Editorial 1: At G20, agreeing to agree
Recent Context:
- Recently, Indian is hoisting the G20 Summit and addressing the climate change is one of the major agendas of global leader during the summit.
- As, Indian proposals on LiFE, adopting a lifestyle that protects the environment, and on sharing its digital public infrastructure, should be widely acceptable.
Improving financings facility is necessary for wholistic development
- Improving financing availability is necessary for progress on most aspects.
- While emerging and developing economies (EMDEs) tend to emphasise development financing for reaching SDG goals, advanced economies (AEs) emphasise the creation of global public goods (GPGs), in particular the mitigation of climate change risk.
- But convergence is possible since there is large overlap between SDGs and GPGs. The poorest suffer the most from natural disasters.
- Climate finance should also be added for going on projects such as
- Flood resistant drainage systems in citie
- smart green infrastructure and
- better air quality improve health and development goals
- reduce distress migration to AEs.
Channelizing the private finance for climate:
- Governments may feel constrained but estimates of private finance run into hundreds of trillions of dollars. If even a fraction of this would come for climate finance, the required $4 trillion becomes feasible.
- But private finance finds EMDEs risky. Only 20 per cent of global climate finance goes to EMDEs and is 4-8 times more expensive.
- Therefore, public funds can play an essential role in de-risking lending to EMDEs and reducing its cost, attracting more private finance
- This can be done through the MDB system and local development finance institutions; through blended investment programmes that combine public, philanthropic, institutional and private investors with optimal allocation of risk to each; through financial innovations such as hybrid and first loss funds.
G20 need to recognise the role of non-banks in financial sector
- The G20 was convened after the Global financial crisis (GFC) and financial stability was the major item on its agenda. By 2016 the view was that enough had been done.
- But the reforms were lop-sided, heavily focused on large AE banks and ignored the resulting arbitrage to non-banks that became the source of flows to emerging market(EMs).
- Although this impact on EMs was ignored, financial stability is back on the G20 agenda since regulatory imbalances and financial fragilities are affecting AEs.
The following steps can be taken by G20 for finance availability
- If the G20 pushes for a principle-based response that addresses weaknesses such as arbitrage and excess volatility, it would reduce spillovers to EMs, their country risk and borrowing costs.
- AEs under-use prudential regulation of non-banks although their academics have long pointed out that these instruments are required for financial stability.
- Their regulators need to be strengthened against political lobbies that undermine regulation.
- The current episode of monetary policy tightening is showing that other instruments must be used to moderate financial risks and spillovers and allow monetary policy to focus on inflation.
- G20 can ask the Financial Stability Board to come out with minimal regulatory standards affecting cross-border flows.
- Regulation needs to be right-sized to become light, universal and market friendly.
Way forward:
- Better global safety nets, such as automatic access to multilateral and bilateral swaps, are required then for EMDEs to safely allow entry to more foreign inflows.
- There is need for governance reform in World Bank,IMF and WTO so that Countries may commit to increase funding if they can choose where to put it in a contestable system that attracts funds conditional on delivery.
- Along with databases with the IMF and the World Bank should be made available for the private sector they would be better able to design low-cost portfolio hedging and insurance strategies that can compensate for missing long term hedging markets and reduce the cost of EMDE borrowing
Conclusion
- The effects of climate change are becoming more and more obvious. Unprecedented heat waves, fires and floods are affecting so many countries regardless of location.
- There is intense pressure from activists across countries. G20 cannot afford not to act. The war on climate change cannot be delayed because of the Ukraine war.
- The time is ripe for creating public goods that benefit all countries, and to which each contributes.
Editorial 2: The Monsoon worries
Recent Context:
- Recently, after a wet July that more than made up for its delayed onset in June, the southwest monsoon has entered an extended dry phase.
- The current month has so far seen the country receive nearly 31 per cent below- rainfall. Much of this deficient/sub-par rain has been concentrated in eastern, southern and central India.
The impact of rain deficit monsoon
- As more than 40 per cent of the sown area depends on monsoon rain , in the case of rain deficit , it lead to condition of drought and failure of crops
- Overall sowing of kharif crops, barring pulses, has been satisfactory and higher than last year, because of monsoon’s good run from the last week of June through July
- The current rain deficit in august month has chances to impact wheat, mustard, onion, potato and other crops to be planted in the upcoming rabi season.
- The Central Water Commission’s latest data on water in 146 major reservoirs show these at 78.6 per cent of last year’s and 93.9 per cent of the 10-year-average levels for this time.
El-nino and its spill over effect on crops and vegetables
- With El Niño’s effects beginning to show, there could be pressure on both irrigation reservoirs and groundwater resources that sustain the cultivation of winter-spring crops.
- That may, in turn, make the current food inflation not just transitory and largely limited to vegetables, but persistent and broad-based.
The steps taken by government to control inflation (supply side measures)
- In the above case, supply-side actions are the only way forward.
- As a result, government has taken course of actions for e.g. Curbing/banning wheat, non-basmati white rice, sugar and onion exports or imposing stocking limits on major pulses and one can expect more in the coming days.
- However, it can cause long-term damage to India’s image as a reliable global supplier, while undermining the government’s own past reformist record
Conclusion
- Therefore, Supply-side management should rely primarily on liberalising imports.
- The government should clearly convey that the trade curbs it has imposed will be lifted at the earliest as these are short term measures to control domestic inflation.