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RR RUEHAST RUEHBI RUEHCI RUEHDBU RUEHHM RUEHLH RUEHLN RUEHMA RUEHPB
RUEHPOD RUEHPW
DE RUEHNE #3262/01 1981234
ZNR UUUUU ZZH
R 171234Z JUL 07
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 6943
INFO RUEHBJ/AMEMBASSY BEIJING 6417
RUEHBY/AMEMBASSY CANBERRA 1221
RUEHUL/AMEMBASSY SEOUL 1282
RUEHKO/AMEMBASSY TOKYO 5205
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RUEHGZ/AMCONSUL GUANGZHOU 0485
RUEHHK/AMCONSUL HONG KONG 4814
RUEHGH/AMCONSUL SHANGHAI 0174
RUEHSH/AMCONSUL SHENYANG 0264
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE

UNCLAS SECTION 01 OF 03 NEW DELHI 003262 
 
SIPDIS 
 
SENSITIVE BUT UNCLASSIFIED 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: SENV ECON ENRG TSPL TRGY BEXP IN
SUBJECT:  INDIA: LACK OF MARKET DRIVERS FOR CLEAN TECHNOLOGY 
 
 
NEW DELHI 00003262  001.2 OF 003 
 
 
¶1. (SBU) Summary and Comment: This cable will look at the investment 
environment for clean technology in India and the potential role US 
diplomacy, technology, and financing can play.  A number of market 
challenges such as the lack of a green market among consumers and 
minimal involvement from the financial sector create barriers to 
entry for foreign clean technology firms.  In addition, policy 
challenges such as insufficient knowledge of the social costs of 
energy as well as conventional energy subsidies have kept the clean 
technology revolution at bay in India. 
 
 
Clean Technology - Good for Business? 
------------------------------------- 
¶2. (SBU) Advocating the adoption of cleaner, more efficient 
technologies to large Indian firms is straightforward for EmbOffs 
because it will positively impact a company's operating profit. 
Firms that adopt clean technologies will be better prepared for the 
global economy which has been putting a greater emphasis on 
corporate social responsibility (CSR).  These firms are likely to be 
viewed more favorably in capital markets and their products will be 
more attractive to eco-friendly consumers in export markets.  In 
addition, there are a number of incentives provided by the 
Government of India (GOI) for manufacturers and end users of 
renewable energy systems, such as exemptions from excise duties, low 
import tariffs on capital equipment, and soft loans according to the 
website of the Ministry of Non-Conventional Energy Sources (MNES). 
(Note: SciOffs attempted to contact MNES officials regarding details 
of incentives, but received no response.) 
 
¶3. (SBU) However, for small and medium sized enterprises (SMEs), 
which represent 60% of Indian GDP and 35% of all exports, clean 
technology is a tough sell.  Rita Choudhury, Team Leader of the 
Environment Division at the Federation of Indian Chambers of 
Commerce and Industry (FICCI), stated that while large corporations 
which already have a presence in the global marketplace have begun 
to adopt clean technologies, the main challenge lies in raising 
awareness among SMEs.  These SMEs, she stated, have limited access 
to information regarding the benefits of clean technology and more 
importantly, lack access to the proper financial instruments 
necessary to make these operational changes.  While environmental 
protection laws create a market for cleaner technologies, RK Sethi, 
Director of Climate Change at the Ministry of Environment and 
Forests (MOEF), told SciOffs that when it comes to SMEs there is no 
enforcement of environmental regulations. 
 
Bottom Line - Market Drivers Not Present 
---------------------------------------- 
 
¶4.  (SBU) Several concrete factors prevent clean technology market 
penetration in India today: 
 
-- Lack of awareness of impacts of climate change and the economics 
of clean technology among consumers, manufacturers, and service 
providers; 
 
--Lack of enforcement of environmental regulations, especially for 
SMEs; 
 
--Cleaner technologies are not competitive due to heavy GOI 
subsidies for fossil fuels; 
 
--Reluctance of large foreign clean technology firms to scale down 
to meet the needs of small Indian players; and 
 
--Lack of financing options for consumers of renewable energy 
equipment. 
 
