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Executive Summary

Global trade has been resilient despite a series of shock events over the last two decades and growing, though selective, protectionism in recent times. GVC-led trade in parts and components (P&C) continues to be the dominant mode of global trade. Notwithstanding some evident reconfiguration in the Asian value chain hub and acceleration in the China+1 GVC diversification strategy of large corporations, China remains at the centre of global value chains.

In this process of GVC diversification by multinational corporations (MNCs), major benefits have accrued to those emerging market economies (EMEs) that were already well integrated with GVCs. There has also been a further increase in their trade intensity with China. Vietnam is observed to have emerged as the lead beneficiary economy, especially in the electronics sector. Other ASEAN economies, such as Thailand, Malaysia and Vietnam, also benefited as attractive alternative locations for MNC investments. Aside from the ASEAN economies, Mexico has also emerged as a significant alternative source of imports of IGs for the US. India has been a relatively marginal beneficiary in the GVC relocation strategy of MNCs.

Furthermore, it is evident that countries well integrated with GVCs have a higher share of manufactured exports in their total exports and have also gained in terms of their share of global manufactured goods exports. India, which has been a relatively marginal beneficiary in the GVC relocation process, has experienced a decline in the share of manufactured exports in its total exports as well as in its share of global exports of manufactured goods.

In this context, and based on an analysis of available cross-country experience, the paper discusses how participation in GVCs can be an enabling factor in technological upgradation. The case of China, where local manufacturers, not having core technology in the automotive or electronics sector, relied on their association through GVCs with knowledge-intensive intermediaries and key technology suppliers, is a particularly useful example in this respect. The presence of foreign firms in a country, as evident in China and other East Asian and ASEAN economies, helped develop mutually beneficial relationships between foreign core technology providers and local manufacturers. Importantly, given that exposure to foreign technology through foreign investment also involved an open import regime, the consequent increase in foreign value addition relative to domestic value addition (DVA) is observed across all sample East Asian economies, such as Taiwan, Korea, and China. In fact, the experience of East and Southeast Asian economies, which have successfully integrated into GVCs, reveals the inevitability of a decline in the DVA ratio (DVAR) as the structure of the export basket undergoes a change from predominantly primary, raw material, and resource-based goods to IG-intensive manufactured goods with increasing GVC participation.

Based on this experiential analysis, the paper reflects on the question of whether excessive policy emphasis on the objective of “upgradation” or increase in DVA in the early stages of integration is appropriate. In this context, while the rise of DVA in China offers several relevant lessons, the paper also presents some alternative perspectives on this issue. Several studies have shown that the decline in foreign inputs in Chinese exports coincided with a similar trend at the global level, while some others emphasise the differential DVA component in processed and normal exports from China or the variation in experience across provinces—coastal and inland—in China.

The importance of an open trade regime for technological upgradation is reinforced in the discussion on LCRs. This is an important but relatively less emphasised aspect of trade policy discussions in India. However, it may be useful to note that in a protectionist trade environment, specifying high LCRs and consequent restrictions on imports introduces a lag in technological advancement and deters export-oriented direct investment (FDI). The spillover benefits of LCRs, through implications for technology, are possible only when there is already a modicum of local knowledge for which the components are required to be domestically purchased. Where the knowledge gap between local and foreign firms is too wide, high LCRs do not significantly aid technological upgradation. Even with export-oriented FDI, the scope for technological diffusion depends upon a complementary research and development (R&D) infrastructure in the host economy. The critical importance of R&D infrastructure and IPR norms per international standards for technological diffusion through GVC participation is highlighted in the discussion in the paper.

Incorporating IPR-related provisions in FTAs has become common across developing economies desirous of integrating with GVCs. Increasing number and depth of such provisions in FTAs signal the commitment of the participating member economies towards upgrading of the domestic regulatory framework to international standards in relevant areas for FDI and GVCs. Appropriately designed investment and related regulatory provisions not only help investment inflows and the transfer of technology but also signal commitment towards the upgrading of the domestic regulatory framework in this respect.

The imperatives arising from the altered global context of GVC integration necessitate the inclusion of World Trade Organization (WTO)-plus provisions relating not just to investment liberalisation and IPR but, importantly, also environment and sustainable governance (ESG) clauses. Political backlash in respect of equity has created the necessity to include worker or labour rights and conditions-related provisions in the FTAs. The discussion in the paper reveals how the average number of environment-related provisions (ERPs) in FTAs has increased over time, even while there is variation across countries and PTAs in terms of the number and depth of provisions included. The United States-Mexico-Canada Agreement (USMCA), which is the upgraded NAFTA, signed in 2019, is a leading example of the number and depth of the ESG provisions. In Asian FTAs, ERPs have been a more recent inclusion. It is interesting to note that China has been a regional leader in this context.

