Editorial 1. The Economic Survey that wasn’t
Context:
In recent decades, many developed economies, including America, Britain and Germany, are reversing course from ‘Washington Consensus’ to economic nationalism and increasing the role of government in their economy through industrial policy, ostensibly as a response to China’s economic might and a weaponisation of trade.
A disappointment
In this context, what should India’s economic strategy be? Should India too revert to increased state control of the economy through an active industrial policy? In which case, should India exercise greater control over the exchange rate of the rupee? And impose trade restrictions?
The Russia-Ukraine conflict has had enormous geo-economic consequences by recreating a stark bi-polar world order of a China/Russia bloc vis-à-vis western bloc of nations. How will India’s economy be impacted by this, especially as we seem to have harked back to bi-lateral currency arrangements with Russia for trade, abandoning the dollar? These are all questions that call for serious discussion among policy thinkers and makers.
The Economic Survey presented by the Chief Economic Adviser a day before the Union Budget has typically been the medium to raise issues for public discussion and ponder over such strategic economic matters. Surveys of the previous years had put out various ideas and issues such as universal basic income, economic divergence among States, steps to improve property tax revenues using satellite technology, new ways to calculate inflation using the Indian thali, estimating internal migration of people and so on. At least they served as an intellectual public good by triggering a debate and forcing policy influencers to think about these issues.
Disappointingly, the Economic Survey of 2022-23 did not provoke any such deliberation or discussion. It is a rather dry compilation of data to substantiate the Narendra Modi government’s economic performance.
Key themes from the Economic Survey 2022-23
- The broad story is that the Indian economy has recovered from the novel coronavirus pandemic but is still at the mercy of global geo-political developments; and so the Economic Survey has been honestly cautious about future growth and inflation.
- It has painted a rosy picture of both Goods and Services Tax (GST) (apparently because it has improved tax buoyancy) and of the corporate tax cuts of 2019 (because it seemingly helped clean up bloated corporate balance sheets).
- The chapter on the social sector has delved deeper than previous surveys have done into issues of employment, rural wages, demand under the Mahatma Gandhi National Rural Employment Guarantee Act and other important human capital topics supplemented with vast amounts of data. But an analytical discussion on the employment intensity of contemporary economic growth models and ideas to boost job creation is missing.
A mirror of the government’s line
The Survey rightly exults over the increase in government capital expenditure from 12% of total expenditure in 2014 to 19% now. With much global uncertainty, tepid corporate investment and precarious asset markets, the emphasis on public capital expenditure to boost the economy is prudent and wise.
On private sector investment, it waxes eloquent about manufacturing and Production Linked Incentive (PLI) schemes with claims of attracting ₹3 lakh crore in capital investment and generating six million new jobs in the next five years.
For all the ‘Make in India’ hype, manufacturing gross value added (GVA) grew only at 4% (real) even before the pandemic hit, which it blames on corporate ‘indigestion’ from too much debt accumulated during the previous regime.
Yet, it is neither unreasonable nor unfair to have expected a little more intellectual acuity into some of the pressing economic issues of trade, industrial policy, capital account and inequity that the whole world is ruminating over now.
Conclusion:
The Economic Survey is really the only medium in the country for a rigorous, thoughtful and nuanced discussion of new economic ideas. Perhaps it was a deliberate and intentional move to stick to data and facts to provide a report card of the government’s economic performance, and not a doctoral thesis on the economic road map to prompt discussion in the public sphere, like the previous surveys. Regardless, the Economic Survey 2022-23 could have examined issues in depth and provided a roadmap for India’s economic recovery and growth instead of sounding like a political manifesto.
Editorial 2. Solar energy is not the best option for India
Context:
The Hindu’s editorial, Energy conundrum (December 15, 2022), expressing caution about the country’s bubbling enthusiasm in the climate change agenda by going the whole hog on solar energy is timely but spartan, and needs amplification.
