Impact
 Evaluation
CDIE
United States Agency for International Development
I
REDUCING URBAN AND INDUSTRIAL POLLUTION
IN INDIA
An emerging industrial power, India faces major pollution problems.
USAID has undertaken to help abate the release of emissions and
effluents into the air and water using American technologies—thus
helping U.S. firms as well. Significant success has been observed, but
lack of solid baseline data obscures the actual extent of USAID’s role.
SUMMARY
n 14 of India’s 20 largest cities, citizens breathe air the government deems “dangerous.” Six
cities endure levels of airborne particulates at least three times the World Health Organiza￾tion standards. A thriving industrial base and rapid economic growth—about 5 percent a year—
account for much of the severe pollution, which costs India an estimated $9.7 billion a year in
environmental damage.
A decade ago, following India’s leap into industrialization, USAID designed a major industrial
pollution project, Trade in Environmental Services and Technologies. The five-year TEST project
had two objectives: (1) to develop U.S.–India business linkages that would lead to increased
trade opportunities for American companies and (2) to improve environmental conditions in
India. By the end of the project, TEST had provided technical
assistance to 92 Indian enterprises. Twelve of them had en￾tered into a partnership with American companies and re￾ceived loans from the Industrial Credit and Investment
Corporation of India (ICICI), the collaborating partner for the
project.
August 2001
Team Leader: Donald G. McClelland
Team Members: Mark Hodges,
Vijayan Kannan, Will Knowland
CONTENTS
Background.........................2
Program Elements..............5
Impact.....................................8
Program Performance.....12
Conclusions and
Lessons Learned..........14
PN–ACG–629
2
TEST ended in 1997. Its successor, the Clean
Technology Initiative, has similar goals (devel￾oping U.S.–India business linkages and improv￾ing environmental conditions), but it concen￾trates on helping leaders of Indian industry
become more competitive in international mar￾kets through environmental initiatives. CTI is
also working with industry associations, and it
has introduced the concept of greening the sup￾ply chain, whereby manufacturers require their
suppliers to employ environmentally sound
practices in the production of components.
A third project, Financial Institutions Reform
and Expansion, touches specifically on urban
(as distinct from industrial) pollution. FIRE sup￾ports the development of environmental infra￾structure, such as sanitation, water supply, and
solid-waste management.
In May–June 2000, a four-person team from
USAID’s Center for Development Information
and Evaluation (CDIE) visited India to assess the
results of the three projects. The team found
progress on a number of fronts—but lack of
baseline data often prevented them from ascrib￾ing it definitively to USAID initiatives. Among
their findings:
■ TEST engendered 14 U.S.–India business
deals valued at $35 million. Of this
amount, the project financed 26 percent;
ICICI financed the rest.
■ In 1991, American suppliers were export￾ing $6 million of environmental equipment
to India annually, 4 percent of the total $135
million market. In 2000, these companies
were exporting $150 million of such equip￾ment. How much of this increase is attrib￾utable to TEST cannot be determined.
■ It is impossible to quantify overall changes
in net air and water quality resulting from
the imported technologies. However, data
provided by one of the U.S.–Indian joint
ventures shows impressive reductions in
particulate emissions: 6,300 tons per day
in 1999 at 13 companies in 4 industries.
■ It can be assumed that urban pollution
measures under FIRE—such as potable wa￾ter and trash pickup—are bound to have
improved human health. Beneficiaries
have reported reduced water stagnation
and fewer visits to doctors and hospitals.
But hard data to substantiate these claims
are unavailable.
Not surprisingly, one of the central conclusions
reached from the evaluation was that solid
baseline data are needed to assess a program’s
impact. Lack of such data severely restricts the
ability to conduct an accurate assessment. An￾other observation is that companies will not
invest in pollution control technologies or
environmental management systems unless
they believe that doing so is in their business
interest. That leads to a third observation: strict
government enforcement of environmental
standards is a strong incentive for companies
to acquire pollution control technologies.
BACKGROUND
India is among the 10 most industrialized coun￾tries in the world. It has the world’s eighth larg￾est economy. Stimulated by a program of
economic liberalization beginning in 1991,
India’s economy grew by 5 percent a year, on
average, during 1992–97. However, rapid eco￾nomic and industrial growth is causing severe
urban and industrial pollution. A 1995 World
Bank study conservatively estimated India’s
annual environmental damage at $9.7 billion,
or 4.5 percent of gross domestic product (in 1992
prices). Of this, $7 billion was due to air and
water pollution.
Data from India’s National Ambient Air
Quality Measuring Network show that 14 of
the country’s 20 largest cities have air quality
that is “dangerous.” Bombay, Delhi, and Ma-
3
dras are among the 10 most polluted cities in
the world. In these and three other large Indian
cities (Ahmedabad, Kanpur, and Nagpur), the
annual average level of total suspended par￾ticulates in the atmosphere is at least three times
World Health Organization standards. Indus￾trial water pollution is also a serious problem.
The main source is the nearly three million
small and medium-size enterprises scattered
throughout the country.
State pollution control boards are India’s
primary pollution control enforcers. They pre￾scribe discharge standards and inspect equip￾ment, industrial plants, and manufacturing
processes. However, their effectiveness is lim￾ited. They often lack the technical capacity to
monitor hazardous wastes. Moreover, they
must rely on time-consuming judicial remedies
to close down polluting industries. Poor en￾forcement is also due to political interference:
in India, corruption is pervasive.
In 1992 the government of India formulated a
policy on pollution abatement. Consistent with
the country’s shift to economic liberalization,
the policy supported pollution prevention
through both stronger regulations and market￾based instruments. Also in 1992, USAID de￾signed a major industrial pollution project,
Trade in Environmental Services and Technolo￾gies (TEST). A follow-on project, the Clean Tech￾nology Initiative (CTI), was then designed. A
third USAID project, Financial Institutions Re￾form and Expansion (FIRE), supports environ￾mental infrastructure development in urban
areas and, like CTI, is an ongoing activity.