Way Forward for India: Key Policy Measures

Against the above background discussion on evolving global trade contours, the paper proceeds to delineate key trade policy measures for India. As pointed out earlier, India’s integration with GVCs has thus far been low relative to some of the comparator EMEs in ASEAN. However, the current global and regional geopolitical context, as well as India’s positive and stable macro fundamentals, present it with a new opportunity to integrate with GVCs and consequently enhance its export competitiveness and share of manufactured goods trade.

India has adopted the objective of building complete supply chains domestically. With this perspective, India’s flagship production-linked incentive (PLI) scheme was introduced in 2020 for 14 sectors. The financial incentives notwithstanding, the PLI scheme has thus far seen limited success. For more widespread success across sectors, it is considered that India needs to adopt a more open trade policy. As discussed above, an open trade environment is essential for effective LCRs. High LCRs, as is true of India’s PLI specification in almost all sectors under the scheme, can assist in developing domestic manufacturing capabilities only when domestic producers are also exposed to competitive pressures through a more open and liberal trade regime. LCRs in a protectionist environment foster inefficient and high-cost manufacturing and, in the process, limit the scope for the development of domestic manufacturing capabilities. The experience of Vietnam in motorcycle production, as discussed in the paper, provides a useful example in this context.

Also, it needs to be understood that undue emphasis on increasing DVA and technological upgradation in the early stages of GVC integration can be counterproductive. Technological upgradation requires complementary R&D infrastructure. In addition, proximity to the global technology frontier in a sector through participation in GVCs can assist in enhancing technological capabilities. The positioning of the domestic firm integrating with the GVCs, particularly a GVC hub, is significant in this respect. Furthermore, the absorptive capacity of domestic producers, as determined by the domestic R&D infrastructure, is often a crucial determinant of the scope for technological upgradation.

The paper highlights how India’s R&D infrastructure and capabilities, proxied by indicators such as the number of patents filed under the Patent Cooperation Treaty and R&D expenditure, remain woefully small in comparison with China, which serves as a leading example of an emerging market economy that has successfully upgraded its technological capabilities. In China, domestic companies in sectors such as automobiles and mobile phones have developed competitive efficiency, enabling them to acquire a substantial share of global exports in these industries over the last two decades.

Furthermore, given the observed benefits of linkages with a leading technology hub in a GVC, it would be advantageous for India to seek FDI inflows from lead firms of developed economies. In this context, the paper discusses the need for a more careful examination of the proposal in the Economic Survey, 2023–2024, to encourage FDI inflows from China. A majority of lead firms in the world today are located in the US, Europe, and Japan. EMEs from Central and Eastern Europe, such as Hungary and Slovakia, have benefited by integrating with the main innovator, Germany, in Europe and the deeper trade and investment integration entailed by their participation in the European Union (EU). Similarly, Mexico has been in an advantageous position through its integration with the US-led GVCs. Mexico’s integration with the US has been facilitated by the North American Free Trade Area (NAFTA), USMCA, and Inflation Reduction Act (IRA). The NAFTA and USMCA, as discussed in detail in the paper, have been particularly ahead of other FTAs in terms of incorporating modern-day provisions on ESG-related norms. The IRA encourages North American GVC integration through the specification of facilitative rules of origin.

India would therefore do well to prioritise the early conclusion of a deep FTA with the EU and the UK. Deep FTAs provide the benefit of a lock-in effect for domestic economic reforms, particularly in the context of upgrading domestic regulatory infrastructure in accordance with international norms. For India, successful negotiations with these developed economies will help achieve compatibility of investment liberalisation norms, IPR, and ESG regulations with global standards. This will, in turn, help attract export-oriented FDI, which can further contribute to building domestic absorptive capabilities for technological diffusion.

The paper discusses how, globally, the emphasis on ESG norms and their increased inclusion in FTAs makes India’s stance of classifying these issues as “non-trade” outdated. Given the importance of the green energy transition and political exigencies, the consequent accelerated orientation of GVCs and FTAs in this context necessitates a re-think among Indian policymakers. Both the number and coverage of ESG-related provisions in FTAs have been increasing over the last 15 years.

India also needs to shed its resistance to the inclusion of higher-grade provisions relating to the environment and sustainable governance in its ongoing negotiations with the EU and UK. In this context, the trade-off that is usually at work in trade agreements, and that can prove to be instructive, is based on exchanging stronger IPR (Trade-Related Aspects of Intellectual Property Rights [TRIPS]-plus) in return for greater access to agricultural exports, raw material exports, and low-cost manufactured goods. It is possible that the developed economy may, in return, ask for greater market access to services along with stronger IPRs. India should, therefore, also have its services offer list (which should be derived from the servicification[1] of manufacturing argument rather than based on just mode 4) designed accordingly for the negotiations (Batra, A., Business Standard, March 10, 2022).

