By building SDG-compliant enclaves, the country can boost manufacturing and get investments, too
India has the potential, but has not been able to scale up the share of manufacturing to its target of 25 per cent. It is blessed with natural resources, human resource and a history of manufacturing everything, from pins to planes. Growth in manufacturing can be achieved through a number of measures, for instance, ease of doing business, improved logistics and transportation, reduced on-going interference and harassment, and availability of land. Most of these are well documented and the government is achieving steady progress, but that is taking time. However, policymakers are forever worried about the ones that get away with easing of rules than the many that would prosper, and this mindset needs to change. But that is a subject for another discussion.
One of the key inputs required for investors to set up manufacturing facilities in India, whether local or international, is land and infrastructure. Challenges of obtaining land and building infrastructure, and the delays this creates, are well known.
A solution is to create industrial parks/special economic zones through private public partnerships, as the investment required to set up infrastructure is capital intensive. There are a number of global and local developers who are now capable of investing capital to create such infrastructure, if the government can ensure land availability.
We are also today faced with significant issues of inequality in society, gender disparities and the need to address climate change. Many times, manufacturing investment could lead to adverse results due to dispossession of land and sources of income for the land-owners, pollution, reduction of water availability, etc.
India can be a pioneer and create ‘SDG industrial zones’, whi,ch address the land, and social issues . SDG refers to the Sustainable Development Goals that were adopted by the United Nations in 2015.
SDG zones are an entirely new type of industrial parks/zones to address SDG goals. These zones target SDG-compliant activities, aim to have an impact on all the SDG goals with high ESG (environmental, social and governance) standards, compliance and promote inclusive growth. According to the UNCTAD, SDG model zones could act as catalysts to transform the ‘race to the bottom’ for the attraction of investment (through lower taxes, fewer rules and lower standards) into a ‘race to the top’ — making sustainable development impact a locational advantage.
While the core of the SDG zone will focus on creating infrastructure for manufacturing, like other industrial estates/SEZs, they have to be designed keeping in mind parameters such as zero carbon discharge, zero discharge into groundwater and rivers, minimum or zero waste, use of closed circle loops, gender neutrality, contribution to public revenues, minimising income gaps within the zone, being responsible citizens and having high standards of transparency.
All construction within the zone should meet green standards and ensure low energy consumption. The zone should provide services to support and certify the ESG and other parameters for units operating within it. It could create excess capacity in areas like energy generation, waste management, and water treatment and provide services to the community around it and achieve scale efficiencies. The zone should provide all education and healthcare services required for the residents, including child-care infrastructure.
All this needs to be done not by regulation by the government but by self-compliance and certification, which will then attract investments. This can be achieved by involving all stakeholders. The zones should also be transparent and high on disclosure on all aspects of ESG, including climate impact.
The number of investors who are now focussed on SDG is increasing, and this class of investment is growing fastest among all categories. The total assets under management of investors who are signatories to the UNPRI (Principles of Responsible Investing) exceeds $90 trillion. It should not be presumed that this activity will not be commercially viable — SDG model zones can be economically rewarding too.
While this was proposed by the UNCTAD some time back, there are not many such zones in the world. India can be a pioneer and a leader in this by developing all its new industrial estates and SEZs using this model. In addition, it can encourage existing SEZs/estates to adhere to these principles, which would enable them to prosper, create wealth and benefit society and provide a new model for the world to follow whilst increasing manufacturing output.
This post was originally published in The Hindu Business Line dated June 24, 2020.