India:  Environmental Market Analysis

• Country Overview
• Market Estimates and Analysis
• Foreign Competition
• Regulatory Impact

COUNTRY OVERVIEW

State of the Environment

India�s environmental problems are gaining global significance because of the country�s rapid population growth, the aggressive speed of urbanization, and lack of infrastructure. India is the world�s sixth largest -- and second fastest-growing -- source of greenhouse gas emissions.

• Three of India�s largest cities are considered among the world�s 10 most polluted. New Delhi, the capital, is the second most polluted city in the world.
• More than 30% of the population has no access to safe water supply.
• More than 70% of the population has no access to proper sanitation.

Nearly 12 years since the disastrous Union Carbide chemical leak in Bhopal and after 5 years of economic resurgence, environmental awareness is high. It is particularly evident in the rising sentiment of "Not In My Backyard" (NIMBY) in Gujarat state, the heart of India�s industrial "Golden Corridor" and the center of chemical production. Nongovernmental organizations (NGOs) have mushroomed from about 650 a decade ago to over 11,000 in 1995. India is responding to calls for environmental improvements with tighter laws, court actions, and programs aimed at raising environmental spending.

Nonetheless, India has far to go. Not only is industrial pollution from economic growth egregious, but the problems related to the country�s underdevelopment, such as widespread poverty, a population growth rate of 1.91%, a lack of education, and illiteracy exacerbate pressures on natural resources and the environment. While the new government�s top priorities appear to be shifting in favor of a more social focus, how much the government will emphasize the environment remains unclear. Institutional capabilities are weak, and the government�s allocation of scarce capital resources to environmental programs competes with economic development.

MARKET ESTIMATES AND ANALYSIS

India is a promising market for pollution control equipment, particularly equipment for industrial wastewater treatment, monitoring equipment for industrial air pollution control, and hazardous waste management. According to the 1999 Country Commercial Guide, the pollution control equipment sector ranks thirteenth among leading industry sectors for U.S. exports and investment for nonagricultural goods and services in India.

Major polluting industries are

• Pesticides
• Dyes and Intermediates
• Paints
• Pulp and Paper
• Fertilizer
• Drugs and Pharmaceuticals
• Inorganic Chemical Industry (mainly Chlor Alkali, Soda Ash)
• Petroleum
• Electroplating/Heavy Metal industry
• Semiconductors/PCBs.

Hazardous Waste

Approximately 5 million tons of hazardous waste is generated annually in India, most of it in the 4 highly industrialized states of Maharashtra, Tamil Nadu, Gujarat, and Andhra Pradesh. The World Bank has proposed a $100 million line-of-credit to finance combined hazardous waste treatment facilities in these 4 states. These projects are likely to be privatized by several industrial associations. The estimated business potential for industrial waste management in these areas is $280 million.

The demand for hazardous waste identification, storage, packaging, and related emergency equipment is expected to rise dramatically and should be required by over 4,000 companies, which will produce 7 1/2-10 million tons of hazardous waste. In 1998, 3-5 incinerators will be commissioned for 150 metric tons of waste per day (MTPD), 8-10 incinerators for 50 MTPD, and 50 incinerators for 5 MTPD.  An estimated 4-5 million tons per year of industrial waste will be disposed of in landfills having an average size of 25,000�30,000 tons.

Textiles and Dyestuffs

According to CII, textiles and dyestuffs together account for almost one-third of India�s total export earnings and manufacturers are now looking for cleaner, more efficient technologies and processes to manufacture dyes and dye intermediates. This includes over 285 textile processing houses producing an estimated $10 billion of exports and thousands of small and large dye-stuff manufacturers in Western India, accounting for nearly 90% of $1.3 billion dye stuff exports.

Joint Ventures

Success in India�s markets is best achieved through partnerships or joint ventures with local firms. Joint ventures would import specific and core components but generally prefer in-country assembly of the systems. Environmental enterprises can avail themselves of certain import duty concessions for such imports. International affiliates of Indian companies earn revenues through royalties on locally produced equipment under technology transfer agreements. They also share profits with Indian partners in joint ventures.

