Sound policy should ensure that societal costs are adequately captured in economic costs, and societal benefits accrue congruently with economic benefits. The divergence of stakeholder return maximisation and societal payoffs must be eliminated by customised fiscal architecture
By Rahul Bhasin
In order to drive productivity and growth a country must have efficient and unhindered factor mobility (land, labour and capital), protected and clear property rights, low transaction costs and taxes, and free product markets. This is, however, not sufficient to achieve sustainable growth. Lack of education, little awareness of consequences, imitating policies of countries with far lower population density, and a short-term orientation to utility maximisation do not capture the economic costs to society.
Proselytising ESG investing is a great start but insufficient. Sound policy should ensure that societal costs are adequately captured in economic costs, and societal benefits accrue congruently with economic benefits. The divergence of stakeholder return maximisation and societal payoffs must be eliminated by customised fiscal architecture.
Encourage renewable energy: Though climate change models are alarmist and simplistic in their future projections, what is abundantly clear is that our planet is warming faster than desirable. In fact, 36 billion tonnes of carbon dioxide is still emitted every year, and 86% of the world’s energy still comes from fossil fuels, largely unchanged in the last decade. Shrinkage in nuclear and hydel sources has eroded the gains made from solar and wind. Continuous incentivising of renewables is imperative, as is promotion of relatively energy-efficient products through concessionary taxes (GST). Electric vehicles, hybrids, CNG vehicles and energy-efficient durable goods should all be given preferential treatment.
Air pollution: According to World Health Organisation, in 2018 India was home to 14 out of the 15 most polluted cities in the world; while in 2019, India had 21 out of 30. India is the fifth most polluted country in the world, going by Air Quality Index, and the third largest producer of green-house gases. In 2019, 1.6 million deaths were attributed to poor air quality. Microscopic particulate matter (PM2.5) and common pollutants like sulphates, nitrates and black carbon are particularly harmful as they reduce lung capacity and damage the cardiovascular system. Indians are exposed to roughly 83.2 micrograms/cubic metres of PM2.5 pollutants versus the OECD average of just 8 micrograms/cubic metres.
An easy way to address this is to prioritise extensive planting of bamboo palm, snake plant, areca palm, chrysanthemum, etc, on traffic islands which will severely reduce the deleterious effects of common pollutants like benzene, formaldehyde, trichloroethylene, xylene and ammonia from the atmosphere. It is also advisable to include these plants in the 1,600 km of green corridor planned between Delhi and Gujarat. Giving GST exemption for combine harvesters fitted with equipment that simultaneously cut the stubble within an inch from the ground and evenly spread the stubble in the field will also literally nip the crop burning problem in the bud.
Urban planning: Planned, modularised and vertically-dense urban agglomeration integrated with a specific industry cluster can lead to a compact region of sustainable economic activity. These urban centres should have offices, green areas, residences and solar-panel clad factories (including transport hubs/utilities/recycling centres) mapped in concentric circles around the core. The core area should offer social services like the judiciary, police, hospitals, retail, educational centres, entertainment and recreational facilities. There should be fruit tree-lined shaded walkways, electric cycle paths and a dense network of electric buses which minimise the need for personalised transport and promote walking.
Plastics: Plastics in automobiles, furniture, garments, medical equipment, toys, durables, carry bags, straws and many others have proved to be indispensable. However, they are also suffocating our landfills, clogging our drains and waterways, creating gigantic oceanic garbage swirls, ruining our beaches and entering food chains. In fact, 90% of the plastic produced has never been recycled.
To stop 350 million tonnes of plastic manufactured annually from turning our planet into one large plastic dump-yard, imposing the highest rate of GST on sellers of primary plastics, while providing the extra GST collected as a subsidy to those who recycle and sell secondary plastics, is recommended. Lending to recyclers may be included in the priority sector classification. Also, restricting different plastics to specific colours would facilitate sorting and recycling.
