19 Oct 2016 10:38

Sustainability in India - challenges and chances

Klas Eklund during a taxi ride in Pune, India

During Nobel Memorial Week, Swedish and Indian companies and NGOs met for discussions about international matters. One of the most discussed issues was sustainability. India is the third largest economy in the world, with the second largest population and a fast growing economy with 7.6% GDP growth rate. But it is also the country in the world with the largest number of people living in absolute poverty.

Due to its size and rapid growth, it faces extraordinary challenges – it must push for higher incomes, but at the same time cut emissions. 

We had the chance to talk to Klas Eklund, Senior Economist Sustainability at SEB, who participated in conferences during Nobel Memorial Week. He explains India's current situation, it's challenges and why he thinks India can still become a sustainable superpower.

You have been to India quite a lot, if you compare your recent trip to the very first one, what has changed?


Economic progress is visible in most places. The cities are growing, transport systems are booming (and over-crowded), people are better dressed and better fed. The middle class is growing rapidly. But there are still vast pockets of poverty in the villages in the countryside, and in the slums in the cities.

What are India's biggest challenges with regard to sustainability?


There are quite a few challenges. A very visible one is air pollution. The pollution level is sometimes twice as high as in Chinese mega cities. India is highly dependent on coal and therefore emits a lot of CO2. With a growing population of about 1.2 billion inhabitants, they will of course continue to emit CO2. So India needs to increase energy efficiency and move to more renewables.

Similar to other Southeast Asian states, parts of India face drastic resource scarcities such as water shortages, with many rivers polluted and even toxic. The villages and poorer parts of the cities need investments in sanitation, like water closets. So there is an increasing need of general changes, remediation of land and water as well as investments in the energy sector.

What kind of energy investments?


Since India is richly blessed with sunshine, solar energy is one of the most convenient natural energy sources in India. But it takes more than that. The grid is old and often malfunctioning. According to the World Bank, around 300 million people don't have access to the national electrical grid. Huge resources must be poured into a modern grid and into storage to provide the whole population with electricity. Much of that is happening already, but it is a race with time and there are barriers that are in the way, such as weak balance sheets of power companies.

What difficulties is India facing?


India has had a history of sluggish growth, too much bureaucracy and corruption. The Swedish Nobel laureate in Economics, Gunnar Myrdal, once wrote that India has a "soft state" that needs to become effective before any economic reforms can be implemented. Prime Minister Narendra Modi and his Government have now started to reform the state structures to make it more efficient. Some economic reforms have also been pushed through, like a generalized turnover tax, which will make the previous fragmented tax system more efficient.

What kind of developments do you expect to happen in the future?


There is so much happening now! Prime Minister Modi has launched a range of different initiatives such as the 'Clean India Mission' that aims to clean up the River Ganges amongst other targets. Modi has made clear commitments to invest in solar energy, and India recently signed the Paris treaty, promising to bring down its CO2 emissions. In addition, companies start to invest in sustainability with constructing "Green Buildings" and "Smart cities" for instance.

There is a lot of potential here - for SEB as well. With India growing and Nordic and German companies expanding there, many of our traditional corporate clients will need more banking services. And with huge investment needs in infrastructure and clean energy, there will be a rapidly growing demand for Green bonds, where we can help out.