Trade in Environmental
Services and Technologies
TEST was designed to help Indian industries
adopt environmentally sound practices while
promoting sustainable linkages between
American and Indian firms. Thus, TEST was not
just an environmental project; promoting trade
was equally important. TEST authorized $25
million over five years (1992–97); by Septem￾ber 1997, USAID obligations totaled $19.4 mil￾lion, and total expenditures were $9.78 million.
The Industrial Credit and Investment Corpora￾tion of India represented the Indian government
during project implementation and was respon￾sible for the financing component of TEST.
ICICI had been established in 1955 by the World
Bank and representatives of India’s financial
establishment as a development financing in￾stitution. Today it is listed on the New York
Stock Exchange and operates on a commercial
basis. Of the original $25 million of TEST funds,
$20 million was to be loaned by ICICI to Indian
companies that needed financing to procure
environmental services or pollution prevention
technologies from American companies. The
remaining $5 million was slated for a U.S. con￾tractor to identify American suppliers of
environmental technology and facilitate com￾mercial transactions between American and In￾dian firms.
The prospective success of TEST was based on
a number of assumptions. Among them: (1)
There was growing market demand for environ￾mental services and technologies not available
in India. (2) The United States had technically
and economically competitive know-how in at
least several environmental technologies. (3) A
shortage of financing options hindered the
transfer of commercial environmental technol￾ogy from the United States to India. (4) Strong
regulatory and market incentives were in place
in India to induce Indian industries to invest in
pollution control technologies. Unfortunately,
some of these assumptions, critical to project
success, proved invalid.
Clean Technology Initiative
After an external evaluation of TEST in January
1997, CTI was designed as a follow-on project.
Total authorized funding was increased from
4
$25 million to $29.95 million; the project assis￾tance completion date was extended by five
years to September 2002. CTI was about half
completed when the CDIE team visited India in
May 2000 to evaluate the three projects.
When CTI began, environmental regulation was
shifting away from command-and-control
approaches to market-based strategies in India
and elsewhere. The regulatory paradigm, based
on emissions limits that industry had to meet
(by installing scrubbers, filters, and other end￾of-pipe devices), relied on government enforce￾ment of regulations—and India’s enforcement
capabilities were weak. By contrast, the modi￾fied approach, emphasizing pollution-preven￾tion and polluter-pays paradigms, was
grounded on business self-interest. CTI has two
main components: (1) promoting industrial
environmental management and (2) promoting
adaptation and transfer of cleaner technologies.
The first component targets specific, highly
polluting industries: automobiles, cement, tex￾tiles. It provides U.S. technical assistance to pro￾mote improved environmental management
through four market-based initiatives: (1) ISO
14001 certification (for compliance with inter￾nationally agreed-upon standards), (2) green￾ing the supply chain (whereby manufacturers
require their suppliers to employ environmen￾tally sound practices in the production of com￾ponents), (3) benchmarking techniques
(whereby companies can assess their environ￾mental performance against that of other com￾panies), and (4) industrial extension services
(similar to agricultural extension services) to
deliver information on environmental technolo￾gies and best practices. The success of these four
initiatives is grounded in the belief that environ￾mental performance has become a competitive
factor globally and that profitability depends
increasingly on how well businesses integrate
sound environmental management into their
business practices.
The second, trade-oriented component of CTI,
like TEST, offers financing to Indian companies
to procure cleaner process- and energy-efficient
technologies from the United States that help
reduce greenhouse gas emissions. To achieve
this objective, CTI supports business exchanges
and information networks to identify American
sources of environmental services and tech￾nologies. Unlike TEST, though, which worked
with individual companies, it uses the “whole￾sale” approach (working with trade associa￾tions of the strategically targeted industries) to
facilitate knowledge transfer.
Financial Institutions
Reform and Expansion
Unlike TEST and CTI, both designed to address
industrial pollution, FIRE addresses urban pol￾lution. It has two components: FIRE-R for “regu￾latory” covers government regulation of the
stock market; FIRE-D for “debt” covers the debt
market. The original FIRE project was imple￾mented over five years (1994–98). It was ex￾tended for another five years with an ending
date of September 2003. FIRE-D addresses two
issues. The first concerns mechanisms to finance
urban environmental infrastructure. The second
concerns actual delivery of infrastructure to be￾nefit the urban poor. This assessment examines
primarily the second issue.
The FIRE project is supported by up to $125 mil￾lion in loans from USAID’s Environment Credit
Program, formerly the Housing Guaranty Pro￾gram. The loan funds seek to finance urban
environmental infrastructure, including water
supply, sanitation, solid-waste management,
and area development. USAID loan funds for any
infrastructure project must be matched with an
equal amount of funds raised through the In￾dian capital market. Additionally, household
income of at least half the project beneficiaries
must be below the median income. USAID loan
funds are supplemented with development
5
assistance funds for technical assistance and
training. At the end of fiscal year 1998, $7.72
million had been obligated under FIRE’s urban
environmental infrastructure objective, and
$11.78 million had been obligated under its fi￾nancial development objective, for a total of
$19.5 million.
PROGRAM ELEMENTS
Many USAID-funded urban and industrial pol￾lution programs support interventions in one
or more of five areas: economic policy reform,
environmental regulations and standards, edu￾cation and awareness campaigns, institution
building, and technological change. In India,
technology (American technology) was key.
Economic Policies
In 1991 the Indian government began to intro￾duce significant economic reforms and greater
liberalization. New policies encouraged foreign
investment and private sector participation in
areas previously reserved for the public sector.
The government also began to recognize that
earlier policies promoting rapid industrializa￾tion often had adverse environmental effects.
For example, the government had subsidized
the price of water, energy, and raw materials.
When material inputs are priced artificially low,
industries tend to use them intensively and
expand capacity beyond what is economically
justified. But that can increase pollution.
