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Challenges abound in reducing dependence on coal and oil but the greater use of gas in our energy mix could ease the way.

Ironically the coal crisis has forced the Indian government to ramp up domestic production and imports of coal the dirtiest fossil fuel while the world focuses on net-zero carbon emissions by 2050. This irony reflects the reality that power generation and hence our economy is heavily dependent on coal followed by petroleum.

Power generation is the main source of carbon emissions. Estimates based on data from the International Renewable Energy Agency (IRENA) indicate that non-renewable fossil fuels account for 70% of the current (2020) generation capacity of 4523038 MW followed by hydro/marine power at 11% solar and wind power at 6% each nuclear power at 5% and bio- energy at 2% (bit.ly/3G2mWbh).

The big question is how do we move from such heavy dependence on fossil fuels to a net-zero carbon emission situation where the share of fossil fuels is virtually eliminated and how long will it take us to get there?

A recent Council for Energy Environment and Water (CEEW) report has highlighted many formidable challenges to India’s transformation from a fossil-fuel-dependent economy to one based on renewable energy. First there is the technological managerial and regulatory capacity to manage this revolutionary transformation. Then there is the major constraint of finance. The transformation will involve massive high-cost high-risk long-gestation investments. There is little fiscal space for large public investment in renewables while private investment in renewables at scale is just starting.

The willingness of developed countries especially the US to make available adequate low- cost finance and required technologies remains uncertain. India has negotiated hard to tie up access to such financing and technologies. The results are still awaited.

Another major constraint is access to land. The CEEW estimates that creating renewable power generation capacity for a net-zero economy could require between 4% to 6% of India’s land mass. Managing the political economy of the transformation is yet another challenge. Tapering off of fossil-fuel- based power generation and closure of coal mines oil wells and thermal or oil-based power plants will be resisted by the owners of these assets as well as thousands of workers employed at these establishments. If the cost of power based on renewables turns out to be higher than fossil-fuel-based power even consumers will resist the transformation. Breakthrough technologies in carbon capture and storage (CCS) and hydrogen-based power could radically reduce the cost of power based on renewables. A few Indian conglomerates are also investing in renewable power and these technologies. However the commercialization of these technologies at scale is still a work-in-progress.

The CEEW report has also explored the implications of a number of alternative net-zero scenarios. Whichever scenario plays out it is quite clear that emissions will be rising for the next 30 to 50 years. A two-pronged strategy of accelerating renewable power generation and radically changing the composition of the fossil-fuel basket in favour of gas could significantly reduce that period of transition.

Carbon dioxide and other emissions from gas are only a small fraction of emissions from oil and especially coal. Global gas supplies have grown dramatically following the shale revolution driven by hydraulic fracturing and horizontal drilling technologies. International Energy Agency projections indicate that gas will overtake coal as the second largest energy source after oil within this decade. Despite these developments the share of gas in primary energy supply and power generation have been stuck at only 5-6% in India. The country is ranked 29th in global production at a little over 1 trillion MMcf per year and 14th in global consumption at around 2 trillion MMcf per year. Why has the shale gas revolution passed India by?

A recent collection of papers edited by Vikram Mehta The Next Stop (Harper Collins India 2021) addresses this question and other aspects of the gas market in India and abroad. Though India may have gas reserves of over 100 MMcf only about 40% of this is in accessible terrain and would be depleted within a couple of decades. Given the high risks and costs of gas exploration and extraction expected returns are low. These are further compromised by a completely distorted administrative pricing and taxation system combined with a regulatory nightmare of multiple overlapping systems. Hence neither public investment by GAIL nor private investment has been forthcoming.

However other than development of our neglected domestic gas distribution system energy investments should be entirely directed towards development of renewables. India’s future gas requirements should be largely met through imports. This would largely be foreign exchange costs would be neutral since gas imports would mostly replace imports of oil and coal. With planned pipelines from Central Asia having floundered thanks to Pakistan our gas imports are still mostly from West Asia especially Qatar. But the global market for gas is being radically transformed.

Australia may soon displace Qatar as the largest liquified natural gas (LNG) exporter and may itself be replaced by the US in the future thanks to the shale revolution. US suppliers are also undermining the rigid traditional long-term gas contracts with flexible market-based contracts. This diversification of supply sources and the emergence of active spot and futures markets is transforming the global gas market. Two recent technological developments enabling liquefaction and re-gasification of LNG on board ships will further disrupt the market and reduce costs. India therefore has a great opportunity to exploit these developments and strike excellent gas import deals.

The author would like to thank Rohit Sanyal Nag for his help. These are the author’s personal views.

