Cleaning Up India Worth $250bn: The Moral and Economic Imperative of a Clean Environment

Cleaning up India is about more than cleaning up corruption. India’s economy has grown rapidly over the past two decades and appears to be set to continue to grow at a rate of at least 7-8% over the coming years. However rapid development, industrialisation and urbanisation have also significantly increased the scale of the environmental challenges the country is facing: air and water pollution, waste management and sanitation, and land degradation among others. These issues impose significant costs on India’s economy (from US$80-125bn annually according to a recent estimate), exacerbated by the effects of still widespread poverty. India faces a ‘Catch-22’ in that it cannot “afford” developed-country standards of environmental protection before further economic development, and its model of economic development is the key contributor to its environmental challenges. The challenge for India is not to choose between economic development and environmental protection but instead to chart a course onto an environmentally-sustainable growth path such that it can successfully break out of the vicious cycle in which poverty is both a cause and an effect of environmental degradation. To do this, India needs a clear policy roadmap with big innovative ideas to drive productivity and better resource efficiency. However, it will also require bottom-up action, unleashing lots of innovative ideas and action at the grassroots level if it is to balance rapid growth with environmental and resource sustainability. This in itself has the potential to create whole new industries that generate employment and value and in which India, given its scale, can be a global leader.

The Breadth, Scale and Complexities of India’s Environmental Challenge

India’s environmental challenges are both wide-ranging and of a massive scale – the country ranks 155 out of 178 on the Environmental Performance Index , well behind other BRICS countries and followed only by sub-Saharan African countries and a few Asian outliers like Myanmar and Bangladesh. On certain key metrics, India ranks even lower. On air pollution, for example, India ranks almost last alongside China and (tellingly) three of its neighbouring countries.

And while per capita emissions remain low, India is still the third largest source of carbon emissions in the world behind China and the US, accounting for 6% of global carbon emissions . What is most worrying, however, is that India is facing these .environmental issues this early in its economic trajectory – even before the country has fully industrialised and urbanised. Other large polluters like China and the US have urbanisation rates of 55% and 80% , respectively, and generate US$4.4 trillion and US$3.4 trillion of industrial output, while India is facing significant environmental sustainability challenges with urbanisation at only 31% and c.US$500bn of industrial output. Left unaddressed, the scale of these issues will undoubtedly increase exponentially with continuing development, imposing significant costs on not just India, but the rest of the world.

Recent news headlines have highlighted some of the key environmental challenges which India is facing (see inset) and they are wide ranging. India is the third largest source of carbon emissions in the world after the US and China while having half their urbanisation rate and only 15 percent or less of their industrial outputThe impact of these issues is also substantial – in a recent report, the World Bank estimated that environmental issues cost India US$80bn and up to US$125bn (or 6-9% of GDP) . Beyond the pure GDP impact however, the health issues arising from India’s pollution problems are a direct driver of India’s poor performance on key human development indicators such as life expectancy and child mortality. If the issue is analysed more comprehensively, there are five categories of challenge and these suggest that the issue may be even more severe:

In spite of these high human and financial costs from environmental degradation, India has largely failed to address any of these problems. This is not just a policy issue, because stringent laws do exist in many areas to protect the environment .Poverty is a vicious circle where because one cannot afford to invest to break out of poverty, one cannot get the returns to break out of poverty The real issue for India is poor to non-existent enforcement driven by weak institutional mechanisms and a lack of incentives for compliance. Ironically, it is often the government which is the biggest perpetrator of environmental degradation. For example, many old industrial units created between 1950 and 1990 which do not conform to current environmental norms are shielded because they belong to India’s public sector enterprises. Highly polluting public transport infrastructure such as old buses are again protected by local government due to a lack of resources. Until the Modi government ended them last year, the government was still subsidising diesel fuel - thereby incentivising the use of a high emission fossil fuel rather than less polluting modes of energy. Despite strong laws on paper, a robust degree of NGO and citizen-led activism and leaders who have actually tried to stop industrial projects on the grounds of protecting the environment, India’s actual track record of environmental protection remains poor. If India is to address these issues it will need to develop an economic model that meets its growth objectives of industrialisation and increased wealth for India’s citizens in an environmentally sustainable fashion. Poverty is a vicious circle where because one cannot afford to invest to break out of poverty, one cannot get the returns to break out of poverty.

The Components of Environmental Sustainability.