To address these problems, the government has
encouraged competition through deregulation
and has reduced subsidies and tariffs. It has also
introduced various market-based instruments
to encourage industries to implement pollution
control measures. For example, in 1992 the Min￾istry of Environment and Forests increased
effluent charges levied against industries by a
factor of 5 or 6. If these charges accurately
reflect the social and economic costs of pollu￾tion, they will be high enough so that waste
treatment and disposal becomes the least-cost
alternative. Other market-based instruments
adopted by the government include tax holi￾days and duty exemptions, accelerated depre￾ciation allowances, and easy financing for
purchasing pollution equipment.
Government
Regulations and Standards
India was the first nation to provide for environ￾mental protection explicitly in its constitution.
In 1948 a law was enacted prohibiting factories
from discharging effluents into the water. Since
the early 1970s, the government has enacted 16
legislative measures that provide guidelines for
protecting and improving the environment.
India’s 1992 policy statement on abating pollu￾tion called for integrating environmental con￾siderations with decision-making at all levels.
Pollution would be reduced through cleaner
manufacturing processes and pollution preven￾tion (where effective) and end-of-pipe measures
(as necessary). The “polluter pays” principle
was adopted to help carry out the policy. That
meant the government needed to establish dis￾charge standards for industry, with the intent
of shifting from concentration-based standards
(which can be easily circumvented) to load￾based standards. Increased charges for the con￾sumption of resources were also needed.
Higher water charges, for example, would re￾move the incentive for polluters to dilute efflu￾ents.
Although India has made considerable progress
in developing environmental legislation, the
government’s capacity and willingness to en￾force the laws has often been wanting. Since
1995, judicial activism has become the key
driver in forcing companies to adopt pollution
prevention and control measures. The courts
have a huge backlog of environmental enforce-
6
ment cases, many brought before judges ill pre￾pared to understand complex technical argu￾ments. Nevertheless, such activism has led to
company closures until mitigation and reme￾diation measures were implemented.
Since the 1992 Earth Summit in Rio de Janeiro,
India has elected four governments. The fun￾damental goal of each has
been economic growth, dis￾counting the environmental
costs of its development
plans. Some forward-look￾ing industries will invest in
pollution prevention equip￾ment and cleaner technolo￾gies. But if there is a
perceived trade-off between
a sound economy and good
environmental practices,
India’s politicians and in￾dustrial leaders are likely to
opt for fewer environmental
controls and less environ￾mental enforcement.
Education and Awareness
TEST, CTI, and FIRE have all relied heavily on
informal training programs such as seminars,
case studies, and international study tours to
introduce new approaches and technologies.
TEST and CTI conducted much of this educa￾tional work through India’s two leading busi￾ness associations, the Confederation of Indian
Industry (CII) and the Federation of Indian
Chambers of Commerce and Industry (FICCI).
Both organizations disseminated information
about TEST to their members, and CII prepared
a comprehensive overview titled “Environmen￾tal Business Opportunities in India,” which was
made available to both American and Indian
industry. CTI has promoted U.S.–based and
other international voluntary business initia￾tives for environmental management, espe￾cially among business leaders and factory
managers.
CTI has benefited from a powerful new educa￾tional tool—the Internet. Internet resources
were in their infancy when TEST was designed
in 1991–92. By the end of TEST, in 1997, infor￾mation on environmental technologies that had
been compiled by FICCI for CD–ROM access be￾came the core of a new Web site. FICCI’s efforts
have been continued under CTI, with the cre￾ation of a world-class Web
portal on clean technology.
The FIRE project has skill￾fully and patiently worked
with a variety of target au￾diences in several Indian cit￾ies to introduce the concept
of private financing of pub￾lic infrastructure. As a result,
municipal bonds, the first in
South Asia, were issued suc￾cessfully in Ahmedabad. Re￾spondents from both the
public and private sectors
remarked on the manage￾ment changes that are
sweeping the nation’s major cities—giving high
marks to the contributions made by USAID’s
educational campaign. In addition, FIRE’s con￾tractor team has compiled a series of concise
summaries of the project’s experience, which
will help ensure that the lessons are widely
shared. The project has also helped develop a
network of institutions where municipal offic￾ers throughout the country are trained in ur￾ban and environmental management.
Each of these bilateral projects has drawn upon
international travel fellowships and exchange
programs available through the U.S.–Asia
Environmental Partnership (US–AEP). Most of
these exchanges have benefited Indian nation￾als going to the United States, but some were
for U.S. experts and entrepreneurs visiting In￾dia. Since 1992, well over 200 US–AEP/India ex￾changes have been conducted, several of which
were of critical strategic importance to TEST.
“Since 1992 India
has elected four
governments. The
fundamental goal of
each has been
economic growth.”
7
Building on that experience, CTI included busi￾ness facilitation exchanges to parallel those pro￾vided under the ongoing US–AEP.
Institution Building
Strong public and private institutions are indis￾pensable to ensuring clean air and water in any
country. When TEST was designed, the World
Bank was already active in helping to
strengthen key public sector environmental
agencies. It therefore made sense for USAID to
concentrate on the private sector. Both TEST and
CTI have worked with the Industrial Credit and
Investment Corporation of India and helped
strengthen several national-level industry as￾sociations, primarily the Confederation of In￾dian Industry and the Federation of Indian
Chambers of Commerce and Industry.
ICICI has developed the capacity to assess the
financial capability of Indian companies to
manufacture and market a range of environ￾mental technologies. It is now a well-estab￾lished and competently managed financial
intermediary. The Confederation of Indian
Industry has played an increasingly important
role in advocating greater environmental com￾mitment by its members. The confederation has
also taken the lead in promoting adoption of
ISO 14001 certification by Indian factories. Simi￾larly, the Federation of Indian Chambers of
Commerce and Industry has developed a
highly sophisticated information center respon￾sive to its members’ needs.
