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SMEs in Waste Management: Converting Trash into Treasure Date Published: 2 Sep 2008 By Sasidhar Chidanamarri, Industry Analyst, Environment and Building Technologies Practice "Wasted" Opportunities Over the last five years, high GDP has transformed India into one of the world's largest consumer economies. The rise in consumerism and changing lifestyles has added to the woes of waste management in India. Unplanned urbanization has exposed the lack of preparation for solid waste management in Indian cities. India is most likely to be one of the largest producers of Municipal Solid Waste (MSW) in the next 5-10 years. The market potential for Indian waste management is around Rs.20,280 Crore, if every ounce of waste is managed effectively. In 2007, an estimated 5 million tons of medical and 325,000 tons of e-waste were generated in India. Industrial Hazardous Waste (IHW) was estimated to be 16.5 million tons, and the total MSW generated was at 30 million tons in 2007. Fly ash generated from Thermal Power Plants (TPPs) was estimated at 100 million tons. Figure 1 represents the total tonnage of different kinds of waste generated in 2007 and expected to be generated in 2012. Figure 1

Chart 1 Waste Management Market: Percent of potential revenue generated from each type of waste (India), 2007

Medical waste and e-waste contribute 9.6 percent, and 0.6 percent, respectively, to the total waste. While IHW contributes 31.8 percent, MSW is the largest contributor with around 57 percent of the total waste produced in India. In terms of revenue, MSW, IHW, medical waste, and e-waste contribute 48 percent, 41 percent, 10 percent, and 1 percent, respectively. Around 30 percent of MSW is contributed by big cities such as Delhi, Mumbai, Chennai, Kolkata, and Bangalore. The MSW waste management market in the above five cities was worth Rs.2,800 Crore in revenues in 2007. Figure 2 displays the tonnage of MSW waste generated per day in each of the cities mentioned above. Figure 2 Waste Management Market: MSW generated in top five cities (India) 2007 Source: National Solid Waste Association of India

The Central Pollution Control Board (CPCB) of India has analyzed that as much as 94 percent of the MSW, medical waste, and e -waste is dumped in open landfills, while only 6 percent goes for recycling. This market, if effectively tapped, could unravel opportunities that the SMEs can capitalize on. Room for Private Participation The Indian waste management industry is gaining global attention as it is in its nascent stage. In order to tackle the mounting problem of solid waste, the Ministry of Environment and Forests legislated the Municipal Waste Management and Handling Rules 2000, which deals with the involvement of private agencies in waste collection and treatment. Waste management has also gained significance with the launch of the Jawaharlal Nehru Urban Renewal Mission (JNURM), according to which the Central Government contributes 35 percent of the project cost, while the state government and municipal corporations add 15 percent and 50 percent, respectively. In India, like in the developed countries, there is a strong case

