A budget for inclusive and sustainable growth

Mainstream economic thinking has not yet internalised that “grow first and clean up later” is no longer a wise growth strategy

Despite 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.
Despite 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.

By Arunabha Ghosh

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. Despite 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.

The Ujjwala scheme for clean cooking energy ensured that 85% of households had an LPG connection by March 2020. But CEEW’s India Residential Energy Survey finds that 53% of households still use traditional solid fuels/biomass. These persist because refilling LPG cylinders has become 50% more expensive since May 2020. Subsidy should be reintroduced for Ujjwala connections. 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.

Another demand-side intervention is energy-efficient ceiling fans. Ceiling fans account for a fourth of residential power use. With increased electrification, the market will grow 11-12% annually, more than double the global average. 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. While the foregone GST revenue would be Rs 132 crore, households would save about Rs 500 per year in power bills (aggregate saving of Rs 200 crore). Lower power consumption, especially in poorer and heavily subsidised homes, would also reduce the electricity subsidy burden of state governments.

On the supply-side, India needs $200 billion to reach the ambitious 450 gigawatts of renewables capacity by 2030. In a debt-heavy infrastructure sector, domestic banks and NBFCs do not have the headroom to lend at the pace needed. A Climate Credit Enhancement Fund of Rs 10,000 crore, spread over five years, could help RE developers get greater access to the domestic bond market, reduce risk for bond issuers, and crowd in private capital ~16 times.

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. 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. 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.

Green hydrogen has applications across many industrial sectors and the potential to increase energy security for India. Building the ecosystem will need government support. A financial outlay of 1,200 crore by 2024 could trigger pilots in various end-use applications: Five refuelling stations to power 50 fuel cell vehicles; viability gap funding to blend 5% green hydrogen in an ammonia plant of 200 tonnes per day capacity; two 2.5 TPD biomass gassification plants; a 100 kg/hour pilot green steel plant; a 2 TPD natural gas pyrolysis pilot plant; testing hydrogen readiness of natural gas pipelines by blending green hydrogen; underground hydrogen storage in India; and pilots for end-use equipment such as furnaces, boilers, and process heaters. Another165 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. These nominal investments could greatly help to indigenise green hydrogen production and use as a strategic industrial fuel. The green hydrogen ecosystem could create 2 million jobs over two-three decades.

Another industrial sector ripe for rapid growth is sustainable cooling. For manufacture of air conditioners, nearly Rs 5,000 crore of proposed investments are approved or being examined under the PLI scheme for white goods. The scheme hopes to stimulate Rs 81,000 crore of net incremental production by 2028-29 and create 44,000 direct jobs. However, SMEs in the heating, ventilation and air conditioning sector need dedicated support to adopt advanced manufacturing processes, build technical know-how, and develop a more robust component manufacturing supply chain. Moreover, district cooling has an investment potential of up to Rs 269,000 crore by 2038. AC service technicians could number 2 million by 2038, up from 200,000 today.

The rural economy needs modernised infrastructure and sustainable production methods. 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. Such installations have higher employment coefficients while reducing power losses and subsidy burden of utilities. Again, only 0.8% of the budget of ministry of agriculture and farmers’ welfare goes towards sustainable agriculture. Increasing farm incomes, productivity, and climate resilience of crops deserve more attention.

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. A successful model was the Gujarat Chief Minister’s Bus Funding Scheme, with viability gap funding linked to maximising asset use rather than bus purchase alone. GST on buses should be reduced to incentivise them against the 28% charged for private vehicles. Battery swapping is increasingly being adopted as a charging solution for the passenger three-wheeler segment. Lowering the GST to 5% (from 18%) could boost the transition towards electric public transport.

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. As per the World Meteorological Organization, tropical cyclones, floods and droughts induced an average annual loss of Rs 649,000 crore in India. 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.

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.

The author is CEO, Council on Energy, Environment and Water Twitter: @GhoshArunabha 

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