Productivity vs Pollution: How energy efficient is the Indian manufacturing sector?

Development versus environmental sustainability has remained as a topic of debate for many decades. The 18th  and 19th century saw a rapid increase in industrialization and urbanization to achieve growth. However, by the end of the 19th century, the world realized that the unsustainable route to growth and development would eventually pose a threat to human existence on this planet.  As a result of this unsustainable development, the environmental issues such as water pollution, deforestation, biodiversity loss and climate change affected human lives in a major way. To address such environmental crises, various countries were brought together by the international agencies to work out guidelines and develop a roadmap to come out with sustainable ways of growth and development and living in their respective territorial boundaries. Various conventions, protocols and declarations were and are being put in place internationally to realize the goal of a sustainable living on the planet Earth.

For the highly populous and emerging economies such as India, achieving development without harming the environment much is an arduous task. With a fraction of its infrastructure that still needs to be built accompanied by the needs of its mammoth population, India is striving hard to ensure that resources are utilized efficiently, so that we can progress while obeying the environmental regulations. Towards this, the country is giving a significant push to renewable energy and energy-efficient businesses. With the regulations and laws put in place by the government agencies, the Indian industries are now trying to strike a balance between profitability, productivity, efficiency and environmental externalities. In this context, understanding the energy consumption patterns and energy-efficient techniques being employed by the Indian industries will raise the know-how of the sustainable methods of production and help in devising effective policies to cut down the emissions.

“India being one of the top emitters globally, makes a perfect case to study the patterns of energy intensity and efficiency. The manufacturing sector in India consumes more than 60 percent of commercial energy. In the context of increasing demand for energy in the industrial sector of India, we focus on the manufacturing industries for our analysis. Given the fact that studies on pollution-loads at industry levels are scanty for the Indian economy, our study is one of the first to understand this missing link for the manufacturing sector,” says Dr Santosh Kumar Sahu, Assistant Professor at IIT Madras, while explaining the need for the study.

Dr Santosh Kumar Sahu
Prantik Bagchi

Dr Sahu, along with his research team at IIT Madras, works in the areas of energy economics, the economics of global climate change and applied industrial economics. In their recent research, published in the prestigious international journal Studies in Microeconomics, Dr Sahu and his colleague Prantik Bagchi have studied and explained the relationship between energy intensity, productivity and pollution-loads in Indian manufacturing sector. To carry out such a study, the researchers used data from the Annual Survey of Industries, European Union’s Joint Research Centre; and Ministry of Environment, Forest and Climate Change, Government of India to establish a distinct relationship between energy intensity and productivity for the Indian manufacturing sector. The researchers also determined the factors that influence energy efficiency and relate energy intensity with pollution-loads. The study accounts for the pollution through CO2 emissions at the aggregate manufacturing level through the analysis that was done on the organized manufacturing sector of the country.

“The important contribution of this paper lies in the analysis of this crucial relationship at aggregate, state and industry levels. The research highlights that there is a need to study the industrial ecology of the pollutive industries for an emerging economy like India which would help in engaging with international policy networks. Results of this study have important policy implications for the Indian economy. This also indicates the need for decentralized energy policy at the state level. From the empirical viewpoint, authors have validated the productivity dilemma hypothesis and explored the pollution-loads at the industry level, which has not been attempted so far in the literature, for the Indian economy,” comments Dr K. Narayanan, Professor at IIT Bombay, who is expert in the same field.

The study indicates that India has gained energy efficiency and productivity. However, this is not uniform across the Indian states. Statistically, almost half of our states have attained energy efficiency because of positive policies like National Mission on Energy Efficiency of 2008 at the national level, and Chhattisgarh State Solar Energy Policy of 2012 and Odisha Solar Policy of 2013 etc. at the state levels.

“Our results indicate energy efficiency gain and reduction in emission intensity.Further, we claim that large states in India have fallen into a productivity dilemma which indicates to strengthen the manufacturing policy, particularly for those states. Small states, however, become highly effective in energy efficiency gain. We also find that post-2008 energy efficiency gain is influenced by technological progress, economies of scale, and pollution-loads in the manufacturing sector of India. To add more, pollutive industrial sectors are found to be capital-intensive and labor-saving,” says Dr Sahu.

In future, the team aims to focus on firm-level analysis. This will include estimating carbon dioxide emissions using a bottom-up approach. As per the researchers, identification of the pollution-loads and carbon dioxide emission at the firm-level will relate to energy efficiency gain, innovative capabilities of firms, R&D, export behavior and internationalization of firms in Indian manufacturing sector. This exercise, they believe, will enable us to identify the technology gap to increase energy efficiency and reduce emission and pollution loads.

Article by Aditi Jain
Here is the link to the research article:


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