Circular economy path could benefit India by $624 billion

Taking India as an example, a new study says that moving from the present linear economic model to a regenerative and restorative circular system would yield economic, environmental and social benefits.

by Kanaga Raja

GENEVA: A circular economy path to development could bring India annual benefits of $624 billion in 2050 [or a benefit equivalent to 30% of India’s current gross domestic product (GDP)] compared with the current development path, according to a new report by the Ellen MacArthur Foundation in association with the United Nations Conference on Trade and Development (UNCTAD).

According to the report, titled “Circular Economy in India: Rethinking Growth for Long-Term Prosperity”, this conclusion was based on high-level economic analysis of three focus areas key to the Indian economy and society: cities and construction, food and agriculture, and mobility and vehicle manufacturing.

“The research shows that realizing these benefits fully would require applying circular economy principles in combination with harnessing the unfolding digital and technological transformation, all tailored to the Indian context,” it said.

The report explains the concept of a circular economy as being “a continuous cycle that preserves and enhances natural capital, optimizes resource yields, and minimizes system risks by managing finite stocks and renewable flows.” Restorative and regenerative by design, a circular economy aims to keep products, components and materials at their highest utility and value at all times.

In a circular economy, said the report, value creation is decoupled from the consumption of finite resources. The model distinguishes between technical and biological cycles, which rely on distinct capital-building strategies. Consumption happens only in biological cycles, where nutrients are metabolized – e.g., through composting or anaerobic digestion – and life processes regenerate the living systems, such as soil, plants or animals, that give rise to materials and other resources. Technical cycles recover and restore products, components and materials through strategies like reuse, repair, re-manufacture, refurbishment or (in the last resort) recycling.

“In a circular system, innovation and restoration increase long-term resilience. A circular economy does not just amount to adjustments aimed at reducing the negative impacts of the linear economy; it reflects a systemic shift that creates a positive and self-reinforcing development cycle, generating business and economic opportunities and environmental and social benefits,” said the report.

“By embarking on a circular economy transformation – launching new circular economy initiatives and reinforcing existing efforts – India could leverage its expected high levels of growth and development to build a more resource-effective system, creating value for businesses, the environment, and the Indian population,” the report said.

International briefing

An international briefing on the report was held by the Ellen MacArthur Foundation, an economic research and innovation think-tank, in cooperation with UNCTAD and the government of India at the United Nations here on 12 December.

In some introductory remarks at the briefing, Guillermo Valles, Director of the UNCTAD Division on International Trade in Goods and Services, and Commodities, said that most economic processes today rely on linear flow of extraction, transformation, utilization and disposal of materials. He said that this has been the essence of industrial development perhaps over the last 200 years and has led to unprecedented levels of economic growth – with all its benefits also – in the last century.

“This linear paradigm of production is, in our view however, myopic and does not account for the externalities which we know now really exist,” he said. This is made clear by the environmental boundaries of the planet which have taken significant economic and political resources over the last two decades and it is very well acknowledged in the Paris Agreement on climate change and the Rotterdam and Stockholm conventions on trade in wastes.

Valles noted that recycling is already a big business. Secondary materials markets are widespread and represent important sources of livelihood in many nations. In the world today, 70% of people use second-hand clothes. Between 2002 and 2012, the combined market in the European Union alone for waste glass was €2.6 billion, €56.2 billion for paper and €26.4 billion for plastic. This amounted to a total of €85.2 billion in current prices.

According to Valles, the exercise which was done to estimate the benefits of circularity for India is important as an example for the international community.

Strong circularity can only be achieved if many countries engage in it, closing the material loops in value chains which represent most of the material flows in the world so that the trade community as we see it should be at the centre of this effort.

“We are at the very crossroads for trade, trade policy and the international trading system. We all know that trade is ... at the centre of the political agenda. It was for a long time, but more so in these days.”

“What will happen as from January next year, we don’t know, in terms of unilateralism, in terms of what we call the wrong responses to the wrong causes, meaning addressing fallacies and responding to fallacies with wrong policies,” said Valles.

Using the concept of circular economy to help make trade more responsive and strengthening the role of trade as a means for sustainable development requires new thinking on the way we produce, the way we consume and the way we trade, he said.

Jocelyn Bleriot, Executive Officer at the Ellen MacArthur Foundation, provided some context with respect to the circular economy.