E-waste: Electronics pose similar challenges—55% of Indians believe that the way to stay au courant with technology is by regularly replacing one’s phones and laptops, and 40% of smartphone users like to upgrade their phones annually, resulting in significant electronic waste—comprising of discarded computers, phones, television, printers, cameras, batteries, etc. E-waste landfills leach toxic lead, mercury, zinc and nickel compounds into the soil and water bodies, and release noxious and acidic fumes when burnt.
Without redressal, this will snowball into a health crisis. Given that merely 20% of the electronics in India is recycled, our successful push for Digital India may end up creating toxic e-wastelands. To avoid this, repair, refurbishment and recycling must be incentivised. Given that e-waste recovery yields only minuscule amounts of high-grade metal content—such as gold, silver, copper, palladium, neodymium, etc—the process is unlikely to prove viable without the same level of pro-sustainability support measures being extended to plastic recyclers.
Medical waste: The discipline and infrastructure is grossly inadequate to manage medical waste at the current scale in India. Regulatory structures around product lifecycle liability need to be put in place to ensure that all participants in the value chain shoulder accountability towards sterile handling, disposal and recycling.
Sanitary napkins/diapers/wet wipes pose a related challenge by being largely non-biodegradable. To address this, lifecycle product liability should be extended to primary producers, while taxing the sellers of non-biodegradable products at the highest GST rates, and subsidising the recyclers.
Chemicals: Environmental impact of the 48,000-odd commercially used chemicals is scant. Third-party environment assessment for the top 20% chemicals by usage not tested in OECD countries should be made the norm. Products like triclosan found in anti-bacterial toothpastes, soaps, deodorants, cosmetics, furniture, etc, damage aquatic plants, marine life and earthworms, besides leading to a proliferation of drug-resistant bacteria. Similarly, BPAs mimic hormones and affect endocrine systems of mammals and aquatic life causing ecological damage as they persist in fresh and salt water reservoirs.
Phthalates damage the reproductive system and neuro-developmental health, promoting autoimmune diseases and behavioural distortions across multiple animals, including humans.
Marketers should be given an opportunity to make a case as to why the same shouldn’t be banned. For new chemicals, studies should be instituted for tracking the degrading of chemical to one generally tracked as safe. In addition, concessionary GST should be levied on products which facilitate the crowding out of unfavourable microbial biomass by crowding in favourable ones as opposed to the existing cleaning chemicals and pesticides which are formulated to poison and eradicate the biomass.
Nutrition and food chain: Nutrition research increasingly suggests that a diversified whole-plant diet is optimum for health. If humans adopted a healthier plant-based diet, agricultural land use would reduce from 4 to 1 billion hectares, allowing rapid reforestation and renewal of water bodies. Animal agriculture also creates artificially dense monoculture biomass concentrations and requires the liberal use of antibiotics to stave off diseases and accelerate weight gain. Eventually, these antibiotics leach into the environment, traverse up the food chain and end up accelerating the natural selection of antibiotic resistant bacteria. Full disclosure to consumers about the usage of antibiotics and hormones, and their adverse health effects, as well as the larger impact on global warming and deforestation should be made mandatory.
Soil: Convenience increases adoption of packaged foods, accentuating plastic pollution and monoculture. Monoculture is known to degrade and deplete soil quickly, while increasing disease susceptibility which, in turn, necessitates higher toxic pesticide usage. In this context, periodically shuffle crops for which MSP will incentivise crop rotation and promote sustainable agriculture. Wherever the water table is declining, electricity used to pump groundwater should be made more expensive and any government procurement of water-intensive produce should be discontinued.
Water: The current MSP framework incentivises production of water-intensive wheat and rice. The export of these crops effectively results in India exporting its scarce water resources, a luxury it can little afford. MSP etc should be given for crops consuming the lowest amount of water. Again, concessionary GST should be applied for products like drip irrigation and spray taps which promote efficient water use. Technologies like omniprocessors which help recycle sewage water and integration of compulsory water harvesting into building codes should be incorporated as standard.
In conclusion, policy must drive economic prices to incorporate societal costs for proper resource allocation to achieve sustainable growth and development of India that its citizens rightfully deserve.
The author is managing partner, Baring Private Equity Partners (India) Pvt Ltd. Views are personal