Over the past decade the Indian Supreme Court
and the country’s state courts have become ac￾tive in pollution control cases. Generally that
has been without any formal training or pro￾fessional experience in environmental technol￾ogy or direct familiarity with precedents from
environmental law in other countries. Through
a grant to the U.S.–based Environmental Law
Institute, CTI has exposed a number of court jus￾tices and state lawyers to modern judicial
environmental management strategies and a
range of environmental issues.
The FIRE project has worked with an expand￾ing group of municipal governments and sev￾eral national-level urban agencies—the
Housing and Urban Development Corporation,
the National Institute of Urban Affairs, and In￾frastructure Leasing and Financial Services Ltd.
FIRE has also helped privatize services previ￾ously performed by poorly staffed and
equipped government agencies. The use of pro￾fessional architects and planners to prepare
municipal development plans is one such ex￾ample. FIRE has also supported the work of sev￾eral nongovernmental organizations. They
include the Self-Employed Women’s Associa￾tion and Exnora International, organizations
committed to working with slum communities,
and the Ahmedabad Municipal Corporation,
which is delivering environmental infrastruc￾ture to the city’s slums. Working with NGOs, city
governments, and academic institutions, FIRE
has helped develop efficient urban environ￾mental management tools such as environmen￾tal mapping, status reports, risk assessments,
and action plans.
Technological Change
A 1991 market survey identified technology
gaps in the control of both air and water pollu￾tion. TEST assumed that American technologies,
once introduced, would be attractive to Indian
industry and replicated throughout the coun￾try, thereby filling the gaps. All that was needed,
at least initially, was to match American sup￾pliers with Indian customers. Various types of
technologies and services could then be intro￾duced. USAID assistance was intended to accel￾erate the process of converting need to demand,
demand to identification of technology, and
identification of technology to commercializa￾tion that would be profitable to the American
supplier as well as the Indian user.
8
It soon became clear that the Indian market
could not and would not pay U.S. prices for
finished products or services having high
American-made content. In most cases, the
manufacturing capability resided in or could
easily be developed in India. Successful U.S.
counterparts adjusted accordingly: they en￾gaged in joint ventures or licensing agreements
with Indian partners, even though this meant
lower margins than hoped for.
Unlike TEST, the CTI project targeted companies
of specific industries (cement, automotive, tex￾tiles). The expectation was that demonstrations
of successful pollution reduction technologies
would be replicated at other companies in the
same industry. Unfortunately, the range of
approaches and technologies that could be con￾sidered for USAID support was limited in May
1998 because of U.S. sanctions imposed against
India as a result of its nuclear detonation.
Approaches approved for U.S. assistance in￾cluded business exchanges, benchmarking tech￾niques, accounting for carbon emissions, rating
environmental performance by industry, ana￾lyzing the life cycle of products, and greening
the supply chain management.
According to a 1996 estimate, up to 80 percent
of India’s industrial capacity in 2010 will not
have existed in 1996. If this estimate is accu￾rate, there are significant opportunities to
incorporate more efficient and cleaner technolo￾gies in India’s new and retooled manufactur￾ing base. The country has over 100,000
industrial enterprises with output in excess of
$100 billion a year. Thus there is enormous
scope for investment in technologies for pollu￾tion control and process efficiency, and the
potential environmental impact is significant.
IMPACT
Urban and industrial pollution prevention pro￾grams can have at least three effects: economic,
environmental, and health. How were these ef￾fects manifested under TEST, CTI, and FIRE-D?
Economic Impact
The Industrial Credit and Investment Corpora￾tion was charged with converting business link￾ages between American and Indian firms into
actual trade deals. To this end, ICICI sent letters
to over 900 Indian firms (environmental service
providers, engineering companies, and major
industries) explaining the TEST program. It also
responded to requests for information from 781
Indian companies. It sponsored four seminars
targeted to potential TEST clients and hosted a
booth at four different promotional events. It
identified potential U.S. environmental tech￾nologies for 60–65 Indian companies drawn
from a short list of 212 companies that seemed
serious about the TEST program. Finally, ICICI
prepared special reports for 17 of these compa￾nies, each of which had demonstrated its com￾mitment to pollution control by paying 25
percent of the cost of the report.
At the same time, the American technical assis￾tance firm aggressively marketed TEST in the
United States. It sponsored a series of invest￾ment tours to the United States for representa￾tives from 33 Indian companies, some in
collaboration with US–AEP, as well as nine tech￾nical assistance tours that brought American ad￾visers to India. It also prepared 23 research
reports for individual American companies as￾sessing the strength of the Indian market for U.S.
pollution control equipment and services. The
American firms paid a portion of the cost of the
reports, which was estimated at $5,000 each.
By 1997, TEST had provided technical assistance
to 92 Indian companies, of which 25 were iden￾tified for potential trade deals. Ultimately, ICICI
approved 14 loans to 12 different Indian com￾panies that entered into trade agreements with
American firms. (Two of the 12 companies,
Kirloskar American Air Filter and TTG Indus￾tries, received two loans each.)
The 14 U.S.–India linkages were of three types:
(1) licensing agreements with American com-
9
panies under which pollution control equip￾ment was manufactured in India to sell to In￾dian companies (nine loans), (2) joint ventures
between American and Indian companies (three
loans); and (3) direct purchase of equipment or
environmental services by Indian companies
from American companies (two loans). The 14
business deals completed by the end of 1997
were valued at $35.0 million (about Rs1.2 mil￾lion, using an exchange rate of US$1=Rs34.5).
TEST financed $9.4 million, or 26 percent of
total costs; ICICI and the individual companies
financed the remainder.
Interest rates were subsidized at 1.5 to 3.0 per￾centage points below the market rate. That was
to encourage Indian companies to risk invest￾ing with American partners in the manufacture
of new pollution control technologies, untried
in India. According to the 1997 evaluation, all
borrowers were repaying their loans on sched￾ule as of September 1996. As of May 2000, how￾ever, this was no longer the case. Of the 14 loans,
2 had been repaid in full, 6 were being repaid,
2 had been restructured, and 4 had been can￾celed or were in litigation.