The key reason for India’s failure to develop a sustainable environmental and economic model to date is that ‘economic development’ and ‘environmental protection’ have come to be seen by India’s leaders and many of its citizens as a zero-sum-game and completely at odds with each other. India’s challenge will be to find a path that pursues the necessary environmental goals that address its massive quality of life issues in ways that are neutral at worst and ideally highly profitable. Given the challenges outlined above, this will not be easy and India will need to absorb some lessons from other countries and use them to forge a solution to its unique issues. The key components of such a strategy include:

1. Creation of Multiple Smart Cities. India’s cities are a key driver of pollution due to their high and inefficient energy consumption and the issue is set to worsen significantly as urbanisation increases from 31% to 50% by 2050 . India will need to comprehensively manage urban energy and resource consumption by leveraging the full power of its information technology capabilities and analytics talent. By providing the platform for foreign technology and solution providers, India can attract investments that scale sub-scale technologies and solve its environmental issues at the same time.
   1. Develop Smart Cities: Reduce Urban Energy Consumption. India needs to adapt and deploy intelligent building management systems at scale to significantly reduce urban energy consumption. This consists of deploying energy-efficient equipment and retrofitting lighting, insulation and building energy control systems and financing the up-front cost through the energy savings generated over a period of time. The starting point for this can be a single city that can be developed as the example. For example, In 1994, the city of Santa Monica, California, launched a program for deploying energy efficient equipment and financed the up-front cost through savings generated over a fraction of the life of the equipment. This paved the way for several other cities in the US to launch similar initiatives aimed at reducing energy consumption. In Asia, both China and the UAE have launched the development of zero-carbon ‘eco-cities’ is Dongtan and Masdar respectively. Alternatively, the Indian civil service bureaucracy has plenty of government buildings to be candidates for testing and development.
   2. Develop Smart Cities: Build Efficient Urban Transport Systems. India needs to develop less polluting public transport systems (such as metros) and combine this with road development and traffic management solutions to reduce vehicular usage and also improve the quality of life in India’s congested cities. Urban roads (and sidewalks) need to be upgraded and India’s cities should experiment with ideas that promote walking and cycling pioneered by a number of Japanese and European cities, and also with peak-hour charges like London or Singapore in order to reduce congestion and vehicle idling times. London has seen significant success with its congestion charge in both reducing traffic congestion and emissions with 33% fewer trips by private vehicles and an increase in the use of public transportation into the city centre.
   3. Implement Urban Planning and Land Management: Leverage the Power of Big Data and Analytics. India should deploy analytics software and its wealth of analytics talent for better data-driven land management and urban planning to optimise for economic activity. The city of Chic Fago, for example, recently announced that it is developing an open source program to collate data from various sources across the city and sift through them in order to help urban officials make better planning decisions. Analytics can also be used for better measurement and monitoring of environmental policies and to create sophisticated cost-benefit policy analysis to build the ‘business case’ for environmental on.
   4. Adapt and Scale Technologies for the Indian Context: Provide the Platform and Incentives for the Adaptation and Scaling of Existing Global Technologies. Indian companies need innovate global technologies for the Indian context. For example, an Indian firm developed a low-cost LED lantern to replace the use of firewood in villages. Looking further, the advance of battery technology and declining cost of storage offers an opportunity for India to address India’s energy storage challenges including storing renewables power, creating micro-grids in unconnected rural areas and providing greener backup for the country’s telecom infrastructure which currently depends on diesel . India can also deploy the latest waste sorting technologies to address the issue of commingled waste which has prevented recycling from happening at scale.
2. Low Cost-High Volume New Food, Water and Energy Resources. India’s agriculture, water treatment and energy sectors are key drivers of India’s environmental issues due to their low productivity (in the case of agriculture), inadequate infrastructure (in the case of water) and fossil-fuel intensity (in the case of energy). To comprehensively address these issues, India needs to mobilise large amounts of investment as well as technology and know-how to move these sectors towards an environmentally-sustainable path, and in the process, has an opportunity to create scaled, globally-competitive industries which could also significantly mitigate many of its biggest environmental challenges.