Vietnam, the lead beneficiary of the China+1 GVC diversification strategy, has signed deep FTAs with the EU. Through its membership in ASEAN, it participates in all ASEAN FTAs, including those with China, Japan, and Korea. Mexico, also a major beneficiary of the China+1 context, has, through NAFTA and USMCA since 2020, been a participant in deep FTAs. The Central and Eastern European (CEE) economies, by their accession to the EU, have similarly upgraded their regulatory standards to international levels.

In addition to bilateral FTAs, Vietnam is also a member of mega-regional trade agreements such as the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), both of which are intensive in WTO-plus provisions. Membership in deep trade agreements not only helps countries commit to necessary reforms for attaining global standards in relevant domains of investment and trade liberalisation but also provides a political context to undertake domestic reforms in these
policy domains.

As the North American and European trade blocs become increasingly inward-oriented, RCEP and CPTPP remain the only mega-regional trade agreements that are open and non-discriminatory. India needs to actively reconsider its stance on participation in mega-regional trade agreements. India should initiate the preparatory process for making an application for membership in the CPTPP at the earliest. This is particularly relevant given the observed greater stability of intra-PTA trade compared to trade outside PTAs during periods of uncertainty due to climate change, the possibility of another pandemic, as well as trade policy shifts under Trump 2.0. In this context, a necessary reform that India needs to undertake is a reduction in its average applied most favoured nation (MFN) tariffs and aim to align these with its comparator Asian economies within a time-bound schedule. This will help India attract export-oriented FDI and take advantage of some of the trade diversion resulting from US trade policy shifts.

Finally, the paper draws attention to the need for a careful re-evaluation and understanding of the role of exchange rates in a GVC world. The extant literature provides an account of how conventional exchange rate calculations may not be appropriate to indicate export competitiveness in the GVC/value-added context when a product is used as an intermediate good for further processing as input in another good that is exported. Traditional exchange rate theory may perhaps be more valid in a context where a product is competing as a final good with another in a destination market. In a complex GVC world, the correlation between exchange rate depreciation and export competitiveness, as dictated by traditional trade theory, may not be so straightforward. This policy aspect needs further discussion and research.

The post Evolving Contours of Global Trade and the Way Forward for India first appeared on CSEP.

Executive Summary

Climate change has both direct and indirect effects on human health, disproportionately affecting vulnerable populations. Climate induced disruptions in healthcare due to extreme weather events, vector-borne diseases and food and water insecurity underscore the urgency of integrating health into climate policies. The World Health Organization (WHO) estimates that climate change will contribute to an additional 250,000 deaths annually between 2030 and 2050 due to malnutrition, disease, and heat-related illnesses globally. As climate change accelerates, these health risks are becoming a critical global concern, necessitating the integration of health within climate policy frameworks.

India becomes a vital country to analyse in the context of global climate and health governance. Its large population and geographic vulnerabilities, means that the country will face a large burden of mortality, disease, and economic losses from climate change. Hence, this discussion paper examines the increasing prominence of health in global climate discourse and goes on to analyse India’s role in this context.

Growing Prominence of Health in the Climate Agenda

This paper systematically documents the evolution of health from being relatively marginal in the climate agenda to becoming an integral part of negotiations in forums such as the United Nations Framework Convention on Climate Change (UNFCCC), Conference of Parties (COPs), as well as other multilateral forums, including the G20 and G7. It begins with the 2015 Paris Agreement, which laid the groundwork for recognising health as an integral aspect of climate action. If continues with subsequent COPs that introduced health-specific climate commitments and mechanisms to support countries in achieving Climate Resilient Health Systems (CRHS) and Sustainable Low-Carbon Health Systems (SLCHS). Simultaneously, this paper notes that international development actors have recognised the shortfall in available climate financing for health related adaptation and have begun work to remedy the situation. The “Guiding Principles for Financing Climate and Health Solutions,” created by a consortium of multilateral development banks (MDBs), funders, countries, and philanthropies, provides a roadmap for synergistic and focused attention towards supporting equitable, inclusive, and holistic climate and health solutions.

Mitigating Systemic Challenges by Integrating Climate and Health

The current climate governance system is mired in several weaknesses that have impeded accelerated progress on climate change.

• Political will for climate action is diminishing worldwide with the rise of nationalist leaders, influenced by entrenched interests and poor public engagement with climate issues. The recent decision by the Trump administration to withdraw from the Paris Agreement exemplifies this trend. Persistent shortfalls in fulfilling climate financing commitments from the Global North further raise concerns about the credibility of these commitments and the feasibility of equitable climate solutions.
• There is growing recognition that a polycentric, multi-stakeholder approach which looks beyond the UNFCCC process is required for climate action. However, current global climate governance system has not been very successful in integrating non-state and subnational voices into decision-making processes, despite their critical role in translating international and national commitments into practical action
  on the ground.
• Shaped by an agenda spearheaded by the Global North, there has been an emphasis on mitigation actions focused on emissions reductions, despite nations in the Global South advocating for a greater focus on adaptation. The global community has acknowledged the need to look at climate change through the lens of development. However, in practice, creating the linkages between developmental goals and climate action have remained weak.