Sales
Except for 2 of the 12 Indian companies that re￾ceived loans under TEST (TTG Industries and
Kirloskar American Air Filter), sales of pollu￾tion control equipment and services were not
tracked. The CDIE team visited Kirloskar, which
was formed as a joint venture between the
Kirloskar Group of India and American Air Fil￾ter International of Louisville, Kentucky.
Although its experience may not be represen￾tative, it is illustrative.
Table 1 summarizes Kirloskar’s total sales of
both air and water pollution control equipment
during 1992–99 as reported by the company. For
air pollution equipment, total sales were $66.2
million spread over 710 individual orders from
Indian companies. Clients included six compa￾nies in the iron and steel industry, five in the
cement industry, and one in both the pulp and
paper industry and the acrylics industry. Pri￾marily because of a downturn in the iron and
steel and pulp and paper businesses,
Kirloskar’s sales of air pollution control equip￾ment slid by 44 percent between the period
Table 1. Estimated Value of Kirloskar’s Sales, 1992–99
Air Pollution Control Equipment
1. Baghouse, bag filters, and scrubbers
2. Electrostatic precipitators
3. Machinery filtration and acoustic systems
Total
Water Pollution Control Equipment
1. Effluents and wastewater treatment plants
2. Sewage treatment plants
3. Raw water treatment and demineralization plants
Total
Number of
Orders
Type of Equipment Value
(millions of
rupees)
Value
(millions of
dollarsa
)
70
25
615
710
39
2
9
50
1,075
735
475
2,285
830
10
310
1,150
31.16
21.30
13.77
66.23
24.06
0.29
8.98
33.33
aAverage exchange rate during 1992–99 was US$1=Rs34.5.
Source: Kirloskar American Air Filter Ltd., “A Report on Environmental Impact Through KAAF,” 25 May 2000.
10
1992–95 and the period 1996–99 (from Rs1,465
million to Rs820 million).
For water pollution control equipment,
Kirloskar’s sales were $33.3 million spread over
50 individual orders from
companies in 10 industrial
sectors: 5 in the iron and steel
industry, 3 in the automobile
industry, and 1 in each of 8
other industries. Kirloskar’s
sales of water pollution con￾trol equipment more than
doubled from Rs355 million
during 1992 through 1995 to
Rs795 million during 1996
through 1999.
The CDIE evaluation team
also visited Agro Pulping
Machinery Private Ltd. Us￾ing loan funds provided by
TEST, Agro Pulping set up a
demonstration unit showing that American
technology for fluid bed chemical recovery pro￾vided a promising solution for small agrobased
paper-pulping units throughout India. Under
its 10-year license from Enders Process Equip￾ment Corporation of Illinois, Agro Pulping
agreed to pay a 12 percent royalty fee for every
system sold during the licensing period. Sav￾ings achieved through use of the Enders equip￾ment were estimated at $14,000 per month.
Some 200 paper mills in India are potential ben￾eficiaries of this technology.
D.I. Filter Systems in Haryana received a
$500,000 loan under TEST in 1994. This enabled
the company to manufacture filters for gas tur￾bine engines under a joint venture between
Mundratech of New Delhi (a UK-based group
of nonresident Indians) and Donaldson, Inc., of
Minnesota. Taking advantage of the close work￾ing relationship between Donaldson and Gen￾eral Electric Power Systems, D.I. Filter provides
air filtration systems to 97 gas turbine projects
throughout India, with annual sales of $7 mil￾lion. The company also sells air filtration sys￾tems to the automobile market (valued at $10
million annually) and to the industrial dust col￾lection market (valued at $3 million annually).
While not necessarily repre￾sentative of the overall TEST
project, the collective expe￾rience of these companies—
Kirloskar, Agro Pulping Ma￾chinery, and D.I. Filter Sys￾tems—provides at least
anecdotal evidence of the fi￾nancial benefits of investing
in industrial pollution con￾trol measures in India.
Trade
In 1990 the Indian market for
environmental technologies
(air pollution control equip￾ment, wastewater treatment systems, and toxic
and hazardous waste disposal technology) and
environmental management services was only
$220 million. By 1994, estimated demand had
increased to $1.9 billion, according to the Con￾federation of Indian Industry, and by 2000, it
had increased still further to about $2.5 billion,
according to the Commercial Service of the U.S.
Embassy in India. Moreover, growth in demand
is estimated at 15 percent annually.
Evidence suggests that the United States has
been able to take advantage of this expanded
Indian market. American exports of envi￾ronmental equipment to India increased by 29
percent per year during 1992–95. As of early
1996, the United States had the largest share of
environmental joint ventures with Indian enter￾prises (40 percent). According to the U.S. Com￾mercial Service, American companies are ex￾pected to meet about 6 percent of the $2.5 billion
demand projected for 2000, or $150 million.
These are impressive results. However, it is dif￾ficult to assess the extent to which USAID tech-
“As of early 1996,
the United States
had the largest share
of environmental joint
ventures with
Indian enterprises
(40 percent).”
11
nical assistance and financing provided under
the TEST project contributed to the increased
U.S.–India trade.
Environmental Impact
Pollution control devices or process changes,
once installed or implemented, no doubt re￾sulted in reduced emissions into the atmo￾sphere and effluents into the water. However,
without baseline data, continuous sampling of
air and water quality, and source attribution
studies, it is impossible to quantify changes in
net air and water quality resulting from the new
technologies. As indicated in the final report for
the TEST project, not enough money was ear￾marked for monitoring program impact.
