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The sinking of Joshimath or Jyotirmath raises a serious alarm on the sustainability of economic activities, particularly of tourism in various sensitive but highly revered parts of the country.

The town has now been declared as a landslide and subsidence-hit zone as well as not suitable for habitation. While it is located in a seismic zone, human activities have made it more prone to landslide and other natural disaster. The environmental experts blame the land subsidence on unplanned construction and hydel-power activities.

Since 2nd January 2023, close to 750 houses in Joshimath have witnessed cracks. Government has ordered dismantling of all buildings including houses of local residents in specific areas of the town. Locals are blaming the government for ignoring expert opinions for years regarding developmental activities around the region. A committee set up in 1976 recommended cautions regarding developmental activities in and around the town due to its vulnerable geological structure.

This highlights the conflict between sustainability and development. The town, which inhabits just about 17,000 people, hosts tourists numbering about 10 times each year as the town serves as the transit destination for tourists travelling to Badrinath, Auli, Hemkunt Sahib and other nearby tourist destinations.

Tourism, being the main economic activity for livelihood in the region, apart from basic agriculture, most of the development work is also geared to facilitate and promote tourism further. With this natural disaster, the tourism industry in the region is severely hit. This has also hit the livelihood of most of the residents in the town who are directly or indirectly linked to tourism.

But tourism is as much vulnerable to such an ecological crisis as it itself contributes to it. There are many other towns, particularly in the hilly Himalayan states of Uttarakhand and Himachal Pradesh, which are often heavily visited by tourists and they reach beyond their saturation levels several times during a year.

This somewhere highlights the need to develop sustainable tourism, keeping in mind the coexistence of all human activities with natural and cultural environment, which is often ignored.

Uttarakhand hosted a total of 38 million tourists in the pre-pandemic year of 2019 while Himachal Pradesh hosted over 17 million tourists. These translate to about 4 times the state’s population size for Uttarakhand and about two and a half times in the case of Himachal Pradesh.

Both saw a fall in the number of tourist arrivals equivalent to over 80 percent in 2020 during Covid 19 pandemic, which was practically true for the entire world. However, these states witnessed a rebound in the following year with 19.4 million tourist visits in Uttarakhand and 5.6 million in HP.

Notably, several popular tourist locations in HP, like Shimla, Manali, Narkanda, Dharamsala, Kalpa, and Dalhousie witnessed the highest-ever arrival of tourists in December 2022, reaching close to 100 percent occupancy rate for the accommodation sector.

This undoubtedly is a boom for tourism and allied industry. But it also raises a question that how much tourism activity can a region support? In these locations, the tourists were stranded for hours, parking places were chock-a-block, people had to walk down long distances, and administration had a terrible time. Uttarakhand, which hosts a number of religious tourists, also painted a similar picture for different periods of the year.

While tourism contributes significantly to the states’ economies in terms of income generation and also in creating jobs, it is high time that the attention is turned to the sustainability of tourism too, given the ecologically sensitive geographies of these two states as well as in other regions.

A report by National Council of Applied Economic Research (NCAER) shows that for Uttarakhand the direct and indirect contributions of tourism in Uttarakhand were 6.59 % to GDP and 26.87 % to its employment. The same for HP were 7.53 % to the state’s GDP and 14.42 % to its employment. These numbers are much higher than or comparable with the national averages of 5.24 % in GDP and 14.87 % in employment.

But nature and the local people pay a heavy price for this since tourism impacts physical and cultural environments adversely in most places, unless restricted by authorities. It is time that tourism policies are oriented toward sustainability.

Sustainable tourism is defined by the UN Environment Program and UN World Tourism Organization as “tourism that takes full account of its current and future economic, social and environmental impacts, addressing the needs of visitors, the industry, the environment and host communities.”

This is being recognized internationally as more than 300 tourism stakeholders signed up to the Glasgow Declaration on Climate in 2022, recognising the need for a globally consistent plan for climate action in tourism.

Some of the countries, which are actively working towards sustainable, eco-friendly tourism, and even discouraging the overcrowding of tourists in their specific cities are Maldives, Netherlands, Philippines, Cambodia, Peru, Greece etc.