He said that the linear economy generates quite a bit of waste and the tendency to have a reductive vision of the circular economy is actually quite present. He said the Foundation wanted to see if the circular economy was a potential way to rethink the development of very dynamic markets with high growth rates, and India was an obvious one to look at, with GDP growth of 7.6% in 2015 and an average growth of 7.4% over the last 10 years. Demographic expansion is quick as well, with India set to become the world’s most populous nation by 2022.

According to Bleriot, this raises many questions when it comes to economic activity, pressure on resources and levels of consumption. It is interesting to look at a different way of emerging as a powerhouse in the globalized economy. At the moment, India is evolving in the context of a linear globalization, so the chances of it evolving along with that model are very high. But if an economic case is put together for a different type of prosperity, that window of opportunity might be taken advantage of to move towards regenerative and restorative models of growth, he said.

Ashok Khosla, co-chair of the UN Environment Programme (UNEP) International Resource Panel, explained what the circular economy means and the social, environmental, political and economic context within which a circular economy can best flourish. He went on to share his experiences both in the international community and also in India on how to make the economy circular.

He highlighted India’s progress in the 40 years from 1970 to 2010, where total material extraction in the country went up by a factor of 8. The causes of this are a growing economy, consumption patterns and, to some extent, population growth. “So we need to look at all of these if we are going to solve the problems of the circular economy,” he said.

Ambassador Virander Paul, Acting Permanent Representative of India to the UN in Geneva, spoke on where India stands and where the country is headed. He noted that the Ellen MacArthur Foundation had chosen India as the first country in the developing world to do this study.

Circularity might be a new concept from an academic angle but not so new as a practice because various countries do practise circularity based on their needs, their potential and their requirements, he said. But this report has given the whole concept renewed focus and packages various elements of circularity in such a way as to inspire those who haven’t really looked much at this concept.

Complimenting the authors, both from the Foundation and from UNCTAD, for the hard work that they put in to bring out the report, Paul said the report advocates the adoption of a value-preserving model with respect to three focus areas, namely cities and construction, food and agriculture, and mobility and vehicle manufacturing. He said that the findings of the report are “very promising” and are in line with the larger aims and direction of Indian economic policies.

He also provided a snapshot of the current state of play of the Indian economy, saying that the government’s main agenda is rapid economic development that is inclusive. He pointed out that the Indian economy has grown 7.6% in 2015-16, with foreign exchange reserves reaching the highest ever level of about $350 billion. The fiscal deficit in 2015-16 and 2016-17 are at 3.9% and 3.5% of GDP.

Highlighting India’s agenda for the present year, Paul said the focus is on ensuring macroeconomic stability and prudent fiscal policy, boosting domestic demand, and continuing the pace of economic reforms and various policy initiatives. He underlined that India is transforming and ready to embrace new ideas and initiatives and a new paradigm that is in sync with the spirit and changed developmental dynamics.

He believed that this report could also serve as a foundation for policy planning in several other countries which are at a similar level of development, because the concept of circularity is universal and draws upon longstanding good practices.

Highlights of report’s main findings

According to the report, a circular economy development path in India could create annual value of 14 lakh crore rupees ($218 billion) in 2030 and 40 lakh crore rupees ($624 billion) in 2050 compared with the current development scenario.

The analysis indicates that costs to provide the same level of utility would be significantly lower in the circular development scenario. Cost savings amount to 11% of current Indian GDP in 2030 and 30% in 2050.

By adopting circular economy approaches, businesses could achieve material cost savings and increase their profits. The key drivers of value creation include better product design, innovative business models and reverse logistics.

For example, shifting from selling cars to providing vehicles as a service can create new revenue streams for the automotive industry and capture the value of more intensive use of each car. “Innovative vehicle design to make maintenance easier and boost fuel efficiency can create value by increasing utility (in terms of total kilometres driven) and decreasing running costs,” said the report.

In the built environment, it said, construction companies can innovate by applying design methods for modular buildings. Retrieving materials left over after construction and demolition work and keeping them in cycles could capture their value and ultimately reduce overall construction costs.

A circular economy development path could significantly mitigate negative environmental externalities. For example, greenhouse gas (GHG) emissions could be 23% lower in 2030 and 44% lower in 2050 compared with the current development scenario, helping India deliver on its targets promised in the recently ratified Paris Agreement to tackle climate change.

