Small and medium enterprises (SME) form the backbone of the Indian economy. Indian small-scale industries (including the tiny industries and small-scale service and business entities) have a long history of promoting employment-oriented and spatially widespread economic growth. During the period 2005-2006, this sector showed an average annual growth rate of 4.33 per cent in the number of units and provided 4.57 per cent increase in employment. This segment definitely provides employment in large numbers, next only to agriculture. A simple analysis shows that the employment intensity of this segment (registered units) is 1 job for every Rs. 1.5 lakh rupees invested in fixed assets, as against investment ($ 3750) Rs. 23.6 lakh investment ($ 59000) in the large industries.

The major barriers identified for growth in this sector are the availability of ‘reliable power supply’ and lack of clean energy efficient technologies for the SME production sector, notably building materials, foundry, glass, food processing and crafts. SME industries and micro-enterprises rank lowest in the priority of grid-based electricity supply companies, forcing production units to rely on diesel-run generators. Collectively, the potential exists in the energy intensive SME sector to conserve 10 to 12 million tonnes of equivalent coal by improving the existing energy efficiencies.

Diversification of rural incomes by giving the small enterprises access to reliable energy from renewable sources is widely regarded as a promising strategy for accelerated poverty eradication and carbon neutral (or low carbon) economic development.
 
Development Alternatives is now introducing Rural Enterprise Zones (REZ), a centre which will create the infrastructure required for connected SME, especially rural entrepreneurs and farmers, in order to create substantial value to the local resources. Unlike the conventional Special Economic Zones (SEZ), the REZs will create a huge positive environmental and social impact while creating large-scale sustainable livelihoods for rural youth / entrep-
-reneurs.                                                                         A Rural Economic Zone working model

The Initiative Will Meet The Following Objectives:
 
· To develop a portfolio of connected businesses (in the building materials and traditional skill-based craft sectors) coupled with necessary support services (green power and ICT)

· To demonstrate the financial and institutional viability of REZs

· Build and nurture ‘Partnerships’ for leveraging ‘policy support and financial investments’ to accelerate the adoption and replication of REZs throughout the country.

Approach

The focus of the approach is on stimulating the development of rural/peri urban India by ensuring viable economic activity based on local resources (biomass, agri-produce, minerals). The approach of creating village level enterprises based on renewable energy is suggested, appropriately termed Rural Entrepreneurship Zones. Uninterrupted power supply to value-adding enterprises will be provided by Biomass/Biogas power generation systems at scales ranging from 25 kW to 500 kW. At the same time, in small towns and rural areas, there is a long-standing tradition of craft- and trade- based clusters, which will be prime consumers of the generated renewable energy. Many of these clusters (e.g., textile production, food processing, stone polishing, aromatic oil extraction) now also have the benefit of having established artisans’ federations and/or cooperatives. The institutional base for establishment of energy based infrastructure is, therefore, available. The project will focus on transforming these federations or cooperatives into credible ‘energy service providers’ run by the local unemployed youths.

The proposed model envisages strong ‘Equal Opportunity Partnerships’ between investors, users and management. Enabling policy and financial support will also be forthcoming from both Central and State Governments through the various schemes. Management of the REZs will be through a special purpose vehicle set up in the project locations, preferably amongst a cluster of villages. Land for setting up REZ will be identified and transferred through the Department of Industries of respective State Governments. The capital cost of the RE-based power generation and distribution system will be partially financed through financial institutions (FIs) as also equity and incentives from various government agencies. Commercial banks or apex body FIs will be engaged in this process to leverage risk-free loans. Options of equity in the REZs will also be sought from carbon investors.

During action, the team will emphasise on four key strategic areas:

1. ‘Connected’ Businesses
Within REZs, the effort will be to bring together ‘connected’ businesses. ‘Connected’ businesses either service the same specific user groups or need similar support services and inputs.

2. Assured Power And Information, Credit And Technological Support Services
With the connected businesses becoming clustered, they will be provided assured, reliable and affordable power. This will be done through a captive renewable energy power plant based on locally available biomass. A mechanism for sustainable regeneration and procurement of biomass will also be devised. In addition, these businesses will also be provided with context-specific ICT services.

3. Financial And Institutional Viability Of REZs
For sustained operations of the demo REZs and their replication at later stages, the financial and institutional viability of each unit will be planned accordingly. Therefore, the management of the REZ is proposed to be through a Special Purpose Vehicle (SPV) set up in the project locations.

4. Building Partnerships
An effort will be made to build partnerships with State and Central Governments for policy support and also with financial institutions for leveraging finances at relatively soft terms. These partnerships will go a long way in removing several of the possible barriers that may affect the effective deployment of the REZs.
 
Innovativeness of the REZ Concept

The following are the three innovations in this REZ concept:
1. New Generation of Energy and Resource-saving Technologies
The REZ concept is based on the adoption of innovative technologies which:
· Save on fossil fuel reserves
· Introduce selective mechanisation in production processes
· Realise carbon benefits for direct and indirect beneficiaries

2. Enhancing Value In Local Economy
This project proposes to bring about a market transformation in the rural areas where a huge potential for entrepreneurship is currently under utilised. The innovativeness of the project lies in extending the required infrastructure and services to rural enterprises in a systemic and organised manner.

3. Carbon Revenues for Capital / Expenditure Financing
Another highly innovative feature of the project is that it will tap the international carbon market for enhancing revenue streams and resulting cash flows of enterprises and the REZ.
 
4. Implementation Methodology:
· Area and stakeholders’ identification
· Detailed analysis of the market and product selection
· Business plan for each REZ
· Partnership building for resource leveraging
· Setting up management models to develop and operate REZs
· Streamlining market linkages
· Policy advocacy

Financial Sources

The possible sources of finance will be:
· Loans from financial institutions
· Grants and subsidies from existing government schemes/funding agencies
· Contributions from community and user groups
· Recurring revenue from encashment of Certified Emission Reductions

Expected Results

The demonstration of successful operation of 2 to 3 REZs will result in the sustainable economic growth of enterprise clusters in selected areas of Madhya Pradesh and/or Orissa in India. The REZs, along with green power utilities, will be managed to ensure growth of the enterprises and the economic viability of the service provider. The revenues and cash flows will be substantially enhanced through the realisation of carbon revenues which are likely to grow to $100,000 per annum. Value addition to products and clustered production will enhance market visibility and brand of the REZs. The project will focus on transforming the federation / cooperative into credible ‘energy service providers’ managed with local participation.

This initiative will also fulfill long-term goals through facilitation of demonstration of renewable energy based power generation and distribution systems, thereby reducing the dependency on fossil fuel energy. Coupled with service approach to support enterprises towards uptake of the power being generated, it will bring in an economic independency in the energy starved rural areas. It will also significantly reduce emissions and promote economic independencies. Successful demonstration will create interest amongst government agencies and policy makers to adopt and implement the systems, thus, reducing energy demands. q

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