Indian Journal of Economics & Business, Vol. 5, No. 1, (2006) : 1-... HOW TO PROMOTE ENERGY EFFICIENCY IN SMALL ENTERPRISES? AN ECONOMIC ANALYSIS OF SMALL ENTERPRISE CLUSTERS IN INDIA M.H. BALA SUBRAHMANYA Department of Management Studies, Indian Institute of Science, Bangalore Abstract This paper probes the role of labour and energy intensity in the economic performance of small enterprises with reference to brick making in Malur, foundries in Belagaum, rice mills in Raichur and Oil mills in Challakere in Karnataka state of India. The study found that small enterprises where labour productivity was higher and energy intensity was lower, achieved higher returns as compared to those where labour productivity was lower and energy intensity was higher. This implies that when technology is similar in small enterprises, where labour and energy inputs are complements, improving labour skills and efficiency can be an important strategy for improving energy efficiency, achieving higher returns and enhancing competitiveness. JEL Classification: Q43, Q48 1. INTRODUCTION Small Enterprises account for a sizable share of Indian industry in terms of not only number of enterprises, employment and production but also exports. Small enterprises account for 95% of industrial units, 40% of MVA, 44% of manufacturing employment and 35% of total exports in Indian economy (Ministry of SSI, 2003; Ministry of Finance & Company Affairs, 2003). They produce more than 7500 items and the product range varies from simple items produced with traditional technology to high-tech products, produced with sophisticated state of the art technology (Ministry of SSI, 2003). Today, Indian small enterprise finds itself in a competitive environment and enhancement of its competitiveness is considered crucial for its survival and growth (Bala Subrahmanya, 2004a). Among others, energy efficiency improvement can be an important strategy for enhancing competitiveness in industry. This is because a significant portion of the operating costs of any manufacturing industry is in the form of energy costs. Therefore, energy conservation and management form a critical activity within any manufacturing organization because it can reduce operating costs. Any reduction in operating costs is bound to increase the competitive edge of the industry (Gopalakrishnan, Plummer and