The paper posits that adopting a health perspective through proactive engagement by emerging powers of the Global South, such as India, may offer potential alternative strategies to advance climate action in the face of existing challenges. Historically, India has been effective in amplifying the voice of the Global South in international negotiations by building coalitions, as seen with the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement and, more recently, with the Pandemic Fund. Raising developmental concerns related to climate change, particularly regarding health, across multilateral and regional forums has also proved to be an influential strategy for groupings like the Small Island Developing States (SIDS) and Least Developed Countries (LDCs) to gain resources and influence discourse.

• Using a health framing in the climate change debate has been a useful policy strategy to overcome interest groups, such as those in the fossil fuel industry, by fostering public engagement. Highlighting the health impacts of climate change in global, regional, and sub-regional forums can help maintain momentum despite diminishing political will for climate action in traditional climate forums like the COP.
• Global health presents a powerful model for translating global consensus into accelerated action at local levels through cross-country exchanges of knowledge and resources. Mechanisms like the President’s Emergency Plan for AIDS Relief (PEPFAR), the Global Alliance for Vaccines and Immunisation (GAVI), and, more recently, the COVID-19 Vaccines Global Access (COVAX) initiative potentially offer useful lessons for undertaking climate action.
• Demonstrated interest in supporting action on sustainability and health across stakeholders, including the private sector, as well as greater alignment with the sustainable development agenda, can help synergise finance and reduce reliance on public finance transfers from the Global North.
• Global networks of sub-national actors working on developmental issues such as health can make progress even when vertical processes of climate policy and planning prove ineffective. Strategic integration and intersectoral coordination with public health professionals, civil society, and private sector actors across diplomatic and policy channels can help push for greater accountability and alignment with the sustainable development agenda.

India’s Approach to International Climate-Health Engagement

Recognising the growing convergence of climate and health interests globally, we examine India’s approach to international engagement. We find that the country has been cautious and tentative – acknowledging the significance of the climate and health agenda while being reluctant to sign on to global frameworks, such as the WHO Alliance for Transformative Action on Climate Change and Health (ATACH). India has started to make nascent efforts through its interventions and diplomacy, including engaging with multilateral development banks (MDBs), developmental organisations, bilaterally and trilaterally. Key Indian initiatives include the Lifestyle for Environment (LiFE) movement that reframes climate policy as a broader sustainability issue, as well as leadership in multilateral institutions such as the International Solar Alliance (ISA) and the Coalition for Disaster Resilient Infrastructure (CDRI). However, these actions are so far limited and the paper makes a case for India to engage more proactively. The paper identifies the benefits available to India through such a strategic approach.

1. Meeting Gaps in Financing: Currently, government expenditure on health is only 1.4% of Gross Domestic Product (GDP), significantly lower than comparable economies, reflecting substantial underfunding and neglect. The pathway towards climate resilience will inevitably require greater resources for overall health system strengthening. The increasing availability of international climate-health financing initiatives can provide access to additional investments for India to support its climate-health programmes as well as broader health system strengthening efforts.
2. Strengthening Domestic Institutional Capacity and Preparedness: Beyond financing, India faces structural challenges in implementing an integrated climate-health strategy. Its current climate and health policies remain fragmented, with poor accountability and institutional inefficiencies. International experience, such as the Dutch Global Health Strategy (2023–2030) and Australia’s Climate and Health Alliance, provides valuable insights that India can adapt to its unique context.
3. Knowledge Exchange Platforms of Best Practices: Platforms like ATACH, and the Global Heat Health Information Network (GHHIN), provide opportunities for a diverse range of actions including sub-national governments and non-state actors to leverage global collaboration on climate-health best practices. For instance, the forthcoming Climate and Health Hub, supported by the ADB, is an avenue for regional knowledge exchange on innovative climate change mitigation and adaptation best practices in health, from government, civil society, and the private sector.
4. Positioning India as a Climate-Health Innovation Hub: India’s geographic and population diversity, technological expertise, low-cost healthcare solutions, and strategic partnerships position it as a leader in climate-health adaptation, benefiting both domestic and Global South nations. Through its international engagements, India can move closer towards becoming a credible development partner and replicate successful domestic health and climate initiatives in other developing countries.
5. Championing Inclusive Global Governance: Health has historically been an important avenue for India to advocate for the collective needs of the Global South at international forums. India can continue to strengthen its South-South cooperation by using its health diplomacy to build coalitions and bridge the gap between Global North funding and the needs of vulnerable nations.

Conclusion and Future Directions

The integration of health into global climate governance presents an opportunity for India to simultaneously strengthen its healthcare resilience and enhance its geopolitical standing. However, achieving these goals requires:

• A clearly defined national strategy integrating climate and health policies.
• Enhanced institutional coordination to prevent fragmented implementation.
• Expanded global engagement to leverage international funding opportunities.
• Scaling up research and knowledge-sharing to develop scalable, transferable solutions.
• Fostering South-South cooperation in climate-health policy and technology transfer.