Sudipto Mundle is a distinguished fellow at the National Council of Applied Economic Research

In the latest Global Innovation India India’s rank is 46. The good news is that she has climbed 2 spots over the previous year’s standing and the performance is labelled as above expectations against the yardstick of the level of development. The bad news is that Asian countries like Malaysia Vietnam Thailand or the newly formed East European countries like Bulgaria Estonia Slovenia and Hungary scored above India. Not surprisingly it is often mentioned that Indian entrepreneurs lack innovation culture and they have not been able to produce copious innovation in technology vis-à-vis their counterparts in other countries. Indian entrepreneurs are well-known for their culture of strict adherence to and alignment with accepted standards and conventional practices. However one often hears that Indian firms are less inclined to exercising their minds with unconventional out-of-the-box ideas to try novel experiments. At a micro level nevertheless Indian entrepreneurs function effectively in implementing quick fixes commonly called “jugaad” which serve as low-cost innovative workarounds or solutions to problems.

Independently motivated inventors and entrepreneurs sometimes make major inventions or breakthrough innovations. By contrast organizations are known to make innovations incrementally by adding features and functionalities to a basic entity. Each individual step in this process is crucial in itself and together they have a cumulative force. If the individuals participating in such innovative ventures possess sufficient educational training domain knowledge and work experience then the contemplated innovations may have a fairly predictable rate of success. To this end large business organizations such as Procter & Gamble Microsoft Intel Lucent Google Boeing and a number of others maintain distributed R&D divisions where engineers scientists mathematicians statisticians economists and software developers work together in globally dispersed teams to give birth to innovative products and services.

An important question arises in this regard as to whether the current system of education in the country is responsible for the dearth of technological innovation in the Indian industry. It is widely believed that higher education is a sine qua non for the advanced knowledge required to make major technological breakthroughs or to come up with innovative solutions to important technological problems. The engineering and technological education offered in most colleges and universities in India is only adequate to meet the needs of incremental innovations that are commonly carried out in product and service development projects. Moreover many Indian firms in the IT sector with their low-cost technical workforce work on outsourced contracts with foreign firms that dictate the terms and conditions of innovation in their products or services for their domestic or the international market. Unfortunately there are only a limited number of Indian firms that undertake large-scale R&D work for the development of novel products and services involving collaboration among experts in multiple disciplines. This is indeed one of the primary reasons why there has been less success in the domain of incremental innovation in India.

In the area of breakthrough innovation India has performed rather poorly. Curriculum-based education in engineering and technological fields offered in most Indian colleges and universities lacks a sound footing in innovation. Students who acquire a large corpus of formal knowledge are trained to think in rather conventional ways which impede unorthodox approaches that stem from intrinsic creative urges of individuals. From a theoretical angle the formal education received in Indian colleges and universities is by and large on a par with that offered in many advanced Western countries. But many of these institutes’ labs are not well equipped. Moreover the apprentice system that is common in European countries (Germany for example) is missing in the Indian educational system. Thus movement from bookish educational course work to the practical world of production takes place only when students join the job market. As a result students are not trained during the undergraduate for out-of-the-box thinking based on actual work experience. In sum there is a critical need for radical changes to instill creative thinking into the minds of the Indian students.

Most of the Indian Technical Institutes (ITIs) function with outdated instruments and stale course work. The knowledge gained from attending those institutes are of limited use in the modern world. While the government is spending a considerable sum of money in skilling people by these ITIs the proper skilling is only possible if their course work and instruments are upgraded. This would need heavy investments. The question is who will foot the bill? Currently the economy is down and the private as well as the government are short of funds for training the workforce.

In India fundamental research which is a key factor for breakthrough innovation is funded primarily by the state. It follows a much hierarchical top-down approach that does not facilitate the kind of free thinking that is absolutely essential for making innovations. In addition it requires rigorous training during higher studies that is largely missing from the Indian educational system.

Professor Sanjib Pohit National Council of Applied Economic Research (NCAER) Professor Jaideep Ghosh Shiv Nadar University (SNU)

The authors are Professors at National Council of Applied Economic Research and Shiv Nadir University respectively. Views are personal.

Overall the best way to keep prices competitive and inflation low in any economy is by ensuring efficient production structures resulting in low cost of production continuous innovation leveraging of scale economies better integration within domestic and with international markets and implementation of sustainable fiscal and monetary policies.

Inflation is making a comeback globally. A number of advanced countries are experiencing inflation rates that are higher than corresponding rates during the last several decades. As a result the monetary policy easing cycle seems to be mostly over. Last week the Reserve Bank of India (RBI) kept key interest rates unchanged for the eighth time in a row. Most central banks in emerging markets have paused lowering of their policy rates and some have started raising them. For example in the last couple of months Brazil Chile Mexico and Peru have raised their policy rates.