The measures include waste management, creating eco-friendly products and using renewable energy in the case of Maldives; diverting tourists to less crowded destinations, limiting tourist shops, and launching “Stay Away” campaign in Amsterdam in Netherlands; complete closure of Boracay island in Philippines for rehabilitation; imposing a cap on number of tourist inflow and increasing the ticket price to enter a Hindu temple in Cambodia; and so on.

This calls for similar attempts with an immediate attention from the union as well as the state governments in India towards a sustainable tourism policy for the country. While addressing the tourism needs, the policy should consider the carrying capacity of the region. Measures should be prescribed to deter mass tourism to places that are vulnerable, through economic tools such as higher taxes and the similar ones. Else we will face multiple cases like what Joshimath and its people are facing today.

The author is Professor at National Council of Applied Economic Research. Views are personal.

The global environment seems to have turned less hostile as inflation rates have peaked in advanced economies and oil prices have stabilised at lower levels. So capital flows have started returning to India, the exchange rate is bouncing back and foreign reserves are being rebuilt.

Year 2022 turned out to be a rocky one for most economies. While many countries managed to put the worst of Covid-19 behind them, they entered another challenging space, characterised by unmanageably high rates of inflation, unruly monetary policy tightening by advanced economies and continued supply chain disruptions. The situation was compounded by the Russia-Ukraine war, which upended any remaining hopes of a holistic recovery in a post-Covid world.

India faced its own share of challenges in the form of reversal of capital flows coupled with sharp rise in oil prices and elevated domestic inflation. In the end, it rode through them by skilfully deploying a policy tool kit comprising tight monetary policy, exchange rate depreciation, use of forex reserves and specific fiscal actions. Overcoming these challenges, the Indian economy grew at 9.7% cumulatively in the first half of the fiscal year. And it seems well on its way to registering a growth rate of about 6.8-7% during the year.

The global environment seems to have turned less hostile as inflation rates have peaked in advanced economies and oil prices have stabilised at lower levels. So capital flows have started returning to India, the exchange rate is bouncing back and foreign reserves are being rebuilt.

When such recurring shocks occur, the most that policymakers can do is firefight. An appropriate time to devise policies to insulate the economy from them is when the situation is calmer — like now. This is just the right time to build resilience to capital account volatility and put in place policy frameworks to mitigate the impact of oil price shocks and tame vegetable price inflation.

Within the mix of the international capital that we attract, FDI is the most stable form of capital, and portfolio flows are the most volatile. To reduce capital account volatility, it will be advisable to change the mix of capital inflows towards more stable forms of capital, particularly FDI.

With the declining intensity of oil in GDP, the relevance of oil prices in the Indian economy has diminished, but has not disappeared. It will be useful to prepare an “oil price mitigation strategy”, comprising an oil price stabilisation fund, replenishment of strategic reserves, hedging against large price increases and locking in of oil supply at low prices.

Food inflation, especially vegetable price inflation, has been particularly volatile in India. Monetary policy is a blunt instrument for addressing it. Instead, better demand-supply management is needed to tame it. It will be a win-win for all: it will stabilise farmer incomes, liberate monetary policy from responding to food inflation and provide a useful political narrative.

Meanwhile, policymakers need to keep a watch on the evolving global economic outlook. Global growth is slated to slow down, as the effects of monetary policy tightening will set in. The IMF has lowered the growth forecast for 2023 — from 3.8% in January 2022 to 2.7 %in October 2022.

Global growth affects India in two ways. The first is through demand for India’s exports. With the elasticity of growth of Indian merchandise exports to global demand being close to 1, a slowdown in global demand has a direct bearing on Indian exports. Second, a pessimistic global investment sentiment has a proportional impact on domestic sentiment.

Thus, the latest projections suggest a lower growth rate of 6-6.5% and a lower inflation rate of 5-5.5% for India. IMF has projected the real growth rate at 6.1%, inflation at 5.1% and thus a nominal growth rate of 11.2%. The corresponding figures in the Survey of Professional Forecasters by RBI are 6%, 5.2% and 11.2%, respectively. RBI’s own projections for the first half of 2023 suggest an average annual growth rate of 6.5% and inflation at 5.2%.

These prognoses have implications for the forthcoming budget. The 2023 Budget should be prepared, assuming a modest level of nominal growth; and it should keep provision to support specific sectors that would likely be impacted by the repercussions of a global slowdown.

