Seize the day: Why Indian businesses should go on the climate-change offensive

India has contributed very little to the conditions underlying global climate change. Its per capita greenhouse-gas emissions are just 2.8 tons, below the global average of 7.5, and far less than Canada (23.5), the United States (18.4), Brazil (12.9) or China (10.4). And yet, the dangers of climate change could hit India very hard.

For example, according to McKinsey research, India runs a substantial risk of enduring heat waves of such intensity by the early 2030s that they could threaten the survival of healthy people in the shade. Agriculture is also likely to feel the heat, with rice, corn, soy, and wheat facing a higher likelihood of falling yields.  

The equation—limited contribution to the problem, yet facing high consequences—is unfair, but that is the hand that has been dealt. Now India must do its best with it.  

India’s goal of being net zero by 2070 is ambitious, given the growing population and economy.  But we believe it can be done, in part because India is such a low per capita emitter. We can learn from what other countries are doing and avoid their missteps. An important consideration is that majority of the India of 2050 is yet to be built. That gives us the chance to build sustainably from the start.  

Doing so will be neither easy nor cheap: McKinsey has estimated that for India to get close to net zero would require investing $12 trillion by 2050. India could be fifteen percent land short relative to its requirements for food, infrastructure, forests and renewables. But there would also be substantial benefits:  lower energy costs, greater resilience, cleaner air, more productive land, and healthier people. If India shifted to a predominantly renewable, reuse (and hydrogen)-based energy and materials system, it could save as much as $3 trillion in foreign exchange by 2070, because imports of crude oil and coking coal would reduce. And renewables would not need nearly as much water as coal plants, making them less vulnerable to water scarcity. 

More important, we think India has a great opportunity not only to create a greener economy and healthier environment, but to become a force in the industries of the future.  

Specifically, India is already a large player in electric two-wheeler production; domestic sales rose more than 300 percent in 2022. There are government incentives through the FAME subsidies, but this is largely driven by an implicit carbon tax of USD 140-240 per tonne of carbon dioxide on fuels, twice that of current European rates. The market has picked up the tail wind and accelerated, with consumers valuing the design, performance, and fast-falling costs of two-wheeler EVs. This is a strong platform to start from to become a major export industry, and over time, to expand into the EV car market.

Renewable energy could be another high-growth sector. India ranks fourth in global solar and wind capacity (95 gigawatts) and current plans see this reaching 300 GW by 2030. The cost of power from solar-wind storage hybrids is already competitive with new coal plants. But to truly reach its potential will require power-market and land-use reforms, which will not be easy. What is not in doubt is that to get anywhere near net zero, renewables must be a bigger part of India’s energy generation; power accounts for more than a third of India’s emissions.  

Then there is green steel. India recently passed legislation enabling a market in carbon credits. Trading could begin this year, and includes steel, which accounts for 11 percent of emissions. By shifting the economics to favor cleaner energy sources, the system is meant to change behavior, and thus to open the door to innovation and investment. A carbon price makes producing steel with coal relatively more expensive—and simultaneously makes it less expensive to invest in low-carbon alternatives, such as hydrogen-based steel making and agri-based feedstocks. According to McKinsey, under one scenario of hydrogen costs and carbon prices, it is possible that hydrogen-based steel making is more competitive than coal-based steel making by 2030, giving India the opportunity to switch over to this new green production technology. These could help India meet its net-zero goal, and also supply green materials to other markets that value it—as  much as $11 billion in green pig iron and steel by the early 2030s.  

There are other opportunities, too, in, green materials, carbon sinks, electrical equipment, battery making, rare earth materials. By going on the front foot, India Inc. could become a leader in emerging high-potential new green businesses. That is not far-fetched.  

If India keeps up its momentum, India could be the world’s third-largest economy by 2030.  A big question is what kind of economy will it be. A national decarbonization plan could help answer that question, by setting goals, encouraging more efficient land-use, and providing a stable framework to foster low-carbon investments. Without such a plan, India will keep on building high-carbon infrastructure, locking it into higher emissions.  

McKinsey calls decarbonization “the Great Reallocation,” meaning that the use of capital will be increasingly directed to reducing greenhouse gas emissions. At the moment, many Indian businesses are playing defense on decarbonization, doing what they must. It is time for both business and government to play offense, too—to seize the opportunities of the inexorable shift to a lower-carbon global economy.  

Rajat Gupta is a Senior Partner in McKinsey & Company’s Mumbai office, while Prabhav Sharma is a Partner based in Delhi.