This discussion paper calls for further research into India’s policy effectiveness, financing strategies, and governance mechanisms, ensuring that its climate-health initiatives are both impactful and sustainable. India must act strategically and proactively to maximise the benefits of climate-health convergence while advancing its domestic and global interests.

The post Mapping Global Climate and Health Governance: Exploring India’s Role first appeared on CSEP.

Executive Summary

This paper lays out the current state of Digital Public Infrastructure (DPI) and clears some intellectual ground from which follow-on research can be launched in the future.

When the first Aadhaar card was issued in 2010, few could have predicted its eventual role in administering vaccines during a pandemic. However, the Covid Vaccine Intelligence Network (CoWIN) app played a crucial role in restoring normalcy post-pandemic, benefiting both public health and the national economy. The adoption of DPI has significantly improved public service delivery in India, facilitating more effective transactions, interactions, and communication over the past decade compared to earlier years.

Nevertheless, the popular discourse in India, perhaps inspired by the JAM Trinity (Jan-Dhan, Aadhaar, and mobiles), has conflated DPI with India Stack (e.g., Aadhaar, Unified Payments Interface [UPI]). This is not the definition of DPI according to the 2023 G20 Delhi Declaration. Digital solutions originating from and/or controlled by the private sector, including for-profit companies and foreign multinational corporations (MNCs), also qualify as DPI if they are as accessible and affordable as the India Stack. Consequently, freely available digital solutions like Google Maps, WhatsApp, Twitter (now X), ChatGPT, and Wikipedia are considered digital, public, and infrastructure, alongside Aadhaar, UPI, Digilocker, FASTag, Goods and Services Tax Network (GSTN), Government e-Marketplace (GeM), among others.

It is crucial to distinguish between adoption and outcomes. Substantial data is available in the public domain regarding the coverage of Aadhaar, transactions on the UPI platform, Micro, Small and Medium Enterprises (MSME) registration on Udyam, registration of organisations and professionals on GSTN, and vehicle registration with FASTag. These parameters represent the adoption and usage of DPI. However, the outcomes that Publicly Available Digital Infrastructure (PADI) adoption can potentially deliver on the economic outcomes of DPI adoption include increased income, employment, consumption, productivity, and Gross Domestic Product (GDP) growth. There are also non-economic outcomes, such as socioeconomic equity, financial inclusion, ease of living, and ease of doing business. The success of DPI interventions should be measured by their ability to deliver these outcomes, rather than merely by adoption, which is a means to an end.

The paper examines economic outcomes such as GDP before and after PADI adoption, using the UPI launch as a proxy for one of the most visible PADI interventions. It finds no significant correlation in a state-wise comparison between net state domestic product (NSDP) and DPI adoption. A review of published literature, such as the National Association of Software and Service Companies (NASSCOM) Report for FY22, estimates DPI’s contribution to India’s GDP at less than 1%, even when making aggressive assumptions, such as the entire time-saving from using FASTag translating into incremental GDP at average national productivity. These trends suggest that while DPI is a useful tool, it is not the engine that can drive economic growth independently.

Another counter-intuitive trend emerges in the payments landscape. The currency in circulation (CIC) has not decreased despite an increase in digital payments. This is because, despite the rise in digital payments by volume, there is little shift in value. Most UPI adoption has replaced low-value debit card transactions and, to some extent, low-value cash transactions.

An interesting trend is beginning to emerge—though it is too early to draw conclusions—in the nature of consumption. When Private Final Consumption Expenditure (PFCE) was studied by dividing it into two categories: (i) impulse purchase items (low-value and discretionary goods and services), and (ii) other items (medium- to high-value or essential goods and services), the paper observes that their growth rates were in opposite directions. The growth rate of impulse purchase items has been accelerating, while that of other items has been moderating. These trends need to be monitored over time to determine if they persist or if they are merely a passing phase, necessitating further research and monitoring.

In light of the above context, the paper recommends that the provision of resources needed by citizens to access the DPI “bus” must be ensured by the State for all citizens. The paper proposes that the government should consider enacting a “Right to Digital Empowerment” Act (RiDE), which would ensure that all resident citizens of India have access to a smart device, the Internet, digital literacy, and all other necessary resources needed for unhindered and unencumbered access to all relevant PADI artefacts.

Finally, government entities as well as private-sector DPI service providers should publish quarterly and annual state-level and national data on the adoption and usage of each Digital Public Good (DPG), so that its impact can be researched further.

The post Measuring the Economic Impact of India’s Digital Public Infrastructure: An Assessment first appeared on CSEP.