Through joint venture and technology cooperation agreements, U.S. equipment manufacturers can provide both conventional and advanced environmental technologies. Thus, there are still many opportunities for foreign businesses in the environmental industry.

Due to market complexities, Customs data is not available to assess actual import transactions. However, Indian industry prefers joint ventures or technology transfers with international companies. Under such arrangements, Indian companies manufacture equipment in India and import the core components. Direct imports for joint ventures include

• storage containers made of or in line with materials compatible with waste reduction
• polyethylene packaging carboys
• 200-liter steel clamp lid containers
• emergency equipment like fire extinguishing systems, spill control equipment, communications and alarm systems
• decontamination equipment.

Environmental Market Breakdown

Environmental Business International (EBI) estimated the total environmental market at around $1.85 billion in 1997.

Environmental Market Breakdown ($ millions)

Pollution Control Equipment Market in India ($ millions)

FOREIGN COMPETITION

India has a long history of self-reliance based on import substitution. Much of what India needs by way of environmental equipment for compliance is already available domestically, e.g., pollution control equipment. However, Indian environmental companies still face significant hurdles, including

• shortages of raw materials, such as membranes, activated carbon, resins, and other components
• limited servicing capability
• limited access to available technologies and potential foreign partners
• high capital costs for expansion
• limited research and development capability for technology improvements.

U.S. market share of total imports is increasing steadily.  While U.S. exports accounted for only 12.8% of India�s total import figure, in 1993, U.S. products accounted for nearly 54% of India�s total imports in 1997, over 55% of the total 1998 import figure, and an estimated 56% of the total 1999 import figure.  Environmental equipment also generally ranks high among U.S. exports to India. Nevertheless, as in most other countries in Asia, there still is a general lack of transparency in bidding procedures. With the strength of existing local capability and political risks involved, foreign companies are cautioned to approach India with a long-term view.

For now, consulting is a relatively young though rapidly growing industry and there is no shortage of competition. Several European and U.S. players have already established a presence and market share through partnerships with Indian firms. Montgomery Watson was among the first to find a strategic partner to form AIC Watson Consultants in Bombay. Several other U.S. consulting and engineering firms like Fluor Daniel, Parsons, ERM, and Chester Engineering have also established long-term partnerships. Many other equipment providers have had longstanding relationships with local manufacturers.

The U.S. Department of Commerce (DOC) Foreign Commercial Service and State Department reported in the 1999 Country Commercial Guide that India has 350�400 pollution control equipment manufacturing and environmental consulting companies. Over 100 companies in India have associations with international companies in the form of joint ventures and technology transfer agreements for various types of pollution control equipment.

Selected Environmental Joint Ventures in India

An increasing number of Indian companies are seeking U.S. expertise in hazardous waste management. This will substantially increase the U.S. share of total imports of handling-treatment equipment and services. However, U.S. companies face stiff competition from German, Dutch, Japanese, Italian, and Canadian firms.

Several state industrial development corporations and the state Pollution Control Boards (PCBs) are establishing comprehensive waste management facilities, which include combined industrial effluent and hazardous waste disposal facilities. These projects are being privatized and sites have been allocated in several states for these facilities.  U.S. companies have the competitive advantage in India, having developed several such sites. Moreover, the U.S. has a leading edge in environmental technologies and has vast expertise in solid-liquid hazardous waste treatment technologies and equipment.

REGULATORY IMPACT

The Hazardous Waste (Management and Handling) Rules 1989, introduced under the Environment Protection Act, mandate the use of specialized equipment and services for storage-handling, treatment, transportation, and disposal of hazardous waste. All industries using, importing, and/or generating hazardous waste are within the purview of the law. The implementation of this law is progressing gradually and will result in the use of new types of hazardous waste-related equipment and the proper construction of industrial and/or hazardous waste disposal sites. The Ministry of Environment and Forests (MOEF) has also established guidelines for industry for management and handling of hazardous waste. 

