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The green wall that could be disrupting India's economic recovery

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In an anti-climax of sorts for India’s coal sector, no foreign company bid for any of the blocks the government had opened for commercial mining. The response from domestic miners too was tepid. Of the 38 blocks that went under the hammer, only 23 mines received bids. 

Companies are not keen to show coal on their portfolio. Despite the early days of recovery from the pandemic induced slowdown, Indian companies want to demonstrate they are turning green. One of the reasons is that Indian companies are borrowing abroad hugely. In 2019-20 it was almost 50 per cent of what they borrowed from domestic sources. A significant percentage of of those lenders are demanding green commitments despite the pandemic. Rich Lesser, CEO of the Boston Consulting Group notes their plans to work with influential NGO partners to shape the climate agenda globally. The list includes World Business Council for Sustainable Development in which many of the banks and pension funds have signed on. They are demanding action, which is why even state run power company NTPC has floated global tenders to run hydrogen run buses in Delhi and Leh. 

India, for instance, was the third largest consumer of coal in the globe in 2019. The demand is expected to rise steadily till 2030 and even beyond. Yet the inadequate response to the most attractively designed coal auctions so far by the centre is the most telling evidence of the country possibly beginning to snuff out its coal puff. The plans to expand usage of natural gas in the energy matrix to 15 per cent from the current 6 per cent will help. “We want to reach that number and even go beyond. The infrastructure including pricing policies are rapidly falling into place”, said Tarun Kapoor, secretary, ministry of petroleum and natural resources. Arun Kumar Singh, director (marketing refineries) BPCL said at an ET Energyworld session, oil and gas consumption should both grow annually at close to 7 per cent. “Electric vehicles will start eating into this rate only after five to six years”. 

The government too wants to see a demand revival that is decidedly green. “There is an opportunity to prioritize efforts that work towards building a clean, resilient, and least-cost energy future for India, including electric vehicles, energy storage, and renewable energy programs”, notes a report by Niti Aayog and Rocky Mountain Institute. “Towards a Clean Energy Economy: Post-COVID-19 Opportunities for India’s Energy and Mobility Sectors, 2020”.

Transition is, however, easy to show in energy sector. Not so in other sectors yet the pace has, surprisingly, risen. Automobile makers Maruti and Hyundai having fixed the emission norms in cars are investing to meet the corporate average fuel efficiency (CAFE) standards. They mandate changes in engines instead of just in emissions from the cars. Those standards will need to be adopted from April 2022, even though the industry body SIAM has warned the government not to ask the manufacturers to implement them as the “investments are very steep and the commensurate revenues have not been realised by the industry due to lack of consumer demand”. 

In August, energy think tank Teri spearheaded a pledge by Indian business as a “call to action” to repurpose their business activity to stimulate green growth in the wake of the Covid 19 pandemic. The list included the Tata group companies, Godrej, Flipkart, Delhi Airport and BPCL. Tellingly, the other major industrial groups stayed away. This ambivalence is particularly discerning in the insurance sector. The sector has become a key driver of the green story abroad, but despite the tie ups with those names, the domestic sector has yet to come up with implementable ideas to push investment in environmentally sound sector. Yet they risk being targeted by global investors. As a study by OMFIF, the Official Monetary and Financial Institutions Forum, which describes itself as an independent think tank for central banking notes socioeconomic resilience in the face of risks such as the pandemic and climate change is moving to the forefront of agendas across the financial sector. 

There are some easy options the government is also exploring. The World Bank, for instance, has advised India to build its recovery green by expanding employment in forest related activities. “India can use the Mahatma Gandhi National Employment Guarantee Scheme (MGNREGS) and the Pradhan Mantri Garib Kalyan Rojgar Abhyaan - which have a combined annual outlay of $20 billion - to build the country’s green infrastructure. These programs can help restore forests at scale, improve the quality of pastures, forests and wetlands, control erosion and forest fires, as well as sequester carbon and conserve biodiversity”, two of the Banks’ authors have written in a blog piece. 

Of course there is room for tokenism. The recently signed India Denmark economic framework is labelled a Green Strategic Partnership principally as a nod to the Nordic nations’ focus as an environment champion. There has been better initiatives though. The centre has linked additional borrowing by the states to reforms in the electricity sector and while it has opposed by IISD as hard to understand it does goad them to switch to lower power renewable energy. 