   1. Scale Renewable Investment and Capacity: Become a Global Leader in Wind Energy. India needs to strive to become a top-3 player in wind power within the next five years. India currently has 36 gigawatts (GW) of installed renewable energy capacity of which two-thirds (23GW) is from wind power, where India is the fifth largest producer globally . India has an estimated potential of 49GW of wind capacity at 50 meters and 103GW at 80 meters. Given that wind power has achieved ‘grid-parity’ in India, an aggressive plan to finance wind power infrastructure can help India reach 50GW by 2020.
   2. Scale Renewable Investment and Capacity: Accelerate Solar Deployments. India needs to simultaneously look to compete with China’s large solar sector by 2020. It currently has 3.7GW of grid-connected solar capacity which has grown at 42% last year. The government has recently increased its 2022 target for solar capacity from 20GW to 100GW – implying a 60% CAGR . Achieving this target will require significant financing and government support (including for land acquisition) and is achievable given India’s enormous solar potential (750GW), combined with rapid deployment time and improving economics of solar power vs. grid-power. Chief Minister Modi, as he was in 2009, saw the need for this and announced a pioneering solar policy which has resulted in Gujarat becoming the largest solar power producer in India, with c.1/3rd share of India’s total generation capacity, as well as one of Asia’s largest solar parks.
   3. Leverage Technology to Reform Agriculture: Create a Sustainable Industrial Agriculture Sector. India needs to transform its agricultural sector from an unproductive, resource-inefficient mass of small subsistence farms to a large, organised, environmentally-sustainable industrial farms. [1] . In addition to reforming agricultural marketing policies, efficient agriculture requires significant investments in rural roads, cold storage, irrigation and other infrastructure. Environmental impact mitigation is also possible by redirecting subsidies for chemical fertilisers towards organic fertilisers, as well as robotics and sensor technology to reduce the runoff of chemical fertilisers into the soil and groundwater; while larger-scale productivity improvements can be derived from more efficient land management (including innovative ways to aggregate small landholdings).
   4. Better Water Management: Invest in Treatment Capacity and Technology. India needs to rapidly build-out substantial and world-class sewage treatment capacity and reform some deeply-ingrained habits in order to arrest the pollution of its rivers and other water bodies. Untreated sewage and waste, primarily from urban areas which lack adequate capacity, is the primary driver of water pollution. Polluted water has severe health implication not only because it is directly consumed by the public, but also due to its use in agricultural irrigation which can result in disease. In addition to capacity creation, India also needs better water management systems and technologies which can use treated sewage for irrigation (the biggest driver of water demand) and industrial consumption while using fresh groundwater for household consumption. Developing adequate treatment capacity and resource management systems represents a US$130 billion investment opportunity and will help India reduce water pollution and achieve water security.
3. Leadership, Streamlined Regulations, Enforcement, Investment and Incentive Policies. India’s poor design, implementation and enforcement of its environmental policies is a key reason for many of the severe issues that it faces today. Mr Modi has demonstrated as Chief Minister his ability to get things done. His government now needs to provide leadership on this issue in the design of more effective policies, in effecting change throughout the country (starting with government facilities), in overhauling the environmental regulatory structure and creating a culture of environmental compliance at the business and household level.
   1. Galvanising the Private Sector: Government to Lead with PSUs and Mass-Scale Tendering. India’s government (at both the central and state levels) needs to take the lead in driving an environmentally-sustainable growth agenda by forcing the public sector companies under their control to rapidly reform and retrofit safeguards into polluting industrial plants. This needs to be followed by a massive capacity creation programme for all of the key environmental issues leveraging the private sector for know-how and execution and overseas and domestic sources to address financing gaps. This will involve large-scale tendering of a range of public services currently under the government’s control including sewage and waste management, public transportation and energy distribution amongst other areas.
