Resource Efficient Cleaner Production and MSMEs

Can SMEs move to the RECP technologies?

UNIDO and UNEP started working with CII on the propagation of Resource Efficient and Cleaner Production (RECP) in manufacturing with a mission to improve resource productivity, prevention of waste, emissions and efficient use of water. Culturing SMEs in India as seedbeds of manufacturing requires a critical look at the issues and possible solutions.

Aggregate emissions appear to have peaked looking at smog in all the urban environments. Suspended particulates (soot) are worse in rural areas which are in low income turf of the economy. One of the major nonfuel air pollutants is chlorofluorocarbons (CFC), substances that lead to deposition of the stratosphere ozone layer. Acid deposition is a regional problem and deposition of sulphur and nitrogen-based acids potentially harm the fish and fauna. Forest wealth is the worst affected in the process. Toxic chemicals in the environment have been problems for decades with pesticides finding their merry journey into food chain causing havoc.

A near two decades’ noise on renewable energies, safe water – source and disposal issues, air pollution, etc., defied solutions as different players that do not exclude government and its agencies could not fix the costs and benefits involving all the stakeholders.

While regulation has been put in place through Environmental Protection Act, differences in pollution control regulations from one state to another can influence comparative advantage within the Federal Republic of India. Though specific emission standards determining pollution limits are prescribed as a policy measure in all the states vested interests played spoil sport in implementing the Pigoueian principle of ‘Polluter Pays’. In our efforts to grow rich, we have been exploiting natural resources from a point of abundance to scarcity.

RECP is right if it preserves the integrity of the ecosystem and wrong if it does not. Social choice should prevail over the individual benefit. Such choice is determined on the Pareto optimality concept. The costs of transfer, as long as they benefit larger among the two groups or sectors of choice, the left over group should not be worse off than before. Marginal efficiency of capital decides the Pareto contour and determines the price of transfer of technologies.

SMEs live in the eternal conflict of survival dynamics. To them, environment and development run counter to each other. If the costs of regulation exceed the benefits, they try to find ways to deviate from the regulation as long as their products and processes are accepted in the market. Trade off between input costs and output prices in RECP is not scale neutral. If importing energy efficient product is less costly, it makes little sense to produce them locally. Time taken for transmission of anti-dumping duties to local consumer prices would have rendered the SMEs involved in RECP non-performing assets in banks’ books.

Operating largely in debt markets, will SMEs be able to invest in RECP? For the existing SMEs RECP investments are concurrent and not individual projects. Banks and FIs invariably insist on additional collaterals for financing such concurrent investments apart from higher rate of interest than their global counterparts. They are also ill-equipped to appraise such loans on a preferential footing.

Therefore, SMEs find it unviable to invest in RECP although they are fully aware that introducing them would make them globally competitive in production and processes. Experience of SIDBI through its two lines of credit in eco-friendly technologies has little to offer. Adaptation of RECP technologies, imperative for targeting 15-20% annual manufacturing growth requires specific policies.

Textiles, Plastics, Pharma, Chemicals, Leather etc., have dominant polluting components and therefore, investments in infrastructure should have state set-up common facilities for RECP implementation. The State can charge the SMEs after amortising the costs suitably so that their products can compete globally.

Enterprises in the emerging eco-industrial parks and those adopting green technologies should be given carbon credits and financial institutions should scale them up in rating to provide investment loans at softer rates of interest.

Banks and FIs can devise specific products like lease finance, term loans with longer gestation than 24 months. Fiscal concessions from the Government as is done in SME-intensive economies like Taiwan, Korea, Thailand etc., can be passed on for a period of five years.

Global institutions like the UNIDO, UNEP, GIZ etc., should provide technical support in chosen clusters to create pockets of demonstrated success in RECP. Depending on data analytics it should be possible to pick up responsive areas on the SME map where the NPAs are the lowest.

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