An important policy-relevant question in such a situation is whether inflation has become too high or too entrenched in India to warrant a change of course of monetary policy. Some commentators have highlighted the persistently high inflation rate and called for caution and vigilance in setting future monetary policy.

However the large swings in data due to varying intensity of Covid- 19 over time make it more difficult to interpret inflation numbers than is the case in normal times. To gain better understanding I have calculated the average consumer price index (CPI) inflation core inflation and food inflation during the 18 months following the onset of the Covid pandemic (March 2020-August 2021). I then compare these average rates with those prevailing prior to Covid and ask whether there are specific pockets of high inflation and whether the Indian inflation correlates with global counterparts.

This analysis yields three conclusions. First inflation in India has averaged 6% in the last 18 months. Seen this way it falls within the inflation target band of 2-6% (RBI’s Monetary Policy Committee or MPC notched it down to 5.3% last week). Of the headline inflation numbers the core inflation which excludes volatile food and fuel prices has averaged less than 6% a year. Conversely food inflation has been a tad higher.

Second and more surprisingly the average rate of inflation during 18- month Covid period has been similar to that during the two years preceding it. As such there is no structural break in inflation. The pre- and post-Covid inflation numbers are similar not just for headline or core inflation but also for most of the components of the inflation basket. The Covid period represents continuity rather than discontinuity.

Inflationary Decoupling

Third till date data do not give enough basis to conclude that higher inflation has become entrenched. Household inflation expectations in India remain notoriously sticky and decoupled from actual inflation rendering them an unreliable signal of future inflation. At the same time professional forecasters continue to exhibit expectation of moderate inflation.

So can India afford to be complacent? Given that disruptions in global supply chains labour scarcity-induced wage increases and generous stimulus packages have led to rising rates of inflation in some countries could India too become a victim of similar inflation in the forthcoming months? Could developed country inflation have a spillover effect on inflation in India?

To answer this question I conduct a simple exercise to assess how well inflation in India correlates with global inflation. The exercise reveals that during the last 18 months of Covid-19 inflation in this country does not correlate significantly with global inflation inflation in the US or that in emerging market economies. The answer remains unchanged if we focus on the pre-Covid period.

These findings mean the current inflation in India remains range-bound is not entrenched and is unlikely to be impacted significantly by higher inflation elsewhere. Consequently India need not change its current stance on monetary policy.

Another implication is that the flexibility provided by the inflation-targeting framework has been on full display both during Covid as well as during the economic slowdown in the pre-pandemic years. The framework has acquired sufficient credibility that inflation as well as inflationary expectations have remained anchored allowing monetary policy to respond to growth concerns by remaining appropriately accommodative. 

The assessment presented here may change in the coming months especially if the global supply chain issues start impacting India directly. The impending tapering of easy monetary policy in the US also has the potential to elevate inflation through a depreciation of the rupee.

Efficient and Economic

A typical response to the unwinding of the US Fed’s ultra-loose monetary policy for emerging markets such as India would be a matching increase in the policy rates. Should such an unwinding come to pass it will serve India well to keep its ammunition dry for now and use it when such a time comes.

Overall the best way to keep prices competitive and inflation low in any economy is by ensuring efficient production structures resulting in low cost of production continuous innovation leveraging of scale economies better integration within domestic and with international markets and implementation of sustainable fiscal and monetary policies. Given India’s current income levels and its growth aspirations in a macro sustainable way all of these are worthy avenues to pursue via continued structural reforms.

(The writer is the Director General at the National Council of Applied Economic Research NCAER. The views expressed are personal.)

Especially since the COVID-19 pandemic women have exhibited higher levels of depression and anxiety than men across nations and social classes

On the occasion of the World Mental Health Day on October 10 it’s time to put under the spotlight issues pertaining to gender and women’s mental welfare. With the theme this year being “Mental Health in an Unequal World” research shows that in the context of the influence of COVID-19 on people’s mental wellbeing women have exhibited higher levels of depression and anxiety than men across nations and social classes. Paradoxically though the fatality rate among COVID patients has reportedly been twice as high for men as that for women the latter have faced a more profound mental and physical impact of the pandemic both as frontline workers and at home. Apart from the patients themselves this impact has also been witnessed by victims of increased domestic violence and those facing the additional burden of household activities emanating from lockdowns and the ‘work from home’ mode.

