Steps India should take to prove its Leadership

There are some colossal failures around the world that India can learn from and provide alternate solutions to.

  • More than 4 billion people are poor and lack access to basic needs of life. For sustainable poverty eradication, access to energy services is essential. But there has been a global failure to provide simple energy services to the poor. For example, even a century after the light bulb was invented, 1.6 billion people do not have access to electricity and more than 3 billion people have no access to cleaner forms of energy access (lighting, cooking, drying etc.).
  • Many a time, local governments could provide sustainable energy services if they had access to technology and finance. Many developed governments that do have access to needed technology have not taken the initiative to share it, thus leading to this huge divide between the haves and have nots.
  • Many of the intergovernmental institutions lack the ability to create practical solutions, policies etc because of the lack of skilled human resources.

What can India do today to prove its leadership?

There are many simple steps that India can take today, which surely can be replicated in other parts of the world. Some of these are:

Creation of Solar Energy Portfolio in Financial Institutions

A certain percentage (5% at least) under the priority sector financing should be earmarked for financing energy services to the poor. The channels of these financing could be the nationalized banks and regional rural banks. The percentage (5%) could be broken into two parts –

  • Dedicated financing portfolio for entrepreneurs to create a network (sales and after sales service).
  • Dedicated financing portfolio for end-users.

The methods of implementation can be borrowed from years of learning in agriculture sector financing. Dual financing (for service providers and end-users) will lead to a sustained effort to promote the use of sustainable energy services (especially in the rural areas of India). Rural networks of various banks are the best agents for the propagation of technology.

There are successful examples – especially in the state of Karnataka. Banks like Syndicate Bank, Karnataka Vikas Grameen Bank have proved that solar systems can be financed without the need of capital subsidy, provided good service facilities exist. Apex Financial institutions like RBI, NABARD have to get seriously involved in the implementation of these programs. They have shown success in other fields like agriculture and could do the same in the field of renewable energy. The Reserve Bank of India is seriously propagating the concept of financial inclusion and renewable energy could be easily brought under that umbrella – as sustainable energies like solar can be powerful agents of poverty reduction.

Substituting Capital Subsidy with Interest Subsidy

There have been colossal failures of many programs that have undertaken the implementation of solar systems (lighting, pumping etc) using capital subsidy through nodal agencies. They are primarily ‘product centric’ rather than focusing on the whole issue of need-based systems, supply chains, after sales service and appropriate financing (typically done in any other service sector). It never makes sense to have the government be part of the business chain (today many of the products are sold via government stores with absolutely no after sales service).

It would be worthwhile to divert all the earmarked capital reduction subsidy to financial institutions for the reduction in interest rates. Good performing entrepreneurs, low income groups, good repaying clients should get the benefits of reduced interest rates. There are specific two successes that have shown that a similar shift will work:

  • Solar Water Heaters: In the mid-nineties MNRE (then MNES) removed capital subsidies from solar water heaters. Many of the nationalized banks were provided with financial assistance by MNRE to reduce the interest rates.  The incentives led to increase of manufacturers and service providers from 6 in 1994 to more than 50 by 1999. The interest rates range from 2% to 5% (depending on whether it is domestic or institutional system). Specially in Karnataka, solar water heater has become a typical consumer product (thanks to reduced interest rates and the active participation of financial institutions).
  • UNEP Program with Syndicate Bank and other FIs: Around 2002, United Nations Environment Program created a program along with some nationalized banks in Karnataka to promote solar home lighting systems in the rural areas. UNEP subsidised the interest rates for solar home lighting systems – capping them to 5%. More than 21,000 systems were financed by UNEP (within a span of 2-3 years) under this scenario. UNEP also made sure that vendors were chosen properly, ones that had a track record to provide reliable after sales service to the clients financed by the respective financial institutions.

Though these programs were small, they have a great potential to scale up – with subtle policy changes by the government.

Finally, if some of the suggestions (if not all) are implemented, India will come up with a variety of models (business, social technology) owing to the diversity of its poor. These learning experiences and models will be very valuable for the world’s poor and decision makers of other countries in Africa, Latin America and Asia. Now it is up to all of us to rise up to the challenge and lead the way.

read more