Introduction to Sustainability Matters in SMEs

Global Context

SMEs (Small and Medium Enterprises) form the backbone of the global economy. According to the UN, SMEs represent ~90% of all businesses worldwide, generate 60–70% of global employment, and contribute nearly half of global GDP. Their collective actions make them indispensable to sustainability outcomes.

Indian Context: MSMEs

In India, the term MSMEs (Micro, Small and Medium Enterprises) is used. They are legally defined under the MSME Development Act, 2006, which has been revised periodically to reflect economic changes. The most recent thresholds were introduced in 2025.

Exam tip: The 2025 thresholds are high-yield — know the exact investment & turnover caps for each category.

Classification Thresholds (MSME Development Act, 2025)

This classification determines eligibility for policy benefits, institutional credit, and government support schemes.

Udyam Registration — A Transformative Milestone

Introduced on 1 July 2020, Udyam Registration replaced the earlier system with a digital, paperless, and transparent registration process. It provides MSMEs streamlined access to credit, subsidies, and government programmes, bridging the gap between policy frameworks and ground realities.

Key takeaways

• SMEs = 90% of global businesses, major employer & GDP contributor.
• India uses the term MSMEs, governed by the MSME Development Act 2006 (latest revision 2025).
• Classification based on investment and turnover — micro/small/medium.
• Udyam Registration (2020) simplified formalisation and access to support.

---

2. Significance and Contributions of Indian MSMEs

India hosts over 63 million MSMEs operating in manufacturing, services, and trade. They provide employment to over 110 million individuals and contribute substantially to national GDP and exports. MSMEs are often called the backbone of India’s economy — from neighbourhood kirana stores to textile units and tech startups. Their large-scale adoption of sustainability would have a powerful multiplier effect on economic resilience and ecological stewardship.

Key takeaways

• 63+ million MSMEs, 110+ million employees.
• Pervasive across sectors — retail, manufacturing, services.
• Described as the backbone of India’s economy.

---

Challenges

• Credit gap: The World Bank estimates India’s MSME sector faces a credit gap exceeding $380 billion.
• Outdated technologies: Many MSMEs use obsolete machinery and processes.
• Cumbersome compliance: Complex regulations limit scaling.
• Limited sustainability awareness: Lack of knowledge about green practices and frameworks.

Opportunities

Despite constraints, a new landscape is emerging:

• Sustainability imperatives in global economic order (green supply chains, consumer awareness).
• International buyers demand environmental and social compliance.
• Domestic markets increasingly favour products with lower ecological footprints.
• Proactive MSMEs can become agile, future-oriented enterprises by:
  • Adopting energy-efficient technologies
  • Integrating into green supply chains
  • Harnessing digitisation

Key takeaways

• Major challenges: credit gap ($380B), outdated tech, compliance, low awareness.
• Opportunities arise from global sustainability trends, buyer demands, and green markets.
• MSMEs that embrace sustainability early gain competitive advantage and resilience.

---

4. National Policy Frameworks Aligning MSMEs with Sustainability

Three major frameworks set the strategic direction for MSMEs in India’s sustainability agenda.

4.1 Viksit Bharat 2047

Viksit Bharat 2047 is India’s long-term vision to become a developed nation by the centenary of independence (2047). It rests on three foundational pillars:

1. Economic prosperity — fair competition, tax & trade reforms to integrate MSMEs into global value chains, reducing dependence on concentrated trade partners.
2. Social inclusion — MSMEs as engines of job creation and skill development, absorbing India’s young workforce.
3. Environmental sustainability — MSMEs adopt sustainable practices to reinforce national competitiveness.

Within this framework, MSMEs are expected to diffuse industrialisation beyond metropolitan cities, generate employment, and drive inclusive growth and innovation.

4.2 Mission LiFE (Lifestyle for Environment)

Mission LiFE was introduced by Prime Minister Narendra Modi at COP26 (Glasgow, 1 Nov 2021) as a mass movement for mindful and deliberate utilisation (vs mindless consumption). It transforms sustainability from an abstract policy goal into concrete actionable practices for individuals, communities, and businesses — including MSMEs.

Practical Application Areas for MSMEs

Mission LiFE moves sustainability from policy to lived practice — helping MSMEs balance cost efficiency, compliance, and competitiveness.

4.3 Panchamrit Climate Commitments

India’s Panchamrit commitments were announced at COP26 and marked a shift toward proactive climate leadership. The business lesson is that MSMEs can also move from reacting to requirements toward leading sustainability in their sectors.