¶5. (SBU) In order for clean technology to flourish in India, we have 
to create fundamental awareness of the impacts of climate change 
among Indian consumers as well as educate Indian SMEs on the 
long-term economic benefits of operating cleaner and more 
efficiently.  While there are financial incentives provided by the 
GOI for renewable energy system manufacturers and end users, Indian 
firms will need assurances of increased long term profitability to 
justify the operational changes required to go clean.  KP Nyati, 
Head of the Environment Policy Division at the Confederation of 
Indian Industry (CII), stated that while sentiment is growing, the 
clean technology movement has not struck a chord with most Indian 
businesses.  He stated further that this was primarily due to the 
 
NEW DELHI 00003262  002.2 OF 003 
 
 
fact that most clean technology literature did not stress the profit 
potential of clean technology, but relied on normative arguments 
such as CSR, leading most Indian firms to view the adoption of this 
technology as an additional cost that would have negative impacts on 
their bottom line.  In addition, most information on clean 
technology is in English and thus not useful for the majority of SME 
operators. 
 
True Costs of Fossil Fuel Energy Unknown 
---------------------------------------- 
 
¶6. (SBU) Conversations with the GOI in regards to adopting clean 
technology typically end at the mention of upfront capital 
expenditures.  While initial costs are high, life cycle costs, 
including externalities such as environmental and social costs, of 
cleaner, more efficient technology versus conventional technology 
tend to be significantly lower.  This type of in-depth analysis of 
externalities has not been done in the context of India and would 
prove to be invaluable in future discussions with the GOI.  Other 
policy hurdles include heavy subsidies placed on conventional fossil 
fuel energy sources.  To alleviate the burden of the demand-supply 
gap in electricity, the GOI has subsidized kerosene, a key energy 
source in rural India, making it difficult for cleaner energy 
providers to compete for this market. 
 
¶7. (SBU) In terms of technology transfer between the US and India, a 
common problem that arises is the fact that US technology firms are 
unable to financially justify scaling down to meet the needs of 
India's smaller firms.  On the flip side, even if the technology 
firms could manage to provide to individual Indian firms, the small 
order sizes would drive up the unit cost of technology, making it 
unaffordable. 
 
Clean Technology Financing: Low Presence, Unattainable 
--------------------------------------------- --------- 
 
¶8. (SBU) Choudhury also remarked on the lack of involvement by the 
financial sector in India in the realm of clean technology.  This 
limited involvement echoes the lack of a green market.  A bright 
spot is large corporations, which have already begun adopting clean 
technology, readying themselves for the global marketplace. For most 
SMEs, however, the lack of enforcement of environmental regulations 
provides little incentive to make clean technology investments.  A 
major opportunity, particularly for solar photovoltaic (PV) devices, 
lies in consumers that are not connected to the power grid such as 
lower income households, rural communities, and the myriad of small 
businesses that make up the informal economy.  While financial 
institutions in India provide low interest rate financing to buyers 
of clean technologies such as PV devices, these populations are 
typically denied access to financial services based on socioeconomic 
status and are left to find funding from fledgling microfinance 
institutions.  While the microfinance movement is growing rapidly in 
India, it is not available in most rural communities, where 70% of 
the Indian population resides.  Microfinance initiatives, however, 
have had the unique success of reaching some of the poor via NGOs 
and other effective grassroots networks.  This approach has also 
proven to be an effective solution for the proliferation of clean 
technologies in rural homes and businesses.  For example, Selco 
India's solar panel project utilized innovative financing to provide 
clean technology to populations denied financial services by 
mainstream banks. 
 
Market for Green Products Does Not Exist 
---------------------------------------- 
 
¶9. (SBU) In spite of the surging purchasing power of India's middle 
class, consumers in this segment have yet to go green.  Pritee Shah 
of Ahmedabad's Consumer Education & Research Centre attributes the 
apathy to a "chicken-and-egg situation" where industry doesn't see a 
market for green products due to low awareness among consumers and 
consumers are not aware of green products due to their limited 
availability in stores.  EcoMark, India's equivalent to the US's 
Green Seal, has only been secured by 12 companies in its 20 year 
existence and is widely regarded as a failure.  Ecomark's struggles 
led to a 1998 study commissioned by the MOEF which found that only a 
handful of consumers in the wealthiest income bracket were willing 
to pay more for green products and they would only be willing to 
spend up to approximately 10% more for that product.  Our GOI 
colleagues have reiterated the line of reasoning that economic 
 
NEW DELHI 00003262  003.2 OF 003 
 
 
considerations will almost always supersede environmental health in 
India. 
 
¶10.  (SBU) In our next cable we will explore po4ential solutions to 
market and policy challenges to deployment of cleaner technologies 
in India. 
 
PYATT