(As published in Business Standard, New Dehi, India on 24th September 2017)
Demand
driven innovation has been a key success factor for many industries in US and
Japan, especially in defense R&D programme, in which well-articulated
demand was key to developing and diffusing technologies. Also, companies are willing
to invest, innovate and scale-up when demand is secure and well directed.
In
USA, the domestic market for green electronics products took huge strides after
the Federal Government’s Executive Order on the purchase of greener products in
early 1990s. Similarly in Europe, public procurement acted as a catalyst in
developing market for organic food and drink, fuel-efficient vehicles, and
sustainable buildings and timber products.
Typically,
a government spends about 12-30% of national GDP on procuring products,
services and works, thereby creating significant financial clout for itself in the
market. It is not only the biggest institutional consumer, but also regulates
and influences allocation of resources by demanding sustainable products and
services. Governments, especially in the developed economies, have leveraged
this combination of purchasing and regulatory power to shift investments
towards the manufacture of innovative low-carbon products. There is no reason
why India can’t travel the same path.
In
today’s interconnected world, consumers are savvy and sensitive to environment
and health hazard of products. Several studies have concluded that despite high unemployment rates and low
wages post 2008, millennials in European countries are willing to spend more for
environment-friendly products.
The European Commission estimated the rapidly growing global market for low
carbon environmental goods and services at €4.2 trillion in 2012. Indian
businesses can either seize the
opportunity and capitalize on this trend by internalizing sustainability in their
value chain, or face the danger of becoming obsolete in the modern consumer-driven
market.
The
objective of “Make In India” initiative to transform India into a global manufacturing hub
would not succeed unless our businesses adopt the new competitive mantra of reducing carbon emissions as
well as materials and energy usage over the whole life-cycle of products. Businesses,
by adopting this ‘low carbon manufacturing’ philosophy, have transformed their
manufacturing and been reaping the benefits of consumers’ willingness to pay
premium for sustainable products. This leads us to the question – how can we transform
Make in India initiative to “low-carbon manufacturing” initiative?
In May 2017, Government
of India (GoI) took a small step in this direction by releasing the Manual for Procurement of
Goods 2017, which has made key changes to facilitate procurement of sustainable
products by public sector.
The
Manual has broadened the “Value for Money” concept and brought out contemporary
concepts of “Total Cost of Ownership” and “Life Cycle Cost” to take into
account, not only the initial acquisition price, but also cost of operation,
maintenance and disposal during lifetime of products and services. Further, it
has allowed incorporation of environmental characteristics besides quality,
price, technical merit, aesthetic and functional characteristics in procurement
cycle – from specification, to bid evaluation and contract monitoring. Embracing
these changes, public procurers would create steady demand for greener
products, thereby decoupling both resource requirement and environmental
impacts from GDP growth.
The implications of this step are
mind-boggling when one considers the scale of government procurement in India,
which is about 30 percent of GDP. Considering Indian GDP is about $2.3 trillion,
the government has, in a bid to incentivize the market for innovation in
design, development and manufacturing of sustainable products, created a market
of about $700 billion for such products, works and services. In addition to challenging
traditional manufacturers to improve their efficiency, it will also force them
to innovate continuously to retain market competitiveness.
This tweaking of purchase policy will attune our businesses to the new success paradigm and make
them aspire to capture a small piece
of the big €4.2
trillion cake. It would also help us achieve multiple
SDGs, mitigate climate change, foster sustainable development, besides creating
whole new market for voluntary sustainability standards and labeling.
However, the Manual will remain
unnoticed unless its provisions are embedded into procurement practices. To start with, the
government can set up a Task Force to analyze their spend, identify hot-spots
in procurement, bring out comprehensive sustainable
products procurement guidelines and action plan for prioritized products, and
set up a monitoring and review mechanism. This would send a clear signal to the
market that it means business.
The
capacity building of stakeholders and preparing businesses (especially SMEs) for
such transformation can progress simultaneously. Industry in China realized
long ago that efficiency in energy usage, waste generation, and water
consumption, along with using recycled materials, was vital for reducing costs
and becoming competitive in the long run. Our policymakers must move
aggressively if we are to unlock public
procurement’s "power of the purse" to trigger innovation
in low-carbon manufacturing.