One of the critical findings of a recent research on COVID-19 points to extensively high rates of maternal and neonatal complications among pregnant women such as miscarriages pre-eclampsia Caesarean births and perinatal death all of which contributed to psychosomatic disorders among affected women. Further in the COVID-19 cohort women with previous psychiatric diagnosis or low income faced higher risk of experiencing distress and anxiety symptoms. For instance a study in Wuhan the epicentre of the pandemic in China found a high prevalence of post-traumatic stress syndrome and higher incidence of hyper-arousal among women as compared to men.

Another study on the impact of COVID-19 conducted in 2020 by the global humanitarian agency CARE International reveals that among its 10000 respondents as many as 27 per cent of the women faced mental illness challenges while the corresponding figure was only 10 per cent for men. The primary source of stress for the affected women was their worries about rebuilding livelihoods and accessing food and healthcare. This is no surprise considering that a large proportion of women across the world are employed in the sectors hardest hit by the pandemic including domestic work entertainment retail tourism and travel as well as in the informal economy and as migrant workers.

It is also argued that gender has always been a critical determinant of both mental health and mental illness and the pandemic has merely exacerbated the already prevailing challenge of rising female mental morbidities. Citing data from the India Human Development Survey (IHDS) a study undertaken by the non-profit Research Institute for Compassionate Economics in 2018 asserts that other traditional patriarchal practices like women having their meals after their male counterparts and lack of female autonomy in decision-making also cause poor mental health outcomes for women.

IHDS is a nationally representative panel survey of over 41000 rural and urban households jointly conducted by the National Council of Applied Economic Research (NCAER) and the University of Maryland in two rounds in 2004-05 and 2011-12. Along with questions on health education marriage household assets and poverty the IHDS also collected information on women’s social status and autonomy by asking ever-married women about their decision-making power in the household. The first quantification of the discriminatory practice of women eating after men comes from the 2004-05 IHDS when 36 per cent of the female respondents said that in their households women ate after men. Although this figure dropped to 25 per cent in the second round in 2011-12 it is still high enough to raise alarm bells.

The r.i.c.e. report also uses IHDS data to show that at all levels of per capita household consumption women in households where female members eat last are more likely to be underweight than their counterparts in households not following this practice. Undernutrition not only reduces physical energy levels but also results in lower immunity which is believed to be another cause for mental disorders.

A 2001 study by the World Health Organisation (WHO) averred that depressive disorders account for 41.9 per cent of the neuropsychiatric ailments among women as against 29.3 per cent among men. Moreover the leading mental health problems of the elderly are depression organic brain syndromes and dementia all of which again have disproportionately higher occurrence rates among women than men. So how can we combat the challenge of mental disorders and somatic complaints affecting women in particular?

The first step is to recognise that the mental health issues faced by women are primarily the result of various gender-based factors like low employment levels income inequality and higher burden of care work for women. The atrocities perpetrated on women including Intimate Partner Violence (IPV) sexual assaults and rape also lead to mental trauma. It is therefore obvious that women’s mental wellbeing is a quotient of the environment in which they live and work. Hence as we mark another Mental Health Day it is imperative to mitigate women’s mental distress by focusing on the broader socio-economic frameworks and community settings that contribute to overall gender discrimination.

(The writer is the editor at the National Council of Applied Economic Research NCAER. The views expressed are personal.)

Privatisation may not ensure redemption for the loss-making airline but it still is high time the government gets this done

The much-delayed privatisation of Air India has suffered from several false take offs. Since the interim Budget of 1991-92 India has followed a policy of disinvestment with regards to Central Public Sector Undertakings (CPSUs). The term ‘privatisation’ was first used in the Disinvestment Policy (1999-2000) formulated by the Atal Bihari Vajpayee government. While disinvestment need not result in change in state ownership privatisation implies government relinquishing its stakes completely. Over the last three decades only 10 CPSEs have been privatised.

There is a list of failed attempts to privatise; and Air India is one of them. Twenty years ago during the Vajpayee government when the first attempt to privatise the national carrier failed Arun Shourie the then minister of disinvestment clarified in Parliament that stiff opposition and slowdown in the international airline businesses were the prime reasons for the deal to fall apart.

Interestingly Air India’s privatisation seems to be inching towards finalisation at a time when the global aviation sector is in the throes of a crisis. If the current speculation that the Tatas might grab the deal comes true Air India would revert to its original owners in a strange reversal of history. Even otherwise if the deal goes through it would have three important significances. First it would mark the revival of privatisation in India. Second this would be the Modi government’s first successful strategic disinvestment deal in the last seven years when disinvestment has been merely confined to sale of some PSU shares to another PSU. Third recommendation of the Disinvestment Commission (given in 1998) to privatise Air India would be finally implemented.