Executive Summary

We examine the trend and structure of employment in India since 1983, with a particular focus on the last two decades, during which many have identified relative stagnation in employment. By concentrating on the quantum of employment rather than various ratios, we can assess areas of growth and decline. We utilise five waves of National Sample Survey (NSS) Employment and Unemployment Survey (EUS), alongside various rounds of Periodic Labour Force Survey (PLFS) data collected during the period 2017–2018 and 2023–2024, to calculate the level and structural change in employment. We adjust the weights provided by the NSS in the dataset with population estimates from the Census of India up to 2011 and UN estimates for subsequent years to obtain the estimated number of the working population along with other characteristics.

Our analysis finds a steady increase in Principal Employment (calculated using Usual Principal Status [UPS]) since 1983, with a marked increase in general employment since 2017. Specifically, we find that during 2017–2024, Principal Employment rose by over 102 million, which, at 3.5% annually, is significantly higher than the estimated population growth during the same period. Furthermore, our analysis suggests a significant change in the structure of employment, as there are some sectors and segments where employment has been declining steadily. We also find that between 2017–2018 and 2023–2024, there has been limited growth in wages and salaries across most demographic segments, sectors, and forms of employment. Although there is conflicting evidence on inequality, given the low wage growth, a more important question relates to stagnating labour productivity, which requires deeper analysis.

Our novel approach, which focuses on the total number of those employed rather than unemployment rates across different demographic and employment segments, while also disregarding subsidiary employment, allows us to draw definitive conclusions about changing employment patterns. Concentrating on the period from 2017–2018 to 2023–2024, our analysis reveals that: (1) employment has been increasing steadily throughout this period; (2) female employment is rising faster than male employment; (3) there is relative stagnation in cropping sector employment; (4) the non-cropping sector, which includes livestock and higher-value agriculture, accounts for two-thirds of the employment growth; (5) employment growth is higher for those with greater educational attainment, ranging from 0.4% annually for illiterates to 6.1% annually for graduates and above; (6) of the 103 million additional employment during this period, an estimated 46 million are either employers or regular salaried workers; (7) own-account workers accounted for an additional 34 million, and unpaid family work stood at 23 million; however, we find that the bulk of this cannot be identified as distress work; (8) casual work, whether in public works or private, has stagnated throughout this period.

We therefore conclude that employment growth in India is robust but also bi-modal. On one hand, there is employment growth typically associated with greater productivity, such as that of employers and regular salaried work. On the other hand, there is significant growth in activities generally not considered highly productive, such as unpaid work in household enterprises and enterprise workers. We believe that the latter, particularly in family or own enterprises, has been supported by government programmes such as the Jal Jeevan Mission and Ujjwala, which have freed up time from household work, as well as schemes like the Pradhan Mantri Mudra Yojana (PMMY) that provide credit to household businesses. However, whether this shift is due to a lack of choices or greater availability of resources leading to increased entry into less productive work requires further study.

In additional work, we find that wage increases have been fairly low across this period, and in aggregate, wage growth has barely kept pace with inflation. Further analysis shows that low wage growth has been a distinct characteristic of almost all forms of employment and across most sectors. This lack of real wage growth over the seven-year period spanning 2017– 2018 to 2023–2024 is the most curious and worrisome aspect of India’s employment scenario.

Three key factors driving the changing structure of employment in India have not been sufficiently appreciated. First, employment growth has consistently been higher for those better educated, a trend evident throughout the 2000s, including the period 2017–2018 to 2023–2024. We also find that self-employment growth has been significant, likely influenced by the massive disbursements through the Mudra scheme (or PMMY) during the period 2017–2018 to 2022–2023. Additionally, employment growth in the agriculture sector is not in the cropping sector but in the non-cropping one, specifically related to livestock and fisheries. In other words, employment growth is more pronounced in areas of higher value-added and productivity. Overall, however, while employment is rising, wages are not, indicating that although opportunities may be increasing, productivity is not.

The post India at Work: Employment Trends in the 21st Century first appeared on CSEP.

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Executive Summary

India has employed four primary strategies to provide healthcare: strengthening government health services, expanding mandated health insurance for formal sector employees, publicly funded health insurance for the bottom 40% of the population, and voluntary health insurance for the affluent. However, a significant proportion of the population in the third and fourth quintiles remains uninsured. It has been argued that this uninsured population has the ability to pay (ATP) for healthcare, but it is unclear how much they can afford. A related question is whether they are willing to pay, even if they can afford it.

Since Universal Health Coverage (UHC) entails expanding access to affordable healthcare for everyone, examining the affordability [1] of healthcare, especially for the middle-income group [2], is crucial. This paper examines the affordability of healthcare—who can afford it and how much is affordable—for households in the third and fourth quintiles in India, taking into consideration the aspect of willingness to pay (WTP). Based on the affordability analysis, it attempts to identify reform options for UHC, one of which is to assess the health insurance premium that is affordable for middle-income groups in India.

The core question surrounding the debate on the Ability to Pay (ATP) has been whether the cost of healthcare for a household should be the sole criterion for ATP or if it should consider other factors that influence households’ decisions regarding healthcare expenditure.