To strengthen pollution regulations and avoid duplication of existing legislation, MOEF aims to develop a comprehensive act for pollution control. The ministry also plans to have a single-window environmental clearance for new units for approval under the Air, Water, and Environmental Pollution Control Acts.

In general, the government has been effective in tracking environmental data and formulating legislation. India is one of the few countries in Asia that produces an annual national environmental report (available from the central Pollution Control Board).

Environmental Legislation in India

The state Pollution Control Boards handle enforcement under MOEF supervision. The central Pollution Control Board, the main implementing and enforcement agency of the ministry, establishes national standards, such as ambient air emissions and water quality. However, the state PCBs may enact a stricter set of standards. The PCBs have initiated as many as 647 prosecutions under the Air and Water Acts.

Under the major provisions of the Water and Air Acts, any new industrial facility must obtain a "Consent to Establish" and a "Consent to Operate" from the state PCB before the plant can commence operations. Under the Environmental Protection Act, 29 categories of industries must obtain an "Environmental Clearance" from the MOEF for any new project or modernization/expansion. The ministry has also identified 18 categories of hazardous waste. An authorization is required prior to handling (collecting, treating, transporting, or storing) such substances. Safety audits for all new and existing industries must be conducted with the aid of an independent expert and submitted to authorities.

Although there are regulatory bodies at both the central and state levels, they are not properly staffed or funded to complete their mission. With inadequate manpower, insufficient technical and financial resources, and rampant corruption, effective implementation of state and national environmental legislation has yet to be achieved. In addition, there are loopholes in environmental regulations. In 1995, the government amended the environmental clearance procedure, stating that MOEF's Environment Impact Assessment Agency could ask project proponents to go through a public hearing if the EIA determines a potentially large and significant impact from the project.

Policy Initiatives

On the policy level, the government of India has been focusing on specific environmental measures. In its Policy Statement for Abatement of Pollution, the government announced four priorities:

• heavily polluted areas and river stretches
• pollution prevention at source
• recognition of the "polluter pays" principle
• development of best available technical solutions.

In addition, the central PCB has identified 17 categories of highly polluting industries for priority action. Under these categories, the board has identified over 1,500 large- and medium-sized units nationwide. Among the major categories are

• textiles
• chemicals and related products
• cotton textiles
• mining
• electricity generation
• basic metals
• nonmetallic minerals.

Compliance

The country�s judicial system has played a crucial role in enforcement. The courts have forced the shutdown or relocation of non-complying industries.

• In recent years, especially in 1995, a spate of public interest litigation has resulted in the shifting or closing of many industries nationwide.
• Of 10,000 firms in New Delhi that were issued notices of non-compliance, over 1,500 have been asked either to closed down or relocate.
• Nearly 60 tanneries in Tamil Nadu, over 150 dye and dye intermediate units in Gujarat, and many polluting enterprises in West Bengal, Uttar Pradesh, and Andhra Pradesh states were closed down.
• Legal cases have involved a wide variety of industrial sectors, including stone crushers, foundries, slaughterhouses, electroplating, cement, secondary lead, zinc and steel, hotels, aqua culture, and farming.
• The Supreme Court has punished erring PCB officials as well as Chief Executive Officers of private firms who have not complied with requirements.

Cleaning up the Taj Mahal, the country�s most famous monument, led to the closure of about 100 polluting foundries in Agra, where the Taj is located. The foundries could not meet the government�s December 1995 deadline for compliance. About 31 factories have already been closed because of their failure to take corrective measures.

In 1991, the ministry announced an action plan to improve industry's control of pollution. The central PCB continuously monitors compliance, emphasizing the highly polluting sectors.  The compliance level is about 45% for all industry sectors of all sizes. The compliance record of large- and medium-size industries in the 17 categories of highly polluting industries is far better than the national average�over 70% of these units are now complying, compared with only 24% 3 years ago.

