The global imperative to combat climate change and achieve sustainable development has ushered in the era of the green economy—an economic model focused on reducing environmental risks, enhancing resource efficiency, and fostering social inclusiveness. For India, a nation with ambitious commitments under the Paris Agreement and at the forefront of global climate action, this transition is not merely an environmental obligation but a strategic economic necessity. At the heart of this transformation lies a critical yet often understated force: India’s vast and dynamic Small and Medium Enterprise (SME) sector.

Accounting for nearly 30% of India’s GDP, over 45% of manufacturing output, and employing more than 110 million people, SMEs are the backbone of the Indian economy. MSMEs consume roughly 25% of the total energy used by Indian industries and contribute about 110 million tonnes of CO₂ emissions annually, indicating a substantial role in the nation’s carbon footprint. A growing share of MSMEs are embracing sustainability with about 21% of MSMEs using solar energy and 31% adopting energy-efficient machinery suggesting rising interest in cleaner technologies

This study examines the opportunities and challenges faced by Indian SMEs in adopting green practices and sustainable business models. On the opportunity side, the shift towards a green economy offers SMEs access to cost savings through energy efficiency, enhanced competitiveness, innovation in eco-friendly products, improved brand image, and new market opportunities driven by increasing environmental awareness and regulatory support. Government initiatives such as renewable energy incentives, energy efficiency schemes, and green financing mechanisms further encourage sustainable adoption. However, Indian SMEs also face substantial challenges, including limited financial resources, lack of technical expertise, inadequate access to green technologies, regulatory complexity, and low awareness of sustainability benefits.

With supportive government policies, improved access to finance, capacity building, and technological advancement, Indian SMEs can successfully embrace green growth pathways. Their active participation is essential for India to achieve its long-term climate goals and sustainable economic development.