Hancock’s concept (Hancock, 1993) has been extended to understand the affordability of healthcare and health insurance. Hancock suggested incorporating other merit goods [3], such as food, housing, and education, in the affordability analysis, defining the concept of healthcare affordability in the context of the consumption of these other merit goods. Russell (1996), on the other hand, distinguished between the ATP and the WTP. According to Russell (1996), a household’s decision regarding healthcare spending depends on a range of factors such as available resources, severity of illness, provider information, and awareness about illness. This implies that a household’s priorities, resources, and vulnerability together determine whether it will spend on healthcare (Russell, 1996). For this study, Hancock’s concept of ATP has been considered, as it is difficult to estimate WTP based on available datasets.

Based on Hancock’s analysis of affordability, there are four possible combinations of the two categories of goods, namely non-healthcare and healthcare, that can be consumed by the household. First, households that achieve a minimum level of consumption for both healthcare (6% of total household expenditure) [4] and non-healthcare (52% of total household expenditure) goods. Second, households that achieve a minimum level of consumption for non-healthcare goods, but the remaining resources do not allow them to achieve minimum standards of consumption for healthcare. Third, households that cannot achieve minimum consumption for both categories of goods. Fourth, households that achieve minimum standards of consumption for healthcare goods, but the remaining resources do not allow them to achieve minimum standards of consumption for non-healthcare goods.

The analysis reveals that less than 10% of the total households in the third and fourth quintiles are able to meet the minimum level of expenditure for both healthcare and non-healthcare goods. Most households have to choose one merit good over others. It is found that about half of the total households cut back on healthcare expenditure to achieve more than the minimum level of expenditure for other merit goods, such as food, housing, and education.

Since the household’s ATP varies, it becomes crucial to calculate the amount that households can allocate for their healthcare needs. The affordability calculation, applying threshold criteria (a minimum of 6% of total household expenditure for healthcare and 52% of total household expenditure for non-healthcare goods), suggests that 30% of households in the third and fourth quintiles spend less than 6% of their total household expenditure on healthcare. This means they can allocate a maximum of INR 5,693 [5] per year, including both inpatient and outpatient services. 8% of households with sufficient resources can expend a maximum of INR 24,466 [6] per year. For the remaining 62% of households, who can just afford to pay 6% of their household expenditure, they can pay about INR 13,344 to 15,132 per year.

Implications for Achieving UHC in India

The affordability analysis indicates that households in the third and fourth quintiles can allocate an average of INR 5,693 per year for their healthcare needs, encompassing both outpatient and inpatient services. As comprehensive health insurance coverage would necessitate a higher premium, two potential pathways exist to ensure healthcare services for middle-income households:

1. Leveraging the ATP of households in the third and fourth quintiles to enhance public financing and ultimately strengthen public facilities. This could be achieved through policies such as implementing user fees for services received at public facilities by middle-income households. Currently, services at public facilities are provided at a highly subsidised price consistently for households across all quintiles, irrespective of their ATP.
2. Introducing a contributory health insurance scheme, with contributions from both the government and households, for middle-income households to provide comprehensive services. This approach is particularly pertinent as private health insurance tends to be more expensive and exclusionary (Paul & Sarkar, 2023). A lower ATP (less than INR 5,693), adjusted for opportunity cost, for a significant proportion of households suggests that the government needs to contribute more than 50% of the total premium to encourage greater participation and achieve UHC in the long term.

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Executive Summary

The uptake of battery-driven electric vehicles (EVs) has been rising in India. EV sales have increased from 0.6% of total vehicle sales in Financial Year (FY) 2018–19 to 7% in FY 2023–24. This trend is expected to continue, as India aims for EVs to make up 30% of all vehicle sales by 2030.

In hard-to-abate sectors such as transport, where clean technologies have not matured and are not yet commercially viable, incentives are a common tool to promote widespread EV uptake. Both Central and State governments have made concerted efforts to incentivise EV adoption. In addition to budgetary support through demand and manufacturing incentive schemes, the Central government offers tax incentives in the form of concessional tax rates on EV purchases. Many State governments further encourage EV adoption by setting specific targets, offering demand incentives, and providing tax exemptions on vehicle registrations. While budgetary provisions consist of a fixed implementation period and allocation, tax incentives often lack sunset clauses and predefined notional outlays.

While these incentives are well-intentioned, promoting EVs through tax concessions comes with opportunity costs, as the revenue loss limits the government’s capacity to fund other spending requirements. Moreover, the continued reliance on tax concessions raises concerns about the long-term viability of this approach to boost EV adoption.

This paper examines the impact of EV uptake on three tax streams: Excise and Value Added Tax (VAT) losses from fuel switch to electricity (which is a well-known issue), revenue forgone from concessional Goods and Services Tax (GST) rates and Compensation Cess exemptions; and state losses from Motor Vehicle (MV) tax exemptions. The study focuses on India’s passenger car and two-wheeled vehicle segments to illustrate how impacts on government revenue collection vary with vehicle segment, owing to differences in vehicle price, fuel mix, tax rate, and the scale and rate of EV penetration.

