Author: Arpit Bhutani and Badri Narayanan Gopalakrishnan
Energy Review, Vol 5. Issue 04. 2023
In the bustling heart of India's booming economy, a quiet revolution is taking shape. As the world grapples with an ever-growing demand for resources, a new paradigm is emerging, the circular economy. India, with its vast population and burgeoning middle class, finds itself at a crucial crossroads – poised to either perpetuate the global "take-make-dispose" culture or lead the charge in adopting a more sustainable, regenerative approach. Through bold policy initiatives, strategic international collaborations, and cutting-edge technological advancements, the nation is carving a path towards integrating itself into the Global Circular Value Chains (GCVCs). India's vibrant Micro, Small, and Medium Enterprises (MSMEs) sector, which holds the potential to drive a powerful, transformative change from the grassroots to the global stage, serves as the key to unlocking this green future.. India's remarkable story is a testament to the power of circular economy principles in transforming nations and paving the way for a greener, more equitable tomorrow.
Global circular value chains (GCVCs) refer to the closed-loop approach to interconnected systems of production, consumption, and recycling that prioritise sustainability and resource efficiency. They aim to minimise waste and environmental impact by maximising the reuse, repair, remanufacturing, and recycling of products and materials across global supply chains.
GCVCs make it more attractive for developing economies to diversify from the production of primary products, to manufacturing and services. Conventionally, economies had to produce a fully manufactured product in order to export it. In a GCVC, an economy can instead specialise in one (or more) fields where it has a competitive advantage. As an example, the emergence of GCVCs has made it possible for China to add the exports of high tech goods to its portfolio, rather than solely relying on their role as an assembly provider.
Ultimately, however, for any circular economy model to be efficient, it is necessary to rethink our understanding of value chains to analyse how governments, private companies and academia can facilitate this change to advance sustainability and generate competitive commercial value. The economic growth of a nation must shift the focus from consumerism and throw-away culture towards the use of renewable resources.
To ensure that a circular economic model functions, it must maintain competitive commercial value to its linear counterpart. One such example is to incentivise recycling through multifaceted efforts. In GCVCs, companies are further incentivized to “close the loop”, by recycling and reusing products like textiles, plastics, and energy, which reintegrates waste into the greater supply chain. These range from products made from glass, plastic, paper, and metals.
In the case of India, it has been making significant strides towards embracing the concept of a circular economy and integrating into GCVCs. Due to the size of its large and growing population, coupled with a rising middle class, it presents a significant market for resource-efficient products and services. This demographic advantage has encouraged both domestic and international companies to invest in circular business models within the country. While the jury is still out on whether or not greater financial security in the general population drives more sustainable practices or not, it is clear that India is taking a multifaceted approach to enter into a more circular value chain.
India has been actively collaborating with international organisations, foreign governments, and multinational companies to learn and adopt best practices in circular economy models. These collaborations help India access global markets and facilitate the flow of knowledge, technology, and investment in circular value chains. An example of this, is the fervent political efforts being made to further India’s circular economy practices. The Indian government has been proactive in promoting sustainable development and resource efficiency. Various policy initiatives, such as the National Resource Efficiency Policy (NREP), Swachh Bharat Abhiyan (Clean India Mission), and Smart Cities Mission, support circular economy principles. These policies encourage businesses to adopt sustainable practices and facilitate India's integration into global circular value chains. In sync with a circular economy, the government formulated the Battery Waste Management Rules 2022, Plastic Waste Management Rules as amended in 2022, and the e-Waste Management Rules 2022. These rules promote the utilisation of waste generated in line with the circular model by setting out target waste disposal standards for stakeholders such as manufacturers, producers, importers, and bulk consumers, along with enabling transactions among stakeholders for extended producer responsibility certificates.
To meet the growing demand for skilled professionals in circular economy-related sectors, India has also been investing heavily in skill development programs and fostering partnerships between industry and academia. These initiatives help create a workforce capable of driving the transition to a more circular economy. As is often the case in a more digitised world, India has also utilised various IT solutions in the pursuit of this goal. Key enablers to this have been India's use of digital infrastructure. Technologies such as the Internet of Things (IoT) for asset tracking, artificial intelligence (AI), and blockchain inventory management have all helped companies track, manage, and optimise use of resources, making it easier to incorporate circular principles into their operations.
