Energising innovation in green manufacturing

Our policymakers must move ahead quickly and aggressively if we, like China, are to unlock public procurement's "power of the purse" to trigger innovation in low-carbon manufacturing

Demand-driven innovation has been a key factor in the success of many industries in the US and Japan, especially in defence R&D programmes, in which well-articulated demand was the key to developing and diffusing technologies. Also, companies are willing to invest, innovate and scale up when the demand is secure and well-directed.
 
In the US, the domestic market for green electronics products took huge strides after the federal government’s executive order on the purchase of greener products in the early 1990s. Similarly, in Europe, public procurement acted as a catalyst in developing a market for organic food and drink, fuel-efficient vehicles, and sustainable buildings and timber products.

 
Typically, a government spends 12-30 per cent 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 the allocation of resources by demanding sustainable products and services. Governments, especially in developed economies, have leveraged this combination of purchasing and regulatory powers to shift investments towards the manufacture of innovative low-carbon products. There is no reason why India cannot take the same path.
 

In today’s interconnected world, consumers are savvy and sensitive to environment and health hazards. Several studies have concluded that despite high unemployment rates and low wages after 2008, millennials in European countries are willing to spend more on 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 capitalise on this trend by internalising sustainability in their value chain, or face the danger of becoming obsolete in the modern consumer-driven market.

 
The objective of the Make in India initiative to transform India into a global manufacturing hub will 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 a premium for sustainable products. This leads us to the question — how can we transform the Make in India initiative to a “low-carbon manufacturing” initiative?
 
In May, the government took a small step in this direction by releasing the Manual for Procurement of Goods 2017, which has made key changes to facilitate the procurement of sustainable products by the 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 the cost of operation, maintenance and disposal during the lifetime of products and services. Further, it has allowed incorporating environmental characteristics besides quality, price, technical merit, aesthetics, and functional characteristics in the 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 become clear when one considers the scale of government procurement in India, which is about 30 per cent of GDP. Considering the that India’s GDP is about $2.3 trillion, the government has, in a bid to incentivise the market for innovation in design, development and manufacture of sustainable products, created a market of about $700 billion for such products, works and services. In addition to challenging traditional manufacturers to scale up 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 ^4.2 trillion cake. It will also help us achieve multiple sustainable development goals, mitigate climate change, foster sustainable development, besides creating a market for voluntary sustainability standards and labelling.

 
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 analyse its spend, identify hotspots in procurement, bring out comprehensive sustainable products procurement guidelines and action plans for prioritised 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 of businesses (especially SMEs) for such transformation can progress simultaneously. Industry in China realised long ago that efficiency in energy usage, waste generation, and water consumption, along with the use of recycled materials, was vital for reducing cost 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.   The writer is a railway officer on deputation with Dedicated Freight Corporation