On the broader policy front, the budget should retain the focus on growth with macroeconomic stability and fiscal prudence, complemented by efforts to attract higher FDI and more globally competitive and integrated production capabilities. Overall, while we should hope for the best, we should be prepared to tackle another difficult year.

Gupta is Director-General, National Council of Applied Economic Research (NCAER); Ahmed is a Research Associate at NCAER

India needs to adopt a cautious and informed approach to launching a full-fledged digital currency as the prevalent infrastructure may limit its potential benefits.

Finance minister Nirmala Sitharaman announced a commitment to issue a digital rupee in her Budget speech delivered on February 1, 2022. Although in the subsequent months, the RBI provided only limited clarity on how the digital currency would be developed or rolled out, it still went ahead and launched the pilot of its digital currency.

The pilot was launched in wholesale space (e₹-W) on November 1, 2022, with use of the currency limited to the settlement of secondary market transactions in government securities. This was followed a month later by the launch of the pilot in the retail segment (e₹-R), within a closed user group of customers and merchants.

Sundry other details have been disclosed, such as that the digital currency will be issued in the same denominations as the paper currency and is being distributed through participating banks.

Users can transact through a digital wallet, and transactions can be both person-to-person and person-to-merchant. The digital currency will not earn interest, but it can be seamlessly converted into other forms of money, including bank deposits.

The advantages

India is relatively well-positioned to launch a digital currency: it has put in place an advanced digital payment system that works at scale; a majority of its population owns a cell phone, with a significant number among them owning a smart phone; access to the banking system is widespread, and a growing share of consumers are tech-savvy and proficient in conducting digital transactions.

Yet, the prevalent infrastructure also limits the potential benefits that can be derived from a digital currency.

The main argument in favour of a digital currency is that it is a safer, cheaper, and more convenient mode of payment than cash, cheques, debit cards and credit cards. A second argument is that it will promote wider financial inclusion. Both arguments are in fact dubious.

With the prevalence of a relatively efficient low-cost electronic payments infrastructure, India will reap only limited benefits in terms of convenience and cost. The country has already made unprecedented progress in achieving near- universal financial inclusion, limiting those benefits as well.

A more pertinent rationale in favour of digital currency is that its issuance will allow the central bank and the government to retain control of the payments system in the face of stablecoins and other private payment rails. The concern is that, if payments migrate away from UPI and toward a private-label stablecoin, the central bank will be left with limited insight into the operation of the payments system and limited ability to ensure its integrity. This will especially be the case if a single large private provider acquires dominating market power over payments and related services.

While a valid concern, a more straightforward solution to this problem would be simply to strengthen the regulation of private providers, including stablecoin issuers.

The challenges

Digital currencies may supposedly facilitate cross-border transactions, thereby simplifying things for Indian exporters and importers. But technical obstacles to interoperability and governance obstacles will limit achieving this outcome. Governance problems, in particular, may be formidable. The participating central banks would have to agree on an architecture for the corridor in which one central bank’s digital currency is exchanged for another. They would have to jointly govern its operation. They would have to license and regulate dealers holding inventories of currencies, and ensure that the exchange rate inside the corridor does not diverge significantly from that outside. They would have to agree on who would provide emergency liquidity, against what collateral, in the event of a major order imbalance. In a world of 180 currencies, arrangements of this type would require scores of bilateral agreements.

With so many central banks and governments around the world contemplating the issuance of a digital currency, it was inevitable that India would contemplate the possible development of its own digital currency, as deputy governor, RBI T Rabi Shankar mentioned in an event in April 2022, adding that “it was not a question of whether, but how to do it well.”

But India stills needs to adopt a cautious and informed approach to launching a full-fledged digital currency. It would be advisable to constitute expert groups to analyse the question and place their analyses and recommendations in the public domain. Those expert groups will need to assess the readiness of banks, other financial intermediaries, and the public to use digital currency, its impact on the conduct of monetary policy and its transmission, and implications for capital flows, the exchange rate, and the composition and management of foreign reserves.

In terms of equity, officials and outside experts need to pay close attention to the costs and benefits of a digital currency for population groups with different levels of literacy and differential access to digital hardware and Internet connectivity.

A popular mantra in the digital sphere is “move fast and break things.” In the case of an Indian digital currency, we would instead advise “slow but steady wins the race.”