The FY16 Budget is sensible, pragmatic, inclusive and, in some respects, innovative and growth-oriented. The finance minister has addressed almost all of the issues that have exercised society over the last few months. And he has done so without flourish, populism or indeed a “big bang” announcement. This said, I need to enter a caveat. I was disappointed that the finance minister did not dedicate at least a few sentences to the importance of weakening the linkage between economic growth, energy demand and the environment.
Consider the following situation. The minister of power succeeds in achieving his objective of doubling coal production from the current 500 million tonnes to 1 billion tonnes by the end of this decade (in a post-Budget TV interview, he talked of trebling production); the current rate of migration from villages to cities continues unabated and the urban population will increase from 300 million today to 600 million in 2020. The bulk of this population are young with a median-age of 25. They want to trade up from a cycle to a motorised vehicle. Two-wheeler and auto manufacturers capitalise on this aspirational demand and record increasing sales and profitability. With no substantive substitute, this leads to surging demand for petrol and diesel.
Now, consider the consequences of this situation. The urban Indian gets dangerously exposed to the carcinogenic particulates emitted by vehicular traffic. Already she is suffering. The number of deaths from respiratory illness and asthma in India is the highest in the world.
According to Professor Michael Greenstone of the University of Chicago, the life expectancy of the 600 million people in urban India will reduce by a further 3.2 years. Furthermore, much of our forest cover gets denuded. This is because a large proportion of our coal reserves are in richly-forested areas and these are cleared to achieve the ministers’ ambitious target. Finally, India emerges as the second-largest emitter of greenhouse gases (GHGs) in the world. Coal is the dirtiest of all fossil fuels and a large number of the thermal power plants run on outdated and inefficient technology. The government’s seeming lack of commitment to move onto a low-carbon trajectory growth path undermines its standing in multilateral discussions on arresting global warming and climate change.
The finance minister spelt out his vision in clear and measured language. It was focused on securing economic growth, distributive equity and social justice. It would have sounded more complete had he acknowledged the conflictual trade-off between the need for energy and the imperative of environmental protection and sought to address this conflict within the larger frame of his vision. He did have a slew of proposals but they were presented in a somewhat disconnected manner. Thus, the decision to double the cess on coal from R100 per tonne to R200 per tonne to fund the “clean energy fund” made no mention of R&D and innovation in clean energy. Perhaps this was deemed self-explanatory, but given that in the past the money in this fund has not been used for this purpose, the finance minister would have done well to make explicit the connection. In the same vein, he made mention of a carbon tax but he did not make clear how and where he intended to apply it. He reiterated the government’s intent to substantially increase the generation of electricity from solar and wind, but without providing a roadmap for its practical implementation.
Over and above these matters of presentation, the green energy agenda fell short on four issues of substance.
One, the finance minister made no mention of natural gas. This, despite the fact that gas is the cleanest of all fossil fuels—gas-based power plants emit 50% less carbon-dioxide than coal-based units—and that 20 GW of generation capacity has not been operationalised because of inadequate gas supplies and poor pipeline infrastructure. The finance minister should have acknowledged the significance of gas and announced that investment in pipelines would receive the same tax benefits as other major infrastructural investment.
Two, the finance minister did not elaborate on the support that the solar and wind energy sector would require to increase solar energy capacity from the current 2.5 GW to over 100 GW by 2020 and wind energy from 22.5 GW to 50 GW by 2030. This should have been done to respond to critics who believe this is an unattainable target. These critics have a point. To achieve this goal, the government will have to add an incremental 19 GW of solar and 6 GW of wind annually. Hitherto, they have logged an average increment of 1-1.5 GW annually. Thus, in the absence of a fuller explanation on the roadmap for execution, this announcement can be justifiably seen as no more than a populist flourish.
Three, the finance minister allocated only R75 crore for invigorating the electric vehicle (EV) market. EVs (cars and cycles) are the answer to sustainable mobility. They have not taken off in India because of high upfront costs, delays in the disbursement of subsidies and erratic power supply. But the costs are coming down; battery-storage capacity has been enhanced by technological developments; Indian companies are interested and the inter-ministerial turf battles that in the past delayed subsidy disbursement have reduced. The finance minister should have leveraged these positives to give EVs a stronger fillip rather than hold out what, at first glance, looks like a fig leaf.
Finally, and perhaps most significant, there is the issue of the sanction of five ultra-mega thermal plants. Other than the passing reference to carbon tax, his speech contained nothing to ameliorate the concerns of the environmentalists.
Perhaps the Budget’s fine-print will show that my concerns are exaggerated and the finance minister is indeed cognisant of the longer-term ramifications of neglecting the environmental implications of an energy system grounded on fossil fuels. Certainly, the Prime Minister has expressed his concern by calling for the “saffron revolution”. If so, I would retract my comments. If not, I hope these issues will be brought front and square into the debate.
By Vikram Mehta
The author is the chairman of Brookings India and senior fellow, Brookings Institution