Environmental data provided by Kirloskar
American Air Filter show substantial reductions
in emissions of particulate matter after instal￾lation of the company’s technologies. Reduc￾tions were 6,312 tons a day, on average, in 1999
at 13 companies in four industries: iron and
steel, cement, pulp and paper, and acrylics (see
table 2). Most of these reductions, 78 percent,
occurred at five cement factories. Table 3 shows
equally impressive reductions in water pollut￾ants made possible by treating industrial efflu￾ents using technology supplied by Kirloskar.
Thus, Kirloskar has successfully marketed pol￾lution control services and products to large in￾dustrial facilities in India. Regulatory
requirements, particularly those affecting
foundries and major industries that burn dirty
coal, have been the primary market driver. Sales
at Kirloskar and similar companies are likely
to grow in response to continued high levels of
air and water pollution and increased public
awareness of poor environmental quality. The
growth in sales, however, may be slowed by
the apparent inability of the government to en￾force environmental compliance.
Health Impact
Analysis of changes in human morbidity and
mortality in response to changes in environ￾mental quality requires not only environmen￾tal data but also health surveillance data. No
such information was collected under TEST, CTI,
or FIRE-D to estimate the incremental health ef￾fects of these USAID activities. One can assume,
though, that provision of basic services such as
Industry Emissions Reductions
(tons of particulate
matter per day)
Iron and steel
Cement
Pulp and paper
Acrylics
Total
1,212
4,944
60
96
6,312
Table 2. Average Daily Reduction
In Air Pollution for Industries
Served by Kirloskar, 1999
Source: Kirloskar American Air Filter Ltd., “A Report on
Environmental Impact Through KAAF,” 25 May 2000.
Industry BOD
Key: BOD = biological oxygen demand,
COD = chemical oxygen demand, SS = suspended solids,
O&G = oil and grease, TSS = total suspended solids.
Source: Kirloskar American Air Filter Ltd., “A Report on
Environmental Impact Through KAAF,” 25 May 2000.
Table 3. Average Daily Reduction
In Water Pollution for Industries
Served by Kirloskar, 1999,
Parts per Million
COD SS O&G TSS
Dairy
Food/beverage
Copper
Oil, gas
Detergent
Petrochemical
Aluminum
Power
Iron, steel
Automobile
1,170
1,970
—
1,585
220
550
—
—
—
570
1,950
3,750
—
3,900
150
800
—
—
—
950
400
450
2,400
—
—
—
—
400
13,500
450
390
—
—
3,490
990
490
—
45
480
6,480
—
—
—
—
—
—
49
—
—
—
12
potable water and trash pickup and of environ￾mental infrastructure including sewer systems
and electric power in low-income areas where
FIRE-D is being implemented is bound to im￾prove human health.
The USAID-supported “slum networking” proj￾ect of the Ahmedabad Municipal Corporation
is illustrative. Ahmedabad is the seventh larg￾est city in India, with a population of 3.2 mil￾lion. Forty percent, 1.25 million people, live in
2,412 slums or near-slums. On average, 93 fami￾lies (of 5–6 persons each) live in each of these
slums. The slum networking project provides
physical infrastructure (drainage, household
toilets, individual piped water, underground
sewerage) at an average cost of about $365 per
family. Most of these costs ($255 per family) are
covered by the Ahmedabad Municipal Corpo￾ration using funds raised on the bond market
with support from FIRE-D and USAID’s Environ￾ment Credit Program. The remaining costs are
covered by private industries and nongovern￾mental organizations ($60 per family) and by
beneficiaries ($50 per family). Infrastructure has
been completed in eight slums. It is currently
under construction in nine other slums and is
in the planning stage in three more.
Systematic monitoring procedures are not in
place and no “before” and “after” surveys have
been undertaken. However, beneficiaries inter￾viewed by the CDIE evaluation team reported
considerable improvement in the slum areas
affected. Household toilets, in particular, have
reduced water stagnation and the menace of
mosquitoes. Beneficiaries also reported fewer
visits to doctors and hospitals, but hard data to
substantiate these claims are not available.
Thus, efforts to assess the economic, environ￾mental, and health impacts of USAID-funded ur￾ban and industrial pollution projects in India
were seriously hampered by lack of basic data.
Monitoring short-term outputs (number of org￾anizations assisted, number of tours, volume
of sales) is necessary not only to satisfy report￾ing requirements but also to facilitate evalua￾tion of long-term impact. According to the 1997
evaluation of TEST, the key lesson learned may
be the need to strengthen design, monitoring,
and reporting of project indicators. The evalu￾ation states: “TEST certainly contributes to
achieving strategic objective 4—‘improved air
and water quality at selected industrial sites
and municipalities’—but there is presently no
way to measure specific impact.”
PROGRAM PERFORMANCE
Program performance is normally assessed in
terms of (1) its effectiveness, (2) whether ben￾efits were sustained after donor funding ended,
and (3) the extent to which activities were rep￾licated beyond the project.
Effectiveness
Effectiveness is a measure of how successful an
intervention is in achieving program objectives.
Were benefits significant? Were they generated
through a strategy that worked with the right
people and industries? Was the approach the
best way to use USAID resources to get the job
done? The job in the case of TEST was to accel￾erate the development of India’s environmen￾tal services and technology sector while pro￾moting business opportunities for American
companies. The follow-on CTI project has simi￾lar goals but concentrates on helping leaders
of Indian industry become more competitive in
international markets through environmental
initiatives. FIRE-D, also ongoing, uses innova￾tive financing to support construction of urban
environmental infrastructure that benefits the
poor. The overall effectiveness of these projects,
particularly of TEST, is mixed.
Although the preproject market survey identi￾fied several environmental technologies in
which the United States apparently had clear
superiority, it soon became clear that import-
13
ing finished pollution control equipment from
the United States was unattractive. This is re￾flected by the fact that 12 of the 14 ICICI loans
were for U.S.–India joint ventures or licensed
production arrangements. Only two were for
Indian companies to import services or prod￾ucts directly from the United States.