Key Findings

1. Fuel tax losses are not currently high, but complete electrification dents a big hole in the exchequer: Uptake of electric cars and electric two-wheeled vehicles has possibly resulted in a cumulative fuel tax loss of around ₹800 crore between FY 2018–19 and FY 2022–23. In the context of overall excise and VAT collections for FY 2022–23, the loss is estimated to be around 0.09% of excise and 0.06% of VAT collections. This gets exaggerated in a 100% electric scenario, as the government may lose 28% in total excise duty collection and 20% of total state VAT in a year. Currently, the state duty collection on electricity consumption in EV charging can offset only about 1% of the fuel tax revenue lost and 3% of VAT lost. It would need to be raised to around 105% to fully recover the estimated VAT loss, which is unlikely to be a feasible option for the government.
2. The Concessional GST rate on EVs is the biggest contributor to revenue loss: Under the present policy, petrol and diesel vehicles are taxed at the highest GST rate of 28% and are also subject to an additional Compensation Cess, whereas EVs benefit from a preferential GST rate and full exemption from Cess. This causes the largest EV-related revenue loss to the government until FY 2030–31, even more than the fall in tax collection from liquid fuels (Figure ES-1). Between FY 2018–19 and FY 2022–23, the cumulative vehicle sales tax loss amounts to ₹4,257 crore, which is projected to reach ₹1 lakh crore between FY 2023–24 and FY 2030–31. Because of the higher ex-factory prices and additional Cess application, losses from the car segment are estimated to be around 1.4 times higher than those from the two-wheeled vehicle segment, despite lower unit sales for cars. To compensate for the GST revenue loss from an EV, a GST rate of 48% would need to be imposed on equivalent Internal Combustion Engine (ICE) cars and two-wheeled vehicles. ICE vehicles are already taxed at the highest GST slab of 28%.
   
3. Substantial revenue loss from MV tax exemptions: Several State governments, in their respective state EV policies, have employed MV tax exemptions as a key policy tool to encourage EV adoption. The exemptions given on MV taxes have resulted in revenue forgone of ₹1,035 crores in FY 2022–23 alone. While the exemptions are accompanied by sunset clauses, predicting the opportunity cost is challenging.
4. State governments more impacted than the Centre: Both Central and State governments experience revenue losses due to the transition to EVs; however, the magnitude of losses is higher for State governments. Between FY 2018–19 and FY 2022–23, State losses were nearly double those of the Central Government (Figure ES-2). In FY 2022–23, out of the overall revenue loss of around ₹4,300 crore, states possibly incurred ₹2,900 crore of losses, accounting for 0.1% of states’ total tax revenue. This trend is projected to continue until FY 2030–31. Given that states have limited options for generating revenue, the loss of VAT from fuel sales and the continuation of concessional MV tax rates may pose greater financial challenges to states.

EVs in India are no exception when it comes to receiving tax concessions. Major EV markets globally, namely China, Norway, and the United States, have seen their respective governments doling out tax incentives in the form of tax exemptions, credits, and reduced rates to lower the upfront cost of EVs and accelerate their uptake. Offering tax incentives to encourage decarbonisation efforts is also not foreign to government policy in India. Ethanol blending in petrol and equipment used in solar and wind power projects are some of the instances that have enjoyed tax benefits.

As EV penetration rises, the government may need to balance incentives aimed at promoting adoption with revenue mobilisation. Also, there are important equity issues to consider, given that most support disproportionately helps the rich, especially for personal vehicle use. Moreover, emission reduction-linked incentives are not appropriate to support EV adoption, as the Greenhouse Gas (GHG) emission abatement potential is highly contingent on the carbon intensity of grid electricity, which is not something an EV manufacturer or user can control.

This paper finds that revenue losses will grow in the near future if the current policies continue. However, policy solutions such as sunset clauses and reduced concessions require deeper analysis, which will be undertaken in future research.

The post The Fiscal Impact of India’s EV Transition: Tax Revenue Losses Go Beyond Fuel first appeared on CSEP.

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Executive Summary

The 21st century has witnessed the transformation of the world from predominantly rural to predominantly urban, presenting many challenges that are unique to urban areas and require separate focus. In India, the 2011 Census data show that the urban population has increased to more than 31%, and the number of towns has grown by about 200% between 1961 and 2011. Occasional surveys and research have established that many urban health issues emanate from and impact sectors outside the health sector. One common theme that has emerged is the inequity in health outcomes and accessibility of health services between the urban poor and the non-poor.

This paper examines the growing challenges of urban health in India, focusing on the disparities between the urban poor and non-poor populations. The study utilises multiple data sources, including the National Sample Survey (NSS