Exam tip: You are expected to understand the link between these three frameworks (Viksit Bharat, Mission LiFE, Panchamrit) and their collective implications for MSME sustainability.

Key takeaways

• Viksit Bharat 2047: three pillars — economic prosperity, social inclusion, environmental sustainability.
• Mission LiFE: actionable sustainability for MSMEs in energy, water, waste, food, health, e-waste, supply chains.
• Panchamrit: India’s climate commitments at COP26, including net-zero target; MSMEs can become “net heroes”.

---

5. Government Schemes Operationalising Support

These schemes translate sustainability into enterprise-level practice.

Key takeaways

• Udyam (2020) enabled formalisation and credit access.
• ZED (2022) promotes quality + environmental responsibility.

---

6. Case: Net Zero to Net Hero

India’s bold COP26 declarations reshaped global perceptions — from a cautious actor to a proactive climate leader. The transition from pledging Net Zero to being recognised as a climate hero offers a direct parallel for MSMEs: by embracing sustainability, they can move from reactive participants to proactive leaders in their industries.

---

7. Practical Activity (Suggested Reflection)

Visit a local MSME (kirana store, tailoring unit, bakery). Observe:

• Energy, electricity, water usage
• Waste disposal and packaging materials
• Supply sourcing

Map observations to Mission LiFE themes. This grounds the frameworks in everyday business reality.

Overall Key Takeaways

• MSMEs are pivotal to India’s economy (63M+ units, 110M+ jobs).
• Challenges (credit gap, tech, compliance) are matched by sustainability-driven opportunities.
• Three policy frameworks (Viksit Bharat 2047, Mission LiFE, Panchamrit) provide strategic direction.
• Practical schemes (Udyam, ZED) support transformation.
• MSMEs that innovate and align with sustainability will thrive in a future where competitiveness and sustainability are inseparable.

Sustainability Matters for SMEs

This module introduces the key terminology that small and medium enterprises (SMEs) must internalise to embed sustainability into their core strategy. The concepts below are the vocabulary of global climate action — from international pledges like the Paris Agreement and COP summits to everyday business decisions. Every entrepreneur and manager needs to speak this language fluently.

---

Climate Mitigation

Climate mitigation means human intervention to reduce greenhouse gas (GHG) emissions or enhance carbon sinks (e.g., forests, soil, oceans that absorb CO₂).

• Intuition: Stop making the problem worse; actively clean up the mess. For an SME, this is about resource efficiency and cutting waste.
• Examples of SME actions:
  • Saving energy (e.g., LED lighting, efficient machinery)
  • Conserving water
  • Recycling waste
  • Planting trees or restoring green spaces (carbon sinks)
• Personal credibility: Small signals matter — using a reusable stainless steel bottle instead of a disposable plastic one demonstrates commitment.
• Global context: Countries and corporations pledged mitigation targets under the Paris Agreement. Understanding this timeline (see Media and Climate Change textbook) frames why mitigation is the first step.

Exam tip: Mitigation is about reducing emissions at source. Do not confuse with adaptation — mitigation addresses the cause, adaptation deals with the effects.

---

Climate Adaptation

Climate adaptation is the process of adjustment in human systems to actual or expected climate and its effects, in order to moderate harm or exploit beneficial opportunities.

• Intuition: The climate is already changing — we must learn to live with it. SMEs can find business opportunities in this necessity.
• Examples:
  • Millets (ragi): Climate-resilient crops that thrive in heat and water scarcity. India’s Millet Mission empowers farmers to shift to hardy grains, opening SME opportunities in processing, marketing, and value-added products.
  • Wiper blades for cars: Extreme rain requires durable equipment; SMEs can manufacture or supply better wiper blades for emergency vehicles.
  • Flood monitors & early warning systems: Sensors on riverbanks, satellite imagery, and real-time data apps can alert communities to cloudbursts, landslides, and flash floods. SMEs can develop, install, or maintain these systems.
• Exploiting opportunities: Adaptation isn’t just defence — it’s identifying new markets (e.g., heat-resistant infrastructure, drought-tolerant seeds, insurance products).

---

Climate Resilience

Climate resilience is the capacity of social, economic, and environmental systems to cope with a hazardous event or trend, responding and reorganising in ways that maintain essential function, identity, and structure, while also maintaining capacity for adaptation, learning, and transformation.