Other negative externalities, such as those resulting from the linear use of virgin materials and water, and the consumption of synthetic fertilizers, would also decrease. According to the report, in the three focus areas analyzed, virgin material consumption would be 24% lower in 2030 and 38% lower in 2050 compared with the current development path. Water usage in the construction industry would be 19% lower in 2030 and 24% lower in 2050, while synthetic fertilizer and pesticide use would be 45% lower in 2030 and 71% lower in 2050 compared to the current development path.

A circular economy could deliver benefits for the Indian population, such as cheaper products and services and reduced congestion and pollution. In all three focus areas studied, the analysis showed that the cost of providing the expected services for each citizen would be considerably lower on the circular development path than on the current path. “While businesses will capture part of this value, most of it would boost disposable income. The lower costs could also help India implement such initiatives as Pradhan Mantri Awas Yojana (Housing for All) and the National Food Security Mission.”

The Foundation said that the analysis also suggested beneficial impact on congestion, pollution and health. For example, following the circular development path would reduce vehicle kilometres travelled on roads by 38% in 2050 compared with the current path, and reduce congestion and time spent in traffic. The circular scenario would also include more zero-emission vehicles, reducing pollution and their associated negative effects on health and costs. “Reduced use of pesticides (76% lower in 2050 compared with the current path) is likely to improve the health of farmers.”

The report also underlined that leveraging digital technology to enable the circular economy could reinforce India’s position as a hub for technology and innovation. “The interplay between circular economy and digital technology creates fertile ground for value creation and given its renowned IT [information technology] sector, India is particularly well positioned to leverage these opportunities.”

The report found that all three focus areas studied could leverage digital technology and the increasing ease of connectivity. For example, in the food system, digitized supply chains and platforms for sharing assets (thus maximizing their utilization rate) and knowledge (best practices) among small farmers can create significant benefits. In the mobility sector, digital devices can provide seamless door-to-door transport planning, combining diverse modes of transport and providing direct access to mobility when it is needed. In cities, digitally enabled sharing solutions are already being deployed to increase the utilization of floor space in buildings.

Moving to a circular economy

By actively leveraging and reinforcing circular economy opportunities now, India could move directly to a more effective system and avoid getting locked into linear models and infrastructure, said the report. “As the systems that provide housing, food, and mobility require development in a growing economy like India’s, the country could realize significant value by developing them in a circular, rather than a linear, way.”

For example, it noted, only about 2% of the Indian population currently own a car, but the demand for mobility is increasing. Demand for personal mobility in India is expected to double or even triple by 2030. Car sales are booming, and the country is expected to become the third largest market in the world by 2030, after China and the US. “Designing and building a mobility system that enables safe, convenient, and comfortable travel without car ownership could meet people’s mobility needs with lower cost and fewer negative externalities than in the current development scenario.”

In other areas, such as cities and the construction industry, satisfying the demand for development with highly efficient infrastructure and buildings – or virtualizing the needs altogether, which in turn has a beneficial impact on the mobility system – could reduce consumption of resources and energy for many years. The report noted that India is urbanizing at an unprecedented rate, against a backdrop of resource constraints. An estimated 700-900 million square metres of new commercial and residential space a year – the equivalent of what exists in Chicago today – needs to be built to cope with the increasing demand.

“High-growth markets like India can achieve competitive advantage over mature economies by moving to a circular economy.”

The report said that applying circular economy principles to new activities from the start would firmly set the direction of travel and favour early success. In contrast, because of existing linear lock-in, mature economies would need to transform large parts of their systems to reach the same level of circularity. “This advantageous starting point could provide India and other high-growth markets with a competitive advantage over those economies.”

For example, 70% of the buildings expected to stand in India by 2030 are not yet built, compared with 25% in the UK. If both economies applied circular economy principles to all new construction until that year, India’s buildings would have higher embedded circularity.

Similarly, the total costs (relative to the size of the economy) of shifting to a highly circular system would be much lower for India, said the report.

The full report can be found at http://www.ellenmacarthurfoundation.org/publications/. (SUNS8377)                    

Third World Economics, Issue No. 630, 1-15 December 2016, pp7-9