   2. Create the Right Incentives: Reforming Subsidies, Tax Breaks and Penalties. The Indian government also needs to creatively re-think how to align fiscal incentives towards ensuring environmentally sustainable growth. Many countries have succeeded in promoting environmentally sustainable consumption and growth by creating strong incentive structures through subsidies, tax-breaks and other policy mechanisms; India has also done this at a small scale (such as a capital subsidy for solar equipment which has resulted in 87% CAGR in solar capacity since 2011) and now this logic needs to be applied across the country in a comprehensive manner. This could include higher taxes on more polluting vehicles and assets (as opposed to just strict emissions standards), rewards for emissions control, and subsidising the poor to move away from using firewood and fossil fuels, tax breaks on investments in key areas, amongst others.
   3. Clear Regulations and Better Enforcement Mechanisms: Removing Loopholes and Creating Regulatory Capacity. Though India has numerous laws and regulations to deal with the various environmental issues, it has not been able to enforce these because regulators are subject to political and judicial interference and have inadequate capacity to conduct investigations, propose remedial action, implementation or monitoring. Given the institutional failure of its current environmental regulations, a focus on removing loopholes in legislation will need to be implemented alongside making legislation easily enforceable. The government will also need to revisit the mechanics of its regulators by making them less dependent on the slow legal system (to impose fines for example), and invest in adequate capacity including professional and technical manpower and laboratory infrastructure.
4. Tap Global Resources to Support Progress. It is no surprise, given the scale of the challenge, that India today lacks adequate capital or technology to address its environmental challenges by itself. Chief Minister Modi was good at turning this into an opportunity and seems set on trying to achieve the same again on multiple fronts. The field of profitably upgrading the nation’s environment is another such opportunity, and on a grand scale. Mr Modi’s government has the opportunity to attract over US$500bn of international funding , technology and know-how to support and augment its domestic environmental progress by partnering with companies, governments and global institutions.
   1. Contributing to a Global Climate Agreement: Trading Efficiency Commitments for Financing and Technology to Meet Targets. India is increasingly perceived as the final block to the global climate change agreement scheduled to be agreed in Paris later this year, with the US and China, ] having reached a bilateral agreement on emissions reductions and renewable energy. With Europe, Japan and other large developing countries preparing their own contributions to the global emissions reduction target, the pressure will be on India, the third largest source of emissions, to provide a clear commitment on the issue. The trade for India is clear but has thus far remained elusive. India can turn this into a win-win opportunity by agreeing to targets on renewables and energy efficiency in exchange for clear commitments for financing and technology from developed nations for its energy conservation and renewables program.
   2. Engaging ‘Multipliers’ for Know-How and Financing: Building Partnerships with Global Endowments and Charities. India needs to find a way to more effectively leverage the power of global NGOs, charitable organisations and endowments. These organisations, if properly engaged to solve India’s environmental issues, can not only directly bring in significant capital (the top-10 wealthiest foundations control total endowments of c.US$180 billion) as well as expertise, they can also act as multipliers, through their global institutional credibility, attracting additional financing and technology from companies across the world. The objectives of many of these organisations align directly with the key environmental issues that India needs to urgently address. Although some global NGOs, particularly those focused on narrow fields, take uncompromising approaches on key issues that alienate national governments, who are forced to weigh and trade off a multitude of different priorities , India should recognise that a large number of global endowments have significant experience working in developing countries, balancing development requirements with environmental concerns, and making them attractive long-term partners in creating sustainable growth.
   3. Finding International Partners to be “National Partners or Champions” for Select Industries: Launching the Olympics of Sustainable Development. India needs to also enlist the developed world at the national level in its efforts to develop an environmentally-sustainable growth model by partnering with other countries for specific areas where they have expertise and financing capacity and in return offer them incentives and preference for certain projects. For example, the US is already a leading partner for India in providing sewage and waste treatment equipment and there is scope for much deeper participation whether giving end-to-end EPC or Build-Operate-Own contracts for treatment facilities across India’s metros. Similarly, Japan’s experience in developing smart cities has already driven Mr. Modi to make the country a partner in developing these across India, something which can be made more tangible, for example, with the award of large contracts for energy conservation equipment in government buildings to Japanese firms with vendor financings from Japanese banks.