• Intuition: After a shock, a resilient system bounces back to the same or better state — not just survival, but maintaining social order and learning.
• Community-level example: Indigenous peoples (e.g., in the Western Ghats, Andaman & Nicobar Islands, Pacific Islands) often detect early signs of tsunamis or extreme weather using nature-based indicators. Their leaders guide the community on evacuation, food storage, and staying indoors.
  • This traditional knowledge was highlighted at the G20 summit as a resource to be documented and applied.
• SME relevance: Businesses can build resilience in vulnerable communities by:
  • Providing communication tools (apps, sirens)
  • Designing affordable storage solutions that protect crops from extreme weather
  • Creating supply chains that hold during disruptions

Exam tip: Resilience includes transformation — the system may change fundamentally. Adaptation is a specific adjustment; resilience is the broader capacity to absorb, adapt, and transform.

---

Circular Economy

Circular economy is a sustainable economic model in which products and materials are designed to be reused, remanufactured, recycled, or recovered — keeping resources in use as long as possible, eliminating waste.

• Intuition: Instead of “take-make-dispose”, materials flow in cycles. SMEs are essential because large corporations often rely on small suppliers to handle recovery, repair, and recycling.
• Examples: Remanufacturing spare parts, collecting used electronics, turning textile scraps into new fabric.

---

Indigenous Knowledge

Indigenous knowledge refers to the philosophies, values, skills, and competencies developed by societies with a long history of interaction with their natural surroundings. It is a living reservoir of climate wisdom.

• Relevance: Indigenous communities observe subtle changes (e.g., prolonged heat spells, delayed monsoons) and respond with practices like crop rotation, diversified planting, and seasonal migration.
• Evidence from research: In the textbook Media and Climate Change (Chapter 6, p. 71; Table 6.1 on p. 77), a study in the Western Ghats documented community responses to climate and socioeconomic change:
  • Introduction of resilient crops (e.g., millets)
  • Labour migration
  • Skipping meals
  • Selling assets or borrowing money
• SME opportunity: Develop apps or services based on indigenous indicators (e.g., cloudburst alerts, crop-planting calendars), support value chains for traditional crops, and create market access that respects local knowledge.

---

Key takeaways

• Climate mitigation reduces emissions; SMEs can act through energy, water, waste, and carbon sinks.
• Climate adaptation adjusts to actual changes; SMEs can profit by creating products that help communities cope (e.g., millets, wiper blades, flood monitors).
• Climate resilience is the capacity to withstand, reorganise, and learn from shocks — indigenous knowledge offers proven strategies.
• Circular economy closes material loops; SMEs are vital for reuse, remanufacture, and recycling.
• Indigenous knowledge is a credible, field-tested source of climate solutions; SMEs should collaborate with local communities for mutual benefit.

Defining "Local Entrepreneurship" over "SME"

The term MSME (Micro, Small & Medium Enterprise) is a legal/statistical classification based on size. However, the interview argues that a more accurate lens for understanding this sector is local entrepreneurship — a broader category that includes cooperatives, NGOs, social enterprises, for‑profit businesses, and startups. All can be part of the SME space, but the label "local entrepreneurship" captures their common trait: they are embedded in a specific community and operate at a scale that is not global.

Exam tip: In course discussions, be ready to explain why “local entrepreneurship” is preferred — it includes non‑registered entities and social ventures that the narrow MSME definition often misses.

Grassroots Policy Exposure: The LAMP Fellowship

The LAMP Fellowship (Legislative Assistant to a Member of Parliament) provided a direct view of how policy is made for MSMEs at the grassroots level.

• Fellows are assigned to MPs across party lines, working only on non‑political, public‑interest tasks.
• Key activities: engaging with constituents (small business owners), attending the CII Parliamentary Forum, tracking government responses to parliamentary questions.
• COVID‑19 impact: MSMEs were the hardest hit. The fellow’s work involved studying international support initiatives, private‑sector responses, and technology adoption needed for business model transformation.
• Outcome: a personal compilation of 26–27 government schemes supporting different facets of setting up an MSME unit (women‑owned businesses, disadvantaged communities, marketing, warehousing, quality testing, e‑commerce linkages).

The Government Ecosystem for MSMEs

The support is not limited to the MSME Ministry alone. Multiple ministries run their own MSME‑focused initiatives:

Key insight: This ecosystem is not a one‑time initiative — it is a deliberate, multi‑stakeholder effort to create an enabling environment touching every sector and region.