Why solar is not the best option for India:
Apart from the external pressure that is pushing India more and more into the so-called carbon limiting renewable energy path, the Prime Minister’s own enthusiasm and support and a simple understanding that solar energy is a free gift from the sun have made identifying what is good for the country difficult.
Shorn of misperceptions and ill-conceived pressures, we can conclude that solar energy is not the best option for India and that we are better off in just relying on large hydro and coal. Now, what are the misconceptions?
One argument put forth in favour of solar power is that the levelised cost of power is coming down and is close to that of coal. There are two flaws here.
The first is the wrong comparison of solar power with coal electricity at the load centre, instead of at the pithed, which costs about half that of the load centre. Moving electricity through high voltage wires is cheaper than moving coal — and that is the reason for starting the National Thermal Power Corporation Limited (now NTPC Limited).
The second flaw is not comparing like with like. Solar electricity is intermittent and coal electricity is continuous. So, you have to add the cost of storage by battery. Protagonists of solar power will want us to add the environmental cost of carbon to coal — for its greenhouse gas emissions — but now the carbon market has crashed and is in that state for years; one does not have any objection to add its market price.
The shadow price or true economic value of coal is even lower than its market price, since the cost of labour in mining carries a shadow price of zero (they being unskilled workers who would be unemployed otherwise).
(Indian government committed the above 5 targets at the UNFCCC COP 26, held in Glasgow in 2021)
Coal, solar and some calculations
Some enterprising researchers (E. Somanathan of the ISI et al.) have quantified the cost of carbon emission in terms of deaths due to particle (PM2.5) pollution. Implicitly, they agree not to consider the greenhouse gases cost of coal, because it is a global issue, but want to include the particulate emission cost of carbon, which is a local issue.
Here, the number of deaths is multiplied by a figure for the value of statistical life, calculated by asking potential victims “how much would you like to pay to avoid an increase in probability by 10% of your death due to pollution?”; they have arrived at a figure of ₹1 crore. The comparable figure in the United States is ₹1.8 crore.
To start with, who gets such high compensation anyway? The victims of the Bhopal gas tragedy got a pittance compared to this figure. Taking this value of statistical life, they have adduced ₹1.64 per kwh of electricity to the carbon cost alone. Taken along with coal to load centre at a price of $44 per tonne and capital costs of coal plants at 8 cents to 12 cents per kwh for new power plants with low capacity utilisation factor (which is never the case with coal, as they are operated nearer the base load with high plant load factors), coal-based electricity is categorically made unviable.
Thus, solar energy is made financially viable by misguiding the people by leaving out storage battery cost; handicapping it with subsidies and concessions that are front loaded by the government, and forcing it on the industry and hapless discoms through state policy.
That this is thrust down the throats of client discoms and industry is clear from the slow progress so far, the programme missing its target by 40%-50%, and discoms reneging on their 25-year power purchase agreements, on seeing lower and lower prices in later bids for others.
In support of hydropower
There seems to be competition, egged on by the West, between India and China, as to who does more renewable energy. We can do more renewable energy in large hydro, which is both low carbon and least cost.
India has utilised only about 15% of its hydro potential whereas the U.S. and Europe have utilised 90% and 98% of their potential, respectively. The extent of utilisation of hydro potential seems to be an index of civilisational development and evolution.
While China relies on renewable energy, it banks more on coal and hydro. The Three Gorges project on the Yangtze is the world’s biggest hydro electric project. In India, powerful environmentalists stop large hydro projects in their tracks.
One major reason for the sickness in the power sector is due to the focus on renewable energy in a big way. It is a pity that the NTPC which was a model thermal power producer meant to produce coal-based electricity from pithead, is doing unrelated diversification into renewables, which is not its core competence. The only place where solar power is viable in India is its use in water heating, and even that is because of increasing block tariffs.
Conclusion:
In light of the above, we must go cautiously towards solar energy, which can be only one of the solutions for India’s shift towards low carbon emission growth path. In the foreseeable future, India will continue to rely on coal while making a transition towards all forms of renewable energy.