The 1997 evaluation concluded that, contrary
to a key project assumption, concessional fi￾nancing was not critical in making the transac￾tion happen and that many of the business
collaborations almost certainly would have pro￾ceeded even without TEST. Acceptable financ￾ing would have been available from sources
other than TEST, though perhaps not as quickly
or on terms as favorable. The companies inter￾viewed indicated that TEST financing was help￾ful because it accelerated business transactions,
but that it was not essential. The World Bank
canceled the credit component of its pollution
prevention project after concluding that financ￾ing was not a major obstacle.
The lending criteria of ICICI may have favored
larger Indian companies. Such companies
tended to be strong financially, and they already
had access to both the domestic capital market
and external sources of funding. Moreover, it
was primarily the large “champion” industries
(those that were export oriented or whose in￾vestments in cleaner technologies and waste
minimization offered a real prospect of achiev￾ing operational and process efficiencies) that
made such investments. By contrast, smaller
companies often did need financing but could
not meet ICICI’s lending criteria. Thus, the ef￾fectiveness of the TEST approach is question￾able.
The approach would probably have been more
effective if the state pollution control boards had
improved their capability to enforce environ￾mental regulations as the project had assumed
in 1991. At that time, the World Bank initiated
activities designed to improve enforcement, but
the bank now indicates its efforts had only lim￾ited success. Corruption and lack of political
will still impede enforcement of industry’s com￾pliance with environmental standards. The ju￾dicial system (rather than the state pollution
control boards), acting in response to an increas￾ing number of public interest lawsuits, has be￾come an important source of enforcement
actions. Thus the effectiveness of TEST was com￾promised in part because critical project as￾sumptions (see page 3) proved invalid.
Sustainability
Sustainability concerns the extent to which a
program continues to deliver benefits after
development assistance ends. TEST will prove
sustainable if the 12 companies that received
loans from ICICI are able to meet market demand
for their products and services—in other words,
if they stay in business. This depends in part
on the expansion of the Indian market for such
services and technologies, which in turn hinges
mainly on the extent to which the government
enforces its environmental standards and regu￾lations. Pollution problems are worsening in
India, judicial determinations are continuing,
and public awareness is growing. This suggests
that pressure for enforcement will increase.
The Clean Technology Initiative is ongoing,
making it too early to assess its sustainability.
But forward-looking export-oriented busi￾nesses, the kind targeted by CTI, may take their
own “voluntary” initiatives in response to glo￾bal competition.
In the case of FIRE-D, using the private capital
market to raise funds to construct urban
environmental infrastructure was an entirely
new concept for India’s business and govern￾ment leaders. Considerable time was re￾quired—more than anticipated during project
design—to change the mind-set of these lead￾ers and gain their acceptance of the use of mu￾nicipal bonds to finance public sector projects.
14
Though time consuming, this acceptance has
now been achieved. Infrastructure projects have
been initiated in two municipalities, and con￾struction is likely to proceed smoothly else￾where.
Yet to come, though, is a new set of formidable
challenges. For example, water charges must be
established that are financially sound yet po￾litically acceptable. User fees must be efficiently
collected. Investors in municipal bonds must
be repaid on time. Only then will it be possible
to assess the sustainability of FIRE-D.
Replication
Replication, in the case of Trade in Environmen￾tal Services and Technologies, concerns the ex￾tent to which the TEST model was adapted by
other Indian firms. Two indicators can help as￾sess replication. First, to what extent has the
Indian market for American environmental ser￾vices and technologies grown? Second, to what
extent have Indian companies turned to com￾mercial lenders, especially lenders other than
ICICI, to secure financing for environmental ser￾vices and technologies?
As previously noted, in 1991 American suppli￾ers were exporting about $6 million of environ￾mental equipment to India annually, or about
4 percent of the total market estimated at $135
million. In 2000 they were exporting $150 mil￾lion of pollution control equipment and ser￾vices, 6 percent of the much larger $2.5 billion
Indian market. Thus, the American share of the
Indian market for environmental equipment
and services increased modestly, but the over￾all Indian market increased substantially. As a
result, the volume of U.S. exports to that mar￾ket is 25 times larger today than it was in 1991.
Moreover, the market is expected to grow by
15 percent a year. It is difficult, though, to de￾termine how much, if any, of this increase in U.S.
market share and in total American exports
might be attributed to the Trade in Environmen￾tal Services and Technologies project and the
Clean Technology Initiative.
Have Indian companies turned to commercial
lenders to secure financing for pollution
control equipment? TEST and CTI together with
US–AEP have no doubt boosted awareness of
market opportunities in India for environmen￾tal services and technologies. However, the ex￾tent to which improved market information has
stimulated other ventures—not to mention the
commercial financing of other ventures—can￾not be determined. The credit fund created by
USAID at ICICI is a viable lending source as long
as it remains solvent and as long as it contin￾ues lending for pollution control.
Although FIRE-D is an ongoing activity, it ap￾pears that replication is already occurring. Fol￾lowing the example of Ahmedabad, the first
municipality in India certified as creditworthy
for the purpose of issuing unsecured commer￾cial bonds, 13 other municipalities have sought
fiscal review to obtain a credit rating.
CONCLUSIONS AND
LESSONS LEARNED
During the 1990s, USAID supported three bilat￾eral urban and industrial pollution programs
in India. One was completed in 1997, and two
are ongoing. What lessons emerge from this ex￾perience?
1. Changing the mind-set. Changing the mind￾set of key business and government leaders with re￾spect to environmental management takes considerable
time, but is essential if pollution control technologies,
environmental management systems, and urban
development are to be widely adopted.
The FIRE-D project introduced the concept of pri￾vate sector financing of public sector environ￾mental infrastructure. Professional urban
planning is another new concept supported by
15
FIRE-D. USAID is widely praised by Indian coun￾terparts for carefully nurturing these ideas.
However, the process of changing the mind-set
of a wide array of Indian stakeholders has de￾layed implementation considerably—by more
than three years—in establishing on-the-ground
demonstration projects. The situation is simi￾lar though not as dramatic with the CTI project.