Compliance among the estimated three million small-scale industrial units (defined as any industry whose net worth is valued at less than $1 million) is still extremely low, estimated at around 20�25%. Small-scale industries account for over 40% of industrial output in value terms, but their share of industrial pollution is disproportionately high. The majority of these units belong to the "unorganized sector" and are thus difficult to regulate.

While several large, forward-thinking enterprises may go the distance in adopting integrated environmental management policies, most domestic industries are generally hard-pressed to go beyond basic compliance. (Foreign multinationals generally have stricter environmental standards.) According to CII, constraints for domestic industries include

• shortage of capital
• limited access to technology
• underdeveloped infrastructure
• inadequate technology research and development
• lack of awareness of the options for pollution control and prevention.

Smaller industries have the added burden of using obsolete, inefficient production processes, which are typically more polluting. Such companies are often short of capital and skilled manpower and have limited access to information on pollution control and prevention systems.

Pollution Reduction Efforts

Recent pollution reduction efforts have included the following:

• River Basins: The central PCB has initiated an assessment of river basins, one of the key environmental actions of the National River Program Action Plan. The government initially launched an effort to clean up the Ganges River (see Water and Wastewater section below), but the largely unsuccessful program has now been folded into a national effort that is receiving external funding assistance.
• Vehicular Pollution: In April 1995, the central PCB implemented a plan to introduce unleaded fuel into four major metropolitan areas (New Delhi, Bombay, Calcutta, and Madras) and required catalytic converters on all cars.  In 1996, low-lead fuel (.15 grams/liter compared with the current 4.5 grams/liter) was introduced in all cities and towns nationwide.
• Power Plants: The central PCB requires new power plants to install electrostatic precipitators (ESPs), while existing facilities are on a time-bound schedule to do the same. Coal mines must reduce their ash content by 40% through coal washing and beneficiation. The board also embarked on a number of research studies on pollution control and cost calculations in problem areas.
• Oil Refineries: The Ministry of Environment and Forests has asked all oil refineries to reduce the sulfur content in diesel fuel to less than 0.25% by the end of 1999.
• Water and Air Quality: The central PCB and the state PCBs manage the country�s 480 water quality and 290 air quality monitoring stations. The central PCB is identifying areas that may or may not be suitable for industries based on specified criteria. The board relies on remote sensing systems to identify and prepare environmental impacts of proposed industries to prevent indiscriminate siting.

Environmental Spending

India�s spending on environmental protection is still low, about 0.5% of GNP, compared with 2�3% in developed countries. Total government spending is estimated at $380 million; the remainder is industry�s share.  Additional fiscal incentives for pollution control and environmental taxes are being explored by a task force established by MOEF under the National Institute of Public Finance and Policy.

India is among the world�s largest recipients of multilateral and bilateral funding for environmental programs. According to the Asian Development Bank, an estimated $1.1 billion of ongoing projects are being funded by various multilateral and bilateral donor agencies in many sectors, including 

• forestry
• river pollution control
• institutional strengthening and capacity building
• urban and rural infrastructure (sanitation and water supply)
• energy improvement
• water resources/drainage.

An estimated $759 million was proposed to be funded for 1996�97.

Proposed Projects for Sub-Sectors
(US$ millions)

While much lending activity initially went to agricultural and irrigation projects, the country�s environmental priorities have led to more project funding in water/wastewater infrastructure, particularly to facilitate compliance work by small-scale industries. The World Bank has fairly large water supply and water resources management projects totaling $736.6 million in Madras in the state of Tamil Nadu. In 1995, the Bank also provided $168 million in assistance to small-scale industries, renewing financing for industrial pollution prevention programs.

India also receives financing assistance from many other sources, most noticably Japan�s Overseas Economic Cooperation Fund (OECF). OECF has been assisting the government of West Bengal to accelerate pollution prevention and control efforts.

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