Background

In the 1950s when India started experiments in socialism under Jawaharlal Nehru one of the targets of the nationalisation drive was the airways owned by JRD Tata. In 1953 the Air Corporations Act was enacted which nationalised the airline industry and created two corporate bodies: Indian Airlines (for domestic routes) and Air India International (for foreign routes). While the government became the owner JRD Tata continued as the chairperson. Given the limited experience of the government in running an airline the private sector was engaged in an operational role. However this was opposed as privatisation of the management.

When an impending economic crisis compelled India to embrace liberalisation in 1991 Parliament passed the Air Corporations (Transfer of Undertaking and Repeal) Act 1994 which allowed private players to operate the passenger airlines segment. With increasing competition and bureaucracy the public sector airlines steadily lost market share between 1991 and 1993. Over the next few years the airlines faced losses (approximately Rs 300 crore annually) old aircraft high maintenance costs and employee to aircraft ratio. In 1998 for the first time the Disinvestment Commission recommended privatisation of Air India. The commission recommended the government to infuse equity of Rs 1000 crore and bring down its shareholding to 40 percent. But it was not implemented.

First attempt: NDA government

Often recalled as the privatisation era the Vajpayee-led government decided in May 2000 to pursue strategic sale of Air India with a cap of 26 per cent on foreign shareholding. While four parties expressed their interests the bid carried a stipulation for foreign bidders to have a JV with an Indian company. As a result two out of three bidders failed to meet the criteria. Not surprisingly the attempt triggered a political furore including from the members of the ruling coalition and the civil aviation minister himself. More controversy surfaced when the managing director (MP Mascarenhas) who supported the deal was suspended for alleged corruption. Faced with stiff opposition and public outcry even the Indian bidders i.e. Tata-Singapore Airlines consortium and the Hinduja group exited from the process. The first attempt to privatise Air India ended in failure.

Merger and restructuring: UPA I and II

With the defeat of the NDA government all attempts to privatise PSUs came to a grinding halt. During 10 years of UPA I and UPA II not a single firm was privatised. However in 2007 the UPA government decided to merge Air India and Indian Airlines into one entity—National Aviation Co. of India Limited with the hope that combined financials and expertise could redeem the firms. On the contrary several HR and operational issues surfaced which contributed to more losses. So much so that a separate committee headed by Justice Dharmadhikari was set up to resolve the HR issues. In 2011 the CAG called the merger ill-timed and ill-prepared. Despite the challenges measures were taken to revive the airline. For instance in 2012 a turnaround plan was approved which required equity infusion of Rs 30231 crore over a period of 10 years. Till the end of FY 2017 the government had already released Rs 26545 crore however the total loans of Air India stood at Rs 48477 crore.

Attempt to revive privatisation: Modi I and II

When the Narendra Modi government came to power a popular speculation was that it would revive the legacy of the Vajpayee-led privatisation era. One of the firms on the block was Air India. In May 2017 NITI Aayog proposed Air India and its five subsidiaries for strategic sale. Soon Cabinet approval was granted which led to the constitution of a special body the Air India Specific Alternative Mechanism to hive-off the surplus assets to a shell company before privatisation.

In March 2018 after a lull of almost two decades the second attempt was made to privatise Air India. Not a single bidder showed up to buy the debt-laden company. Faced with embarrassment the government was quick to respond to the market sentiments. Substantial changes were made to sweeten the deal. For example transfer of half of the losses to a newly created SPV namely Air India Assets Holding Ltd change in valuation norms to freeze the debt at Rs 23286.5 crore offer of 100 percent equity (earlier offer was 76 percent) promise to indemnify buyer against contingent liabilities and payment of certain contentious employee dues before closure of the transaction.

With such massive changes in place a confident third announcement was made in January 2020. But the outbreak of the pandemic wiped out the entire year. After multiple extensions the deal spilled over to the next fiscal year (2021-22). In the meantime Cairns had sued Air India (as an agent of the Indian government) to enforce an arbitral award in a separate tax dispute against India. It was only after the government’s assurance to settle the claims that Cairns obtained a stay on the proceedings.

Going forward

Given the chequered track record Indian private airlines have privatisation of Air India may not ensure its redemption. But that does not justify the government running a business or keeping a bleeding firm alive forever causing huge losses to the exchequer. When the government has limited resources and state capacity it must cautiously allocate both of them. Lack of such prioritisation may lead to cases like Air India. In the last two decades an avalanche of political economy and red-tape has often hijacked the attempts to privatise Air India. Perhaps this time if the deal takes off economic sanity would prevail.

The writer is a public policy consultant at NCAER a Delhi-based think tank. Views expressed are personal.