Extensive seminars and information exchange
have increased industrial awareness of various
environmental management techniques includ￾ing benchmarking, greening the supply chain,
and ISO 14001 certification. Local champions are
now bringing credibility, continuity, and pub￾lic support to urban development, environmen￾tal management, and pollution control, and
tangible accomplishments have begun to
emerge.
2. Financial benefits. Companies will not invest
in pollution control technologies or environmental
management systems unless they perceive it in their
business interest to do so.
Purchasing and operating pollution control
technology is expensive. To justify the invest￾ment, companies need to recover capital and
labor costs. Some companies may adopt
environmental management initiatives when
environmental performance is a competitive
factor in gaining access to international markets.
In 1999, 150 Indian companies were ISO 14001
certified, compared with only 25 in 1997—and
many of those companies learned about the
certification process through CTI. By 1999, a
major Indian company had adopted a program
of greening the supply chain, again with CTI as￾sistance. CTI also introduced benchmarking
techniques to India. The techniques helped
companies understand how to optimize finan￾cial returns by reducing both production costs
and pollution emissions. By 1999, CTI had
supported 12 demonstration projects in
benchmarking.
3. Regulation. Companies are more likely to acquire
pollution control technologies if there is strict enforce￾ment of environmental standards and regulations.
Financial benefits alone are rarely sufficient to
justify investments in pollution control tech￾nologies and environmental management sys￾tems. Instead, companies invest primarily to
avoid being shut down or paying fines for non￾compliance with environmental regulations.
Although environmental standards and regu￾lations are well established in India, enforce￾ment generally remains lax because political
will and public pressure are weak. Therefore,
companies often decide not to comply with
pollution standards and instead take remedial
action only in response to litigation and judi￾cial rulings (which can take years). Moreover,
the cost of noncompliance is typically small
relative to the cost of investing in end-of-pipe
controls. Compliance is likely to become more
widespread when companies adopt pollution
prevention technologies that address process
and management changes. These technologies,
emphasized by CTI, often have greater financial
as well as environmental benefits.
4. Trade. Both supply-side and demand-side barri￾ers hamper U.S.–India trade in environmental ser￾vices and technologies.
On the supply side, American companies of￾ten have legitimate concerns about the time,
effort, and risk involved in tapping the Indian
market for environmental services and tech￾nologies. On the demand side, Indian compa￾nies are reluctant to buy American pollution
technologies or process techniques unless dem￾onstrations have shown they are suitable for
local conditions—and Indian financial institu￾tions are reluctant to lend funds for the purchase
of untested technologies. Moreover, American
pollution technologies are typically too expen￾sive to find widespread acceptance in the In-
U.S. Agency for International Development Washington
16
To order paper copies of this report, PN–ACG–629, please contact USAID’s Development Experience
Clearinghouse, 1611 North Kent Street, Arlington, VA 22209. Or you can phone (703) 351–4006, or fax
(703) 351–4039, or e-mail docorder@dec.gov. To access from the Internet, go to www.dec.org/usaid_eval.
Editorial and production services provided by Conwal Incorporated.
dian market. American companies that have
been most successful in India generally have
formed joint ventures or licensed their technol￾ogy for local production, in both cases reduc￾ing the delivery price. Companies relying on
the outright sale of pollution equipment have
been less successful.
5. Credit. Lack of financing is typically not a con￾straint for large Indian firms that want to procure
pollution reduction technology. However, it does of￾ten hinder individual small and medium-size firms
and municipalities that want to finance environmen￾tal infrastructure.
The TEST project assumed Indian companies
would be unable to purchase pollution reduc￾tion technology from American suppliers with￾out financing. The project therefore included a
$20 million credit component with loans subsi￾dized at 1.5 to 3.0 percentage points below the
market rate of interest. After five years, Indian
companies had borrowed only $9.78 million.
Similarly, the World Bank provided a line of
credit under its industrial pollution prevention
project, but lack of demand prompted the bank
to cancel the credit component of the project.
Although large Indian companies (or clusters
of small companies) are able to secure financ￾ing to procure pollution control technology,
individual small and medium-size companies
often do require financing. However, TEST did
not concentrate on these companies, perhaps
because they could not satisfy the lending cri￾teria established by ICICI or because of high
transactions costs. India’s municipalities also
require financing—for urban environmental
infrastructure. FIRE-D has successfully assisted
several municipalities, including Ahmedabad,
in tackling this problem.
6. Replication. A key to replicating technology trans￾fer projects is careful targeting with an eye to sharing
and spreading successful results.
TEST used the “retail” approach to introduce
pollution control technologies in India. Specific
industries were not targeted. Instead, any com￾pany of any size from any industrial sector lo￾cated in any part of the country was eligible to
apply for a loan from ICICI. By contrast, CTI is
using the “wholesale” approach. Companies
have been strategically targeted. Export￾oriented companies from three industrial sec￾tors are receiving priority, including a small, a
medium, and a large company from each sec￾tor. In addition, CTI, unlike its predecessor, TEST,
works with industry associations. These organi￾zations are often able to facilitate the sharing of
information among companies within the same
industry. CTI is also introducing the concept of
greening the supply chain, which can be a pow￾erful force in replicating environmental man￾agement systems from one company to numer￾ous supplier companies. Both approaches can
promote replication as long as the companies
receiving assistance are explicitly encouraged
to help spread successful results.
7. Baseline data. Baseline data are needed to assess
program impact.
Baseline data were typically not gathered un￾der the TEST, CTI, or FIRE-D projects before proj￾ect implementation. Data on environmental
quality in Indian cities, discharge rates from in￾dustrial sectors, and epidemiological and other
health data for populations located near indus￾trial zones or participating companies were not
available. Lack of baseline data greatly reduces
the ability to conduct an accurate assessment
of environmental and health impacts.