The green advantage: Why sustainability could decide the future of India’s MSMEs

Given the scale and contribution of the MSME sector, the sustainability of India’s growth will depend, in no small measure, on the sustainability of its small businesses. The green transition is undoubtedly a challenge, but it is also one of the great industrial opportunities of the next decade

For fifteen years, a small engineering company in Pune had done everything right. It supplied precision components to a European buyer on time, met exacting quality standards, and remained competitive on price. The relationship was strong, and the next purchase order seemed routine.

Then, just before confirming the order, the European buyer sent a new set of questions. What was the carbon footprint of the product? How much renewable energy did the company use? Could it trace its raw materials? How was its waste managed? The company had no ready answers.

There was nothing wrong with its product, quality, price point or delivery record. Yet, for the first time, none of these seemed sufficient. The company had not suddenly become less efficient, but the rules of competition had simply changed. Versions of this story are likely to become increasingly common. For millions of Indian MSMEs, sustainability is moving from the margins of business strategy towards its centre. Increasingly, in global supply chains, the evolving question is whether they can produce responsibly, transparently and sustainably. This is not merely an environmental issue. India’s MSME sector is simply too important to be left behind. MSMEs account for over 30 per cent of India’s GDP, around 35 per cent of manufacturing and close to half of the country’s exports. The green transition of Indian MSMEs is therefore not a niche sustainability agenda. It is a question about the competitiveness of a substantial part of the Indian economy.

From obligation to business strategy

The biggest mistake would be to present sustainability to an MSME as yet another cost of doing business. If approached purely as compliance, it will inevitably look like a burden. A small enterprise operating on narrow margins may have to collect new data, change processes, or invest in equipment. It is therefore understandable that entrepreneurs ask: where is the return?

A more important question is: what is the cost of not becoming more sustainable? For an MSME, sustainability can mean very practical things: using less electricity, reducing material waste, using water more efficiently, improving logistics, reducing packaging and adopting cleaner technologies. These are not merely environmental improvements; they are improvements in productivity. Every kilowatt of energy saved reduces operating costs. Every kilogram of material wasted represents money spent without generating revenue. The green transition is therefore also an efficiency transition.

This is where the conversation needs to change. Sustainability should not be sold to Indian MSMEs primarily as an act of environmental virtue, but as a strategy for becoming a better business. When companies eliminate waste, improve resource productivity and redesign production processes, they reduce emissions while lowering costs and strengthening competitiveness. The choice is not between growth and sustainability. It is between old models of growth and a more efficient model of growth suited to future markets.

The new passport to global markets

For decades, Indian exporters competed on a familiar formula: price, quality and delivery. But a fourth dimension is becoming increasingly important: sustainability and traceability. Global buyers increasingly demand transparency regarding raw materials, energy sources, carbon footprints and labour standards. For Indian MSMEs, this represents both a risk and an extraordinary opportunity. Enterprises failing to meet evolving sustainability standards risk exclusion from high-value supply chains as buyers tighten requirements. This may not happen overnight. But as buyers tighten their standards, suppliers unable to demonstrate credible sustainability performance could lose business to those that can.

That matters enormously for India, whose development strategy increasingly depends on manufacturing and exports. But there is also a significant opportunity. Indian MSMEs are already highly competitive in engineering, textiles, pharmaceuticals, food processing, electronics and a range of other sectors. If these enterprises can become more resource-efficient, transparent and sustainable, they can position themselves for the next generation of global supply chains. Ultimately, sustainability is no longer a separate environmental agenda — it is becoming a core export strategy. Global commerce has evolved from asking, ‘Can you make it cheaply and reliably?’ to ‘Can you make it responsibly, transparently and sustainably?’ The MSME that learns to answer that question early could gain a significant first-mover advantage — access to premium markets, global supply chains and longer-term relationships with major buyers. Waiting until compliance becomes mandatory, expensive and urgent is rarely a good business strategy.

Making sustainability affordable

There is, however, a genuine concern. If sustainability becomes synonymous with complex reporting, expensive consultants and layers of compliance, it could create a new competitive barrier — one that large corporations can cross much more easily than smaller enterprises.

Indian MSMEs need ESG intelligence

A small enterprise should not have to produce a 200-page sustainability report. It should be able to answer simple questions: How much energy am I consuming? How much water? How much material am I wasting? Where are my biggest inefficiencies? What do my customers expect? Which improvements will save me money? The objective should be simple, affordable and actionable tools that help MSMEs make better business decisions rather than generate more paperwork.

Technology can increasingly make this possible. Digital energy-management systems, emissions calculators, supply-chain platforms and resource-efficiency tools can bring capabilities once available only to large companies within the reach of smaller enterprises. But technology alone will not be enough. India needs an ecosystem involving government, industry associations, financial institutions, technology providers and large corporations.

Government can establish common standards, simplified measurement frameworks and sector-specific templates. Financial institutions must provide affordable green finance to help smaller companies invest in energy-efficient equipment, while large companies must help build greener supply chains through technical expertise, common standards, transition periods, and access to finance and technology. Sustainability should not become another barrier to entry. It should become a ladder helping Indian MSMEs climb into higher-value domestic and global supply chains.

The race to 2030 starts now

For an MSME wondering where to begin, the starting point need not be complicated. First, measure energy, water and material waste, as it is impossible to manage what cannot be measured. Second, identify key inefficiencies where environmental performance and economics overlap. Third, set measurable targets for energy reduction, waste minimisation and renewable adoption. Fourth, engage with buyers to understand upcoming sustainability expectations. Finally, invest in data-driven digital tools and AI to optimise operations.

India’s journey towards Viksit Bharat requires rapid economic growth, but also growth that is more efficient, resilient and globally competitive. Given the scale of the MSME sector, the sustainability of India’s growth will depend significantly on the sustainability of its small businesses. The green transition is one of the great industrial opportunities of the next decade. The Indian MSMEs that lead in 2030 may not be those that simply produce more cheaply. They are likely to be those that produce better, cleaner, smarter and more sustainably.

That is the real competitive advantage the green transition can create. The question for Indian MSMEs, therefore, is not whether they can afford sustainability. The real question is whether, in the markets of tomorrow, they can afford to be without it.

India has set itself very ambitious emission reduction targets for 2030. The Indian MSMEs that thrive during this period of green transition will probably not be the companies that spend the most money on sustainability. They will likely be the companies that understand the opportunity first and integrate sustainability into the way they run their businesses

The writer is the President of the Chintan Research Foundation; Views presented are personal.