of the project cost, while the state government and municipal corporations add 15 percent and 50 percent, respectively. In India, like in the developed countries, there is a strong case for bringing in the private sector to invest in waste management. The financial constraints and lack of suitable staff have hindered municipalities from maintaining an efficient waste management system. Private sector can bring in the adequate technical expertise, increase efficiency, and improve customer service. It also brings in the capital required by municipalities to support efforts toward effective waste management. Many big firms are ready to step into the Indian market by adopting cost-effective and innovative equipment. Multinationals have adequate capital, technology, and expertise to offer innovative and cost -effective solutions and are ready to face low growth in the initial stages in order to gain a share in the nascent market. Though MNCs are keen on entering the Indian market, they have not been successful in capitalizing on the available opportunities. This is due to a lack of preparation and knowledge about the Indian scenario. Areas where SMEs can strengthen: Legal difficulties to acquire approvals to set up treatment plants and multinationals entering the Indian market are some of the major threats facing the domestic SMEs. Despite the threats, SMEs have an edge over MNCs because they are familiar with the characteristics of the waste generated in India and are capable of providing cost-effective and eco-friendly solutions. SMEs are competent in collecting and transporting household waste. They should also actively participate and gain expertise in the higher levels of waste management hierarchy like waste recycling and waste treatment, using greener techniques. Recycling and composting are cost-effective and inexpensive in terms of adoption. SMEs who find it difficult to raise capital should look into adopting such techniques and modify them to suit Indian waste. SMEs can go in for composting since 55 percent of the MSW is biodegradable. The compost, derived out of the controlled decomposition, can be sold as fertilizer to farmers and institutions that require manure for landscaping. Incineration along with electricity production - cogeneration is also a viable alternative. Other possibilities include advanced treatment methods like Gasification and Anaerobic Digestion or BioMethanation. Gasification is gaining ground as it has proved itself to be environment friendly. But it is an expensive technique. The power generated from the Bio-Methanation process is considered renewable and may qualify for Certified Emission Reductions (CER) under United Nation's Clean Development Mechanism (CDM). SMEs can sell or trade these CERs to companies in the developed world that emit carbon dioxide gases at levels beyond those laid down by the Kyoto Protocol. These are a few strategic channels through, which SMEs can look to raise capital and increase profit margins. The Government has implemented policies to safeguard the interest of the small sized players in this industry. Previously, stringent regulatory listing norms prevented SMEs from raising capital from the Indian bourses. Many SMEs in other sectors have raised equity on London's Alternative Investment Market (AIM), which compelled the Indian Government to create an atmosphere conducive for SMEs. The Security and Exchange Board of India (SEBI) has approved a proposal to set up an exchange dedicated to SMEs, which would allow them better access to risk capital. This exchange, expected to come into existence by end of financial year 2008-09, would promote the country's SME segment comprising different unlisted companies belonging to different sectors. Henceforth, SMEs can raise capital directly through capital markets. Private Equity (PE) funds would be interested to invest more in SMEs when they are listed because such exchanges will offer a clear exit route. The Small Industries Development Bank of India (SIDBI) has plans to double the corpus of its venture capital fund – SME growth fund – to Rs. 600 Crore to enable greater equity flow to the SME sector. The growth of SMEs in the waste management sector lies in utilizing such avenues to raise capital to bring in innovative technologies. In the long run, there will be a fall in the municipal waste due to the implementation of techniques such as reduce, recycle, and reuse. At this point, SMEs would need to look at other avenues or areas of waste in order to maintain the pace of growth. However, due to the growth of industries, the output of industrial waste is going to be high. Similarly, domestic

e-waste constitutes a small portion, but there is rampant dumping of electronic waste into India in spite of this being banned under the Basel Convention. Waste generation from the medical sector is growing at a rapid rate. Given the alarming rate of growth in these kinds of waste, SMEs should look at gaining a stronghold in treating industrial, medical, and e-waste in the future. But management of industrial hazardous waste requires complex technical expertise, skilled manpower, and resources. In the near future, SMEs should focus on MSW and medical waste, as they offer growth potential and be ready to adopt inexpensive technology. But in the long run, domestic firms should gear up and raise capital to tap the industrial waste segment, which is expected to grow rapidly. Looking Beyond SMEs should aim to provide solutions that are highly price competitive because governments look for the lowest offer. In order to establish themselves in the MSW segment, they should ideally look at providing cost-effective solutions backed with modern environment-friendly technologies. Keeping abreast of latest technologies is a better way to innovate, grow, and become aware of opportunities and threats. SMEs should be aware of their core competencies, which would help them realize their strengths and weaknesses. Domestic players are losing their identity by playing a supporting role for the larger consortiums. In order to become a complete player in waste management, they should look into diverse areas of waste management such as treatment and recycling. This will give them a broad field to play and will help them to realize better growth margins. Capitalizing on the opportunities and harnessing the growth potential by choosing the right platform is essential to sustain in this industry. The need of the hour is to wake up to the impending threats in this market and adopt better business strategies. They must entrench themselves before the international firms enter the Indian waste management sector


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