As a result of these combined moves India based companies are being forced to examine the green option much more deeply this year, despite facing the largest ever recession. A Ficci-Dhruva Advisors survey among company CEOs puts the broader recovery of the economy despite the healthy PMI and GST numbers at still at least a couple of quarters away. Over 30 per cent of the companies expect their capacity utilisation to remain below 50 per cent even in the second quarter. There are of course sectors which have perversely benefitted from the move away from green in the pandemic. None more so than the plastics industry. In his Independence day speech of 2019, Prime Minister Narendra Modi had fast forwarded the plan to eliminate the use of single use plastics set for 2022 meaning to coincide it with the evocative date of October 2, the 150th birth anniversary of Mahatma Gandhi. The recycling industry was expected to take the brunt of the high manpower brunt of the phase out plan, still most city governments were within an inch of banning the use of plastic with less than 50 microns, the usual definition of single use plastic. The pandemic has pushed back the plan by years as this Business Standard report noted. India produces close to 15,800 of metric kilotonne of polymers annually and aims to hit 3 per cent of the global export market by 2025 according to PlastIndia Foundation, an association representing the plastics industry. Jigish Doshi, President of the foundation, notes with relief, stay safe with plastics has become the tagline from the pandemic.

The same pandemic has, counter intuitively, made small business and local shops pivot the opposite way with a vengeance. An Amercian Express survey of this universe shows 45 percent of small businesses have started accepting contactless payments while 34 percent of this universe has started contactless methods of delivery to their consumers. These involve significant additional investments for each business, but the fear of losing more business has made them undertake it.  

This will not be adequate though. Lesser says overall, climate commitments continue to fall short of what is needed. “Only a fraction of companies have made net-zero promises, only a small segment of countries have put sufficient policies in place, and green stimulus packages thus far fall short of the investments needed to achieve a path that meets the Paris targets”. This is despite the short term window that has opened up for tapping the global markets, as another research report notes “2020 will end up being a very strong year for sovereign (bond) issuance even though it fell off a cliff in March”.

There are costs. As balance sheets need to be repaired post the pandemic the enthusiasm for green money will be costly. An Oxford Economics Report notes achieving carbon neutrality by 2050 won’t be easy. “We estimate it will require a huge increase in global energy investment – in excess of 1% of world GDP”. So after the initial recovery if growth prospects dim, support for green deals that require new borrowing at higher costs could be hard to come by for Indian companies. Add to it the costs of digital transformation and artificial intelligence and companies are looking at significant additional leverage. 
Elements of Green recovery 

  • Continue to implement the FAME II scheme and allocate demand incentives to revive and grow EV demand
  • State-level EV incentives: Complement FAME II demand incentives with state-level subsidies to lower upfront cost and total cost of ownership, as well as non-fiscal incentives
  • Public transport rethink: Create an initiative to rethink and restore confidence in public transport, including the procurement of more buses,
  • National-level strategy for freight optimisation: Develop a national strategy for optimizing and digitizing the freight sector and its supply chain .
  • Electric delivery vehicles: Issue guidelines to state governments to encourage the electrification of final-mile delivery vehicles as freight demand experiences an increase in the next one to two years.
  • Mode shift of long-haul goods to rail: Encourage shifting of long-haul bulk goods movement from road to rail-based transport.
  • Non-motorised transport infrastructure: Create an urban road retrofit program to support more accessible walking, cycling, and electric micro-mobility solutions to offer clean, safe mobility alternatives and create jobs.
  • Scrappage policy: An incentive-based policy has the potential to encourage scrapping vehicles older than 15 years.
(Source: Niti Aayog and RMI)


  1. India’s transport sector can save 1.7 gigatonnes of cumulative carbon dioxide emissions and avoid about 600 million tonnes of oil equivalent (Mtoe) in fuel demand by 2030 through shared, electric, and connected passenger mobility and cost-effective, clean, and optimized freight transport.
  2. he principles to help guide initiatives and investments in India’s clean energy future include : 1) investments in least-cost energy solutions, 2) support for resilient and secure energy systems, 3) prioritizing efficiency and competitiveness, and 4) promotion of social and environmental equity

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