International Examples of SME Support

North Africa (Egypt, Sudan, Ethiopia)

• A tech startup digitised HR and customer management for small hotels/restaurants (an SME that could not afford custom software).
• It leveraged government grants for tech adoption to provide a one‑time digitalisation service.

Latin America (Bolivia, Peru)

• Blended finance models involving multinationals (e.g., Nestlé in coffee plantations).
• Government + private sector jointly offer grants for climate‑resilience upgrades, skill building, and quality improvement for SMEs in the supply chain.

Local adaptation: The "One District One Product" (ODOP) approach in India — each district identifies a flagship product; local panchayat and district skill committees tailor schemes to that product.

The Sustainability Dimension & Motivation for a Global Masters

The interview distinguishes two meanings of sustainability for SMEs:

1. Risk management – making the business resilient to shocks (e.g., COVID‑19, climate extremes).
2. Impact – contributing to lowering carbon emissions, social equity.

No one‑size‑fits‑all solution exists; solutions must be contextualised for the developing world (Global South). The speaker’s motivation for studying at The Fletcher School was to learn where global conversations on climate finance, impact investing, and sustainability finance were being led, then bring that knowledge back to India to adapt and modify policies for the Indian SME ecosystem.

Worked example of contextualisation:

• The speaker’s company signed an MoU with the Government of Madhya Pradesh to support the Chanderi saree cluster.
• Activities: capacity building, skilling in digital e‑commerce, risk awareness for online markets.
• This public‑private partnership directly addresses a local‑level gap (market linkages for weavers) by adapting global best practices to Indian conditions.

Key Takeaways

• Local entrepreneurship > narrow SME definition: includes cooperatives, NGOs, startups.
• The LAMP Fellowship gives firsthand policy experience — tracking schemes, responding to COVID‑19 impacts on MSMEs.
• Over 26 government schemes exist across multiple ministries (Skills, Textiles, Tribal Welfare, etc.) — not just the MSME Ministry.
• International examples (North African tech adoption, Latin American blended finance) show the importance of government‑private collaboration for SME digitalisation and climate resilience.
• Sustainability for SMEs has two facets: risk resilience and environmental impact; solutions must be contextualised for the Global South.
• Public‑private partnerships at the district level (e.g., Chanderi saree cluster) are a practical model for scaling local entrepreneurship.

Exam tip: Be prepared to cite concrete schemes (e.g., ODOP, grants for women‑owned businesses) and explain how policy learning from abroad (Fletcher School) can be adapted to India’s SME ecosystem.

Why This Session Matters

Dr. Sumitra Chowdhury, former Indian Economic Service officer, links decades of policy experience (Ministry of Finance, DPIIT, etc.) with ground-level sustainability research (e.g., ecological implications of production in Meghalaya). The discussion covers the historical evolution of India’s MSME definition, the core sustainability framework (mitigation, adaptation, resilience), and actionable policy directions for entrepreneurs – especially those wanting to embed sustainability from the start.

---

The Beginning (1948–1956)

• 1948 first Industrial Policy Resolution after independence; aimed to develop industry for national needs.
• 1951 Industrial (Development and Regulation) Act.
• 1956 Industrial Policy Resolution: categorised industries into three groups – public sector, joint public-private, and private sector (where small-scale industries fell).
• Small-scale industries were defined by:
  • Investment ≤ ₹5 lakh.
  • If using power: ≤ 50 employees; if not using power: ≤ 100 employees.

Incremental Changes (up to 2001)

Investment limit raised several times: ₹5 lakh → ₹10 lakh → ₹25 lakh → … up to 2001.

2006 – MSMED Act (Micro, Small & Medium Enterprises Development Act)

• Converted “small scale industries” into the three-tier MSME framework.
• Investment limits (manufacturing only):

• Services sector was brought under MSME for the first time (reflecting >50% contribution to India’s GDP over two decades).

2020 Revision

• Investment limits raised substantially, and annual turnover added as an alternative criterion.

2025 Definition (April 2025)

Why the changes? Driven by inflation, evolving industrial environment, and the desire to let more enterprises benefit from government incentives while scaling up.

Key takeaways – MSME definition

• Definition started as a simple investment & employment measure in 1948; expanded to include services in 2006.
• Latest (2025) limits: small up to ₹25 cr investment / ₹100 cr turnover; medium up to ₹125 cr / ₹500 cr.
• No uniform global definition – countries vary (often use number of workers); India uses investment & turnover.
• The changes reflect industrial reality and policy push for scaling up.

