Insights into Editorial: A budget for inclusive and sustainable growth – INSIGHTSIAS

Context:

After a growth-depressing FY21, advance estimates suggest India is likely to grow at 9.2% in FY22. Next year, the IMF thinks India could grow 8.5%. But unequal growth will undermine consumer demand and exacerbate social instability.

If rising inequality is one challenge, environmental sustainability is another.

Economic development requires sound foundations. Universal access to education and health services, access to financial services, new technologies and affordable bank loans, gender equality and more equal distribution of resources can all support economic development.

 

Energy sector challenges:

1. Headline-grabbing announcements at international fora on clean energy targets, mainstream economic thinking has not yet internalised that “grow first and clean up later” is no longer a wise growth strategy.
2. The Ujjwala scheme for clean cooking energy ensured that 85% of households had an LPG connection by March 2020.
3. The CEEW’s India Residential Energy Survey finds that 53% of households still use traditional solid fuels/biomass.
4. These persist because refilling LPG cylinders has become 50% more expensive since May 2020. Subsidy should be reintroduced for Ujjwala connections.
5. At 50% per cylinder, it would reduce refilling costs to pre-pandemic rates. This would cost a steep `28,350 crore, yet far lower than the Rs 100,000 crore annual health cost burden from premature deaths and morbidity attributable to indoor air pollution.
6. Another demand-side intervention is energy-efficient ceiling fans. Ceiling fans account for a fourth of residential power use.
7. With increased electrification, the market will grow 11-12% annually, more than double the global average.
8. But less than 3% of households use energy-efficient fans. Reducing GST on super-efficient fans from 18% to 5% could stimulate demand for 4 million fans, resulting in 272,000 tonnes of avoided CO2e emissions.
9. Lower power consumption, especially in poorer and heavily subsidised homes, would also reduce the electricity subsidy burden of state governments.

 

Supply-side interventions:

1. On the supply-side, India needs $200 billion to reach the ambitious 450 gigawatts of renewables capacity by 2030.
2. In a debt-heavy infrastructure sector, domestic banks and NBFCs do not have the headroom to lend at the pace needed.
3. A Climate Credit Enhancement Fund of Rs 10,000 crore, spread over five years, could help Renewable Energy developers get greater access to the domestic bond market, reduce risk for bond issuers, and crowd in private capital ~16 times.
4. India has huge potential in bioenergy: 28 GW of power capacity and 14 GW of co-generation capacity; 62 million tonnes/year of Bio-CNG potential; ~1,240 MW from urban solid waste; and 230-240 million tonnes of pellets by converting available surplus biomass.
5. A National Bioenergy Policy 2030 could introduce interventions such as feedstock and supply chain management, market creation programmes, a bioenergy accelerator fund, and quality control and performance monitoring.
6. Every Rs 1 crore of subsidy for compressed bio-gas plants could yield socioeconomic benefits worth `9 crore annually from emission reduction, health benefits, and reduced use of chemical fertilisers.

 

7. Green hydrogen has applications across many industrial sectors and the potential to increase energy security for India. Building the ecosystem will need government support.
8. Another 165 crore could support R&D, particularly on catalysts and membranes for electrolysers and finding substitutes for critical minerals, and set up testing labs and enforce safety standards.
9. These nominal investments could greatly help to indigenize green hydrogen production and use as a strategic industrial fuel. The green hydrogen ecosystem could create 2 million jobs over two-three decades.

 

Revival of Rural Economy:

1. The rural economy needs modernised infrastructure and sustainable production methods.
2. A Rs 2,200 crore scheme could solarise 10,000 villages, helping them build distributed community solar power, power livelihoods with decentralised productive appliances, and power health and educational facilities.
   1. Such installations have higher employment coefficients while reducing power losses and subsidy burden of utilities.
3. Only 0.8% of the budget of ministry of agriculture and farmers’ welfare goes towards sustainable agriculture.
4. Increasing farm incomes, productivity, and climate resilience of crops deserve more attention.
5. In cities, a National Bus Programme can support procurement and operations of public bus fleets. This would boost domestic manufacturing, create jobs and improve mobility solutions for the large proportion of urban residents who walk or cycle.
   1. Lowering the GST to 5% (from 18%) could boost the transition towards electric public transport.
6. Finally, damages to infrastructure (roads and bridges, telecoms, power and grid, ports and airports, housing) are not sufficiently insured against more frequent and intense extreme weather events.
7. As per the World Meteorological Organization, tropical cyclones, floods and droughts induced an average annual loss of Rs 649,000 crore in India.
8. A Climate Risk Insurance Facility of Rs 4,000 crore, as a blended finance special purpose vehicle, could leverage public funds and crowd in private insurance coverage. The risk premiums would fall as more infrastructure got insured against far greater losses.

Investments in infrastructure are vital for economic growth, and accessibility and affordability of the services provided should be taken into consideration already when planning these investments.

Popular public-private-partnerships are a valued option for financing infrastructure but a wide funding mix, suitable for each project, should be utilized.

A stable and predictable operating environment is a prerequisite for private sector investments. Good governance should be promoted and corruption tackled at all levels in both private and public sectors.

 

Conclusion:

With the central tax-to-GDP ratio at only 9.9%, the government cannot be Santa Claus. The demands on its resources will be many.

The ideas above are fiscally prudent, provide net benefits for jobs, growth and sustainability, shift India towards new technological frontiers, and avoid damages by forestalling risks.

Investments in sustainable infrastructure and targeting the vulnerable can yield dividends on several counts.