By Aditya Kalra and Arpan Chaturvedi

NEW DELHI (Reuters) - India wants to tackle its mounting e-waste problem. Global electronics companies say the cost is too high.

Daikin, Hitachi ( HTHIF ) and Samsung are among manufacturers alarmed by new Indian government rules that require them to pay significantly more to recycle air conditioners, refrigerators, TVs and other appliances, court papers and lobbying letters show.

The electronics giants are urging environment officials to abandon the approach, with four companies suing Prime Minister Narendra Modi's administration in New Delhi over the measures they say will heighten compliance woes and unsettle businesses.

The previously unreported standoff marks the latest chapter in foreign companies' battles with India over what some perceive as protectionist policies and shifting regulatory goal posts.

India is the third-biggest e-waste generator behind China and the U.S. But government data shows only 43% of the country's e-waste last year was recycled and at least 80% of the sector comprises informal scrap dealers, whose methods can pose environmental and health risks.

Concerned about poor waste-processing practices, New Delhi in September set a floor price that electronics makers must pay recyclers, with the aim of formalising the sector and encouraging investment in e-waste management. 

A Reuters review of hundreds of pages of non-public court papers and letters to the government by an industry group representing Samsung and LG reveals the impasse over the new rates, which the industry says have roughly tripled manufacturers' recycling costs. 

Johnson Controls-Hitachi, Japan's Daikin, India's Havells and Tata Group's Voltas each sued Modi's government between November and March to quash the pricing rules. 

The measures are unconstitutional, exceed the government's powers under environmental law, and raise compliance costs manifold, the companies said in submissions to New Delhi judges. The government has called for the cases to be dismissed.

Daikin said no Indian government had ever previously drafted policies with the "sole intention" of providing financial gain to some businesses, in this case recyclers, at others' expense. Voltas predicted a "cascading effect" on product prices. 

The companies are part of an Indian consumer electronics market Euromonitor estimates will be worth $62 billion this year. The sector has experienced average annual growth of 10% since 2021.

As sales of consumer electronics skyrocket due to rapid urbanisation, companies such as Daikin, Hitachi ( HTHIF ) and Samsung have expanded production in India. In line with global trends, India's e-waste reached 1.7 million metric tons in 2023-24, more than doubling in six years.

Samsung declined to comment. The other companies and India's Environment Ministry didn't respond to Reuters queries about the pricing rules and the industry's response.

'REASONABLE' INTERVENTION

For years, India has resisted foreign companies' demands to revoke protectionist policies. Lobbying by Walmart and Amazon, for example, failed to ease regulations that protect small retailers.

On e-waste, too, Modi's administration is digging in.

In a March 18 submission, the Environment Ministry urged the judges to dismiss the lawsuits, saying it was "reasonable" and within its powers to fix prices.

The alternative of letting companies and recyclers determine prices may not account for all costs of environmentally sound waste management, the ministry said, adding that it wanted to prevent a "race to the bottom" in pricing.  

India's government says there are 322 authorised recyclers in the country. 

But informal waste handlers flourish nationwide, using methods such as open burning and acid leaching to extract metals and components, which can release hazardous materials.

   In western Gujarat state, 60-year-old scrap dealer Mustakeem Malik uses a hammer to dismantle televisions, air conditioners and routers. 

Inside his tin-roofed shed where electronic equipment was stacked in haphazard piles, Malik told Reuters he earns 50,000 rupees, or about $580, a month by selling the plastic, circuit boards and copper he extracts from the devices. He doesn't want to work in the formal e-waste sector.

"That business has a lot of expenses. It's for the big guys," he said.

HAPPY RECYCLERS, WORRIED COMPANIES

India's new rules mandate a minimum payment of 22 rupees (25 U.S. cents) per kilogram to recycle consumer electronics and 34 rupees/kg for smartphones.

Makers of heavier devices such as air conditioners are likely to be hit hardest because their per-unit recycling cost has risen by a greater amount compared with makers of lighter gadgets like smartphones.

Research firm Redseer in February said India's recycling rates were still low compared with the U.S., where they are up to five times higher, and China, where they at least 1.5 times higher. 

"We are talking about peanuts here," said Nitin Gupta, CEO of one of India's biggest recyclers, Attero, who added that the government rates require manufacturers to pay about $10 to recycle a washing machine.

"If you have to create scientific capacity for recycling, you need extra profits. This is good for us," said Gupta, whose firm counts LG and Daikin as clients.

The electronics makers, though, feel threatened.

India's Consumer Electronics and Appliances Manufacturers Association, which represents LG and Samsung, among others, said in a letter to the government in November that e-waste compliance expenses had risen to 2% to 8% of production costs. The group asked environment officials to reconsider the pricing rules.

Samsung and LG haven't sued the government but have signaled concern. LG India's December IPO prospectus warned without specifics that higher recycling rates "had a significant financial impact on our company". 

A person with direct knowledge of the matter said Samsung had told senior Indian officials its recycling costs would be five to 15 times the previous rates, and urged New Delhi not to interfere in commercial dealings with recyclers.

In court, Johnson Controls-Hitachi was the only company to reveal what it previously paid for recycling: 6 rupees per kg, or 7 U.S. cents. That figure has now almost quadrupled.

The company disclosed that it recycled more than 10,000 tons of air conditioners last fiscal year, which would amount to roughly $2.6 million under the new rates. Its India business reported a net loss of $8.8 million the previous year.