---

No Single Definition – But a Clear Framework

Sustainability in the industrial context links to climate change and long-term business viability. Dr. Chowdhury presents three interconnected concepts used internationally:

Mitigation → Net Zero

• Mitigation = reducing carbon emissions while absorbing already‑emitted carbon from the atmosphere.
• The net result → Net zero.
• India committed to net zero by 2070 (recognising still‑developing status, large population).
• Other national commitments: NDCs (Nationally Determined Contributions) with interim targets by 2030.

Adaptation

• Adaptation = making ecological, social, and economic changes (processes, practices, structures) to adapt to actual or expected future climate conditions.

Resilience

• Resilience = the ultimate goal: the ability to absorb, adapt to, and continue accessing critical services without negative climate impact.
• For businesses: resilient operations that can withstand climate shocks.

The Population Driver

Dr. Chowdhury shows a timeline of world population growth (derived from the book’s table):

Why it matters: Faster population growth increases pressure on resources, amplifies climate change, and demands stricter resource planning – a key concern for any new business.

Key takeaways – sustainability concepts

• Three pillars: mitigation (reduce + absorb → net zero), adaptation (adjust practices), resilience (absorb and thrive).
• India’s net zero target is 2070; national targets are set in NDCs.
• Population growth is a fundamental driver – more people = more resource pressure.
• New entrepreneurs have an advantage: they can design sustainability in from the start.

---

India’s Policy Initiatives

• Zero Defect, Zero Effect (ZED) – produce without defect and with zero negative environmental effect.
• International Solar Alliance – launched by India; now >120 members. Solar accounts for 48% of renewable energy generation in India (surpassing hydropower).
• BRSR (Business Responsibility & Sustainability Reporting) – mandatory for top 1,000 BSE-listed companies; sets the reporting standard for ESG.
• LiFE (Lifestyle for Sustainable Lifestyle) – promoting sustainable consumption at individual level.
• Circular economy – emphasis on reuse, recycle, reduce waste – both for industry and personal living.

Why SMEs Must Act on Sustainability – Even if Not Directly Regulated

Exam tip: The BRSR framework is India’s equivalent of ESG reporting. Even though it’s not mandatory for small firms, understanding its requirements is crucial because big buyers and banks will expect similar disclosures.

Example: Role of SMEs in Value Chains

• Small firms often produce parts and components (e.g., motherboards, SIM cards) that go into finished products.
• Indian SMEs have historically missed export opportunities because they couldn’t meet international quality/sustainability standards – while smaller countries (Vietnam, Bangladesh) integrated into value chains.

Key takeaways – policy & practice

• India promotes sustainability via ZED, solar alliance, BRSR, circular economy, LiFE.
• SMEs must adopt sustainable practices to access global value chains, bank financing, and tax benefits.
• Big companies require supplier certification; government top‑1000 reporting sets the standard.
• Local knowledge (e.g., community responses in Western Ghats, Table 6.1 in the book) can be a rich source for research and entrepreneurship – combine global frameworks with local realities.

---

How to Navigate the Information Overload

1. Understand core concepts (mitigation, adaptation, resilience) clearly before diving into policies.
2. Consult primary sources, not Wikipedia or news reports alone. Use government reports, BRSR filings (e.g., Infosys), and the textbook (especially pages 7–12 table on climate change debate, and page 77 Table 6.1 on community responses).
3. Read news reports critically – they give clues but not the full picture. Always cross‑check with original sources.
4. For entrepreneurship: start with the ESG or BRSR framework to know what you’ll be asked to report.
5. Local context matters. India’s diversity means global/national policies must be adapted to regional ecosystems (e.g., Western Ghats vs. Delhi). Collaborate with local media, community radio, or YouTube creators to understand ground‑level issues.

Exam tip: Look up the book’s Table 6.1 (page 77) – it shows how community responses to climate change (prolonged hot spells, crop failure, debt) can be interpreted through the sustainability lens. That’s a model for linking local observations to global concepts.

Key takeaways – for learners

• Start with clear concepts before diving into policy details.
• Use original sources (government reports, BRSR filings, textbook historical table).
• News articles are starting points, not final authority.
• Integrate local knowledge with global frameworks – many entrepreneurial opportunities lie in that gap.