Executing this kind of roadmap will be a massive challenge for India because it cannot be accomplished through top-down actions and policies alone. “Sometimes I feel that the job of getting rid of filth belongs to safai karmacharis [janitors] only. Isn’t it the duty of all the [1.3 billion] countrymen? We have to change this situation. Therefore, as the children of this mother, all of us are responsible that we should not keep our country like this.”
Prime Minister Narendra Modi at the Launch of the Clean India Campaign, October 2014 It is unreasonable to expect that India’s companies and public will voluntarily take the entire burden for moving onto a more environmentally sustainable growth path while the government continues with business as usual, and all levels of government need to set a strong example and educate the public about environmentally-sustainable behaviour. Although strong leadership by the central government, smart policies combined with cooperation and effective implementation at all levels of the government and bureaucracy, as well as constant monitoring and measurement are a prerequisite for this agenda; they alone may not be enough. The need to role model is compelling and will provide the moral authority to insist on change. The government will need to enlist private sector, civil society and every household and citizen in this effort to move India into a more resource efficient and therefore sustainable growth path. It is important to recognise too the roles of individuals; the nature of pollution is that it is caused by the collective impact of the habits of lots of individual actors, and solving environmental issues also requires fundamentally adjusting behavioural patterns.

The Prize for Getting it Right

The combined impact of these environmental sustainability measures could be substantial for India. The cost of neglecting the environment – US$80bn annually – is much higher than the cost of creating the right incentive structure (The World Bank estimates that a 10-30% reduction in particulate emissions would cost only 0.02% - 0.04% in GDP growth). Further, the long-term economic benefits of putting India on an environmentally sustainable growth trajectory are potentially enormous. The combination of savings in healthcare costs, and energy and water usage, and value addition in the agriculture and renewables sectors could result in US$234bn of total value creation (or 10% of GDP) (Refer to figure 1 below). Finally, an environmentally sustainable India translates to healthier citizens, leadership in key manufacturing sectors that relate to environmental technology and a model for responsible economic growth that developing countries across the world can learn from.

Conclusions

Environmental Protection is the Only Way to Ensure India’s Rapid Growth is Sustainable. The assumption that pollution is an inevitable outcome of development and rapid economic growth ignores the basic fact that the most prosperous countries are also often the ones with the least environmental issues. The reality is probably, mostly, that they were empires or powers and could afford to take from the poorer nations of the world to overcome to polluted cities of their infancy and became clean by doing so. In the absence of such sources of income, the game has become the attraction of investment to rise from poverty. And the reality is that India’s poverty and dirty cities are massive disincentives to attract investment and talent. Thus, economic and environmental progress go hand in hand. India’s historic approach to ‘grow now and clean up later’ is also most likely to prove to be too expensive as the scale of the issues increases exponentially due to unmitigated industrial and urban development. Addressing its environmental issues – although it is complex, involving hard choices and significant investment – will also create significant value and actually accelerate GDP growth by transforming India’s cities and helping the country better manage industrialisation and urbanisation. It will also ensure that India emerges as a leader in renewable energy and agriculture, and moreover, reduce its dependency on imported fossil fuels and, most importantly, make rapid economic growth more sustainable over the long-term.

Creating a Green India is an Opportunity for Mr. Modi to Demonstrate Leadership and Role Model Values. In his first year in power, Mr. Modi showed strong leadership through his Clean India campaign, which according to some recent polls is by far the most popular of his initiatives. This initiative saw him rise above politics and focus on one of India’s fundamental long-term issues and engaging citizens to change their habits to improve health and hygiene. He now has an opportunity to show a similar level of leadership at a global scale by making India move onto an ambitious and environmentally sustainable growth path. Creating multiple smart cities and infrastructure for the next generation of Indians, along with globally-competitive agriculture and renewables industries by demonstrating policy leadership and mobilising financing and technology from across the world is an opportunity for Mr. Modi to simultaneously achieve India’s core development objectives, while leaving a lasting legacy by putting India onto a far more sustainable path where future generations will not need to pay a heavy price for development today.

Co-opting the World to Solve India’s Issues for Mutual Gain. With the world’s leaders gathering in Paris later this year to a much hoped for path-breaking global climate agreement, the world is looking to India for leadership on the emissions issue. If India defines this too narrowly, it risks fighting over emission caps rather than galvanising those it wants to co-opt to solve its issue. With the developed world and China slowing economically, Mr. Modi must realise that no one wishes to try and stifle India’s growth. Instead, what the world is looking for is for India to rise to its environmental challenge, not just for its own sake, but because the planet cannot afford another large polluting country in addition to the US and China. India must seize this opportunity to show that it is serious about addressing its environmental issues and making the hard choices involved. It should also engage the major world powers as partners – from the perspective of providing both technology, know-how and financing. If Mr. Modi can successfully do this, not only would it transform India’s environmental and economic trajectory, it would provide a clear model for every other developing nation which is struggling to balance growth and its impact on the environment – and ultimately, put the entire planet onto a far more sustainable future.

China’s public are demonstrating that economic growth without clean water, food and air are an issue that justifies public unrest. India will feel the same and worse so if the economics are not delivered. “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”
“Our Common Future”, World Commission on Environment and Development, 1987So, India is at a crossroads today where the need to accelerate growth to double digits intersects with the need to do so in a manner such that rapid growth is sustainable at the basic level of not destroying the air, food and water of the nation. For too long, India has neither protected its resources and environment nor has it grown its economy rapidly enough to substantially alleviate poverty and therefore finds itself with a highly inefficient model where it is facing major environmental issues before it has even become a predominantly industrial and urban society. Left unchecked, this path is not sustainable and will lead to unaffordable costs not just for future generations of Indians, but the entire planet. Shifting course onto a more environmentally efficient growth model now, while it is still affordable, is not only morally compelling it is also sensible to the tune of nearly US$250bn in value to the economy.

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