Furthermore, India has a vibrant start-up ecosystem, with many new companies focusing on sustainable business models and innovative solutions to address waste management, recycling, and resource efficiency. These start-ups are increasingly participating in global circular value chains, either as suppliers or customers. Within the realm of start-ups, Micro, Small, and Medium Enterprises (MSMEs) are important to mention, in the case of India, as they can be considered the mainstay of the economy there. MSMEs help industrialise rural areas, which lessens regional disparities and promotes greater distribution of income and wealth across the country. According to the Annual MSME Report 2021-2022, 51 per cent of MSMEs in India are located in the rural sector.
MSMEs in India offer a wide range of manufactured goods and services, including those related to education, logistics, media advertising, and information technology (ranging from traditional items such as processed foods and textiles and clothing to high tech items such as precision engineering tools, electrical and electronic components, medical instruments, and pharmaceuticals). The sector is very dynamic and is increasingly capable of innovation, thanks in large part to the aforementioned initiatives in India, with many of the MSMEs serving as auxiliary units of corporate supply chains, and as a result, increasingly integrated into GCVCs. India's demographic advantage, policy support, technological advancements, start-up ecosystem, skill development initiatives, and international collaborations have played a significant role in integrating the country into global circular value chains. It is for these reasons that we believe it to be pertinent for India to incentivise their MSME sector to thrive within GCVCs.
In the case of reuse and refurbishment, MSMEs can engage in the repair, refurbishment, and remanufacturing of products to prolong their lifespan and create additional revenue streams. This can also help in reducing the demand for raw materials and minimising waste generation. The Micro, Small, and Medium Enterprises (MSMEs) in India can use re-design and repair as tools to integrate themselves into a greater circular economy by incorporating these practices into their operations and business models. By re-designing products and processes, MSMEs can ensure that they are creating sustainable, long-lasting goods that minimise waste and maximise resource efficiency. This could involve designing modular products that can be easily updated, repaired, or disassembled, and using eco-friendly materials.
Repairing, on the other hand, extends the life cycle of products, reducing the need for new materials and energy-intensive manufacturing processes. MSMEs can invest in upskilling their workforce to provide repair services for their own products and those of other businesses. By doing so, they not only contribute to the circular economy, but also create local job opportunities and increase customer loyalty.
Following collaborative consumption, MSMEs can explore business models based on sharing, leasing, or renting products instead of outright selling them. This can reduce the demand for new products, conserve resources, and create new product streams while also generating economic growth. The Indian government is already making efforts to incentivise their MSMEs to engage in more circular business practices, such as their Zero Defect, Zero Effect (ZED) scheme, in which competitiveness in terms of sustainability is encouraged, allowing MSMEs to flourish, should they engage in this scheme.
In conclusion, India can become a big player in global circular value chains by leveraging its large industrial base to promote sustainable practices such as redesign and re-manufacturing. By prioritising resource efficiency, waste reduction, and innovation in materials and product design, India can position itself as a leader in circular economy solutions. Additionally, engaging in capacity building, fostering collaborations between stakeholders, and encouraging policy frameworks that support circularity will enable India to excel in this domain and contribute significantly to global circular value chains.
India's integration into Global Circular Value Chains is propelled by its demographic advantage, supportive policies, technological advancements, vibrant start-up ecosystem, skill development initiatives, and international collaborations. By incentivizing MSMEs to adopt circular economy practices like reuse and refurbishment, collaborative consumption, and Extended Producer Responsibility, India is uniquely positioned to create a significant impact on global sustainability. As the nation deepens its participation in GCVCs and continues to develop sustainable practices, it paves the way for a greener, more equitable future both domestically and for the broader international community.
It is to be noted that, the circular economy is not new to India and India has been circular for centuries. It is just recently that India has moved away towards a linear economic model of growth which traditionally has been the only way for a country to have the transition from a developing to a developed one. As India continues to develop and adopt sustainable practices, its participation in these value chains deepens, ultimately facilitating a more sustainable future. Not just for themselves, but also for the broader international community, through the collaborations that are possible within GCVCs.
(Mr. Arpit Bhutani is the Founder, Circular Innovation Lab, Copenhagen, and Dr. Badri Narayanan Goplakrishanan is a Fellow and Former Head, Trade, Commerce and Strategic Economic Dialogue, NITI Aayog, Government of India.) ■□■