June 30 will certainly go down in India’s economic history as a milestone because at midnight on that date, Prime Minister Narendra Modi ushered in the Goods & Services Tax (GST), a comprehensive value added tax on manufacture, sale and consumption of products and services at a national level, replacing all other indirect taxes levied by the central as well as India’s state governments, which for decades posed hindrances and made things complicated for trade and industry. Some, particularly those in government, have hailed the switchover of the tax system as a single-stroke miracle that could add 1-1.5% to India’s gross domestic product (GDP) growth. Others, not so ebullient, agree that GST is a progressive step and a much-desired relief but not one that could lead instantly to higher growth.
The debate over GST’s real impact will continue but the fact is that India’s economy has enormous potential that everyone in the world is sitting up and taking notice of. The International Monetary Fund recently projected that if India’s growth trend—averaging 7.4% a year for the past decade—continues, India could nudge past Germany and become the world’s fourth largest economy by 2022, dislodging Britain out of the top five. Such prospects are guaranteed to inflate Indian chests with pride but there are still many challenges to overcome. By the same year, 2022, India’s population, now over 1.3 billion, will grow bigger than China’s, putting pressure on already scarce resources. Joblessness and poverty are already formidably big problems for India to tackle and these could get exacerbated further.
What if India chooses out-of-the-box ideas to grow? What if it eschews the conventional linear economic system and opts instead for moving to a circular economic system? Traditional linear economic models are what humanity has followed for centuries—take resources, make stuff out of them, consume them and then discard them. That ‘take-make-consume-throw’ model is now being challenged by thinkers and leaders who recognize that relentless pursuit of a linear model, particularly when resource supply is constrained yet demand is burgeoning could jeopardise long-term economic prospects and inhibit growth for nations—both, those that developed and, perhaps even more, those that are developing.
Instead, say researchers, if an economy such as India’s with its large and young population, an emerging manufacturing sector and marked resource constraints opts for a circular model that focuses on regeneration of resources, recycling of products and a change in the perspective of making things—one that extends the product life cycle of manufactured goods and encourages selling of services or performance of manufactured goods rather than of the goods themselves—the benefits could be significantly larger. How much larger?
An answer to that is provided by the Ellen MacArthur Foundation, a British non-profit founded in 2009 with the aim of inspiring people to re-think, re-design and build a positive future through the framework of a circular economy. In a recent research paper, the foundation makes a case for circular economy in India and estimates that adopting a circular economy path in three focus areas could bring significant “economic, environmental and social value” for India’s people and its industries. This would include: Rs 40 lakh crore (US$624 billion), or roughly a third of India’s current GDP, in annual additional value created in 2050; and 44% reduction in greenhouse gas emissions in 2050 as compared to what would be produced if India kept to its current linear development path.
The three focus sectors that the foundation included in its research are ones where moving to a circular economy could have the highest impact. The first of these is cities and construction because not only do urban areas in India account for nearly 70% of household spending but also that is where the highest consumption (and wastage) of resources occurs. Seven out of ten Indians today live in rural areas; by 2050, six out of 10 would be urbanites. The second sector is food and farming because 50% of working-age Indians work on farms and more than 60% of India’s land is used for farming. Growing demand for food, climate change and low yields are increasing the pressures on Indian agriculture. The third sector identified by the foundation’s research paper is transportation and vehicle manufacturing. A minority of Indians—2% of its population—own cars today but demand is growing fast and by 2030, demand for cars and other personal vehicles could triple.
How exactly would a circular economic system work in India? First, here’s some good news. Unlike many hyper-consumerist developed economies, India already has a culture of extending product life-cycles and recycling products. Vehicles and consumer durables are repaired and re-used; scrap metal, paper and other raw materials are commonly salvaged; and there is always a market for re-conditioned and refurbished products. But much of this activity is at the lowest end of the economic chain—at the downstream level where things are unorganized or small-scale. The effective way to make a circular economic system work is by integrating it along the entire chain of activities. Let’s take cities and construction. If the idea of circular systems is adopted right from the beginning–if land use and transportation flows are optimized; if building activity incorporates efficient use of energy and water use; if construction is modular and shared; if the infrastructure builds in conservation and reuse; and recycled (or recyclable) building material is chosen—the net result could be a product that uses resources more optimally than a linear model would.
The good news is that companies and industries in India have already begun doing it. E-cars are being piloted by a few companies; sustainable green buildings that recycle their waste to generate power and other utilities are being tried out; ventures to digitize and disseminate farm information have borne fruit; co-operative and shared use of mechanised farm equipment has started in a small but meaningful way; and vehicles treated as services to be used rather than material to be possessed has emerged as an alternative for consumers.
In the short run, the logic of a circular and not a linear model for economic activity may not be appealing: a factory to make more cars from scratch or a construction site that starts with sand and builds a skyscraper is going to employ more people and generate more income than ones that use circular concepts but if you factor in long-term consequences of the “take-make-throw” model those are small prices to pay for sustained long-term benefits. The onus of thinking differently for India’s economic future lies with business, industry and the top decision-makers. Not with its rag-pickers who scavenge scrap or the small-time refurbisher and recycler who do their bit by trading in waste for small profits at the lowest end of the production-consumption chain. It has to happen at the top. There could be a case for the cheerleaders of the government’s Make in India programme to stop and think of “re-making” in India. If the gain from such a gambit is even a decent fraction of the Ellen MacArthur Foundation’s estimate of Rs 40 lakh crore, it could be worth trying.