NITI Aayog Proposes ₹13,000-Crore Push for MSME Decarbonisation

India’s policy focus on MSMEs is entering a new phase, with climate competitiveness now moving to the centre of the reform agenda. In a recent recommendation, NITI Aayog has proposed a ₹13,000 crore package to support the decarbonisation of micro, small and medium enterprises, signalling a shift from compliance-led sustainability to incentive-driven green transition.

The proposal, outlined at the launch of NITI Aayog’s report on MSME decarbonisation, recognises that energy costs and carbon intensity are becoming structural risks for small businesses particularly as global markets tighten environmental norms. MSMEs account for nearly 30 per cent of India’s GDP, employ over 250 million people, and contribute close to half of the country’s exports, making their transition critical not just for climate goals but also for trade competitiveness.

At the core of the recommendation is a two-part financial architecture. The first pillar involves a viability gap funding (VGF) mechanism of around ₹6,000 crore to support adoption of energy-efficient and green technologies. These are projects that are technically viable but fall short of financial feasibility for MSMEs due to high upfront costs. Under the proposed framework, VGF support would be provided through competitive bidding, with assistance capped at a portion of total project costs, and funds routed directly to original equipment manufacturers to accelerate adoption.

The second pillar is a proposed ₹7,000 crore scheme modelled on the PM Surya Ghar initiative, focused on distributed solar adoption by MSMEs. The scheme aims to provide capital subsidies for rooftop solar installations, particularly for micro and small enterprises, enabling them to offset electricity costs and reduce reliance on grid power. The approach reflects a growing policy consensus that energy affordability and decarbonisation must be addressed simultaneously for MSMEs.

NITI Aayog has estimated that widespread adoption of green electricity under these measures could lead to significant emission reductions over the coming decade. Importantly, the proposal also highlights how delayed decarbonisation could deepen trade challenges for MSMEs as export markets increasingly embed carbon-related standards, disclosures, and compliance requirements.

The report identifies electricity-intensive manufacturing clusters as priority areas for early intervention, suggesting a phased implementation strategy. This cluster-based approach aligns with earlier industrial policy efforts but extends them into the sustainability domain, linking energy transition with productivity and competitiveness.

While the recommendations do not yet constitute a notified scheme, they indicate the direction of future MSME policy, one where environmental performance becomes integral to industrial support frameworks. The emphasis on financial viability, phased implementation, and cluster targeting suggests an attempt to balance climate ambition with ground-level feasibility.

If adopted, the proposals would mark one of the largest dedicated public investments aimed at greening India’s MSME sector, reinforcing the idea that decarbonisation is no longer peripheral, but central to the country’s industrial and export strategy.