANCHAL – LOT OF NEW DEMAND