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For the year 2003, the US Department of Commerce ranked the Indian environment sector as the second most attractive sector after computer software services for American exporters and investors. Liberalisation through the 1990s witnessed the significant opening up of sectors for foreign investment, especially through the automatic route of the Reserve Bank of India.
Foreign direct investment (FDI) in environment equipment and services (i.e. manufacture of pollution control equipment, sewage, refuse, and consultancy services) are allowed under the automatic route with up to 100 percent foreign equity holding.
However, foreign investment has been largely routed through the Foreign Investment Promotion Bureau (FIPB) in India, since it comes with a written approval of the Government of India. Thus while the automatic route is open for foreign investment in environmental services, the FIPB has been approving several of these projects. During 1993 through 2002 the total foreign direct investment in the environment sector approved by the FIPB amounted to US$32.7 million. The largest share of this foreign investment came from the US (31.86%), followed by the Netherlands (23.33%), Singapore (18.65%), UK (8.65%) and Germany (6.45%). In 1991–2 there was no FDI or foreign technology cases (FTCs) in the environment sector approved by the FIPB in India. Countries like Canada consider the prospects for investment in India to be good given the increasing privatisation in environmental services and enhancement of domestic regulations.
Since local capacity in India will not be able to meet demand, imports will register higher growth. Private sector implementation of projects on a BOOT and BOO basis (some facilitated through financial participation of multilateral and bilateral agencies in large urban environmental infrastructure projects) has encouraged foreign investment in the sector. Among the Indian environmental segments with significant foreign investment are: water/wastewater treatment; recycling and sanitation; industrial and vehicular air pollution control; hazardous waste management, treatment, and disposal; biomedical waste management; municipal solid waste management; pollution testing and monitoring equipment/services; clean and renewable energy equipment; and environmental consulting/engineering services.
Joint ventures have also been prominent in the Indian environment industry, and over 100 companies have associations with international companies in the form of joint ventures and technology transfer agreements for various types of pollution control equipment. While there are many joint ventures and collaborative arrangements in the environmental goods sector (100-150) there are fewer such arrangements in the environmental consultancy services sector.
Some of the Indian environmental services firms have established long term strategic partnerships with foreign firms to enhance their skills in selected niche areas: for example, in 1997, Technofab Engg (India) formed Tetra Tech India Ltd under a joint venture with Tetra Tech EMI (US) to offer consultancy and engineering services in environment, energy, and infrastructure.
* The foregoing is an excerpt from a paper entitled “TRADE IN ENVIRONMENTAL SERVICES: OPPORTUNITIES AND CONSTRAINTS” prepared by the authors for the Indian Council for Research on International Economic Relations (ICRIER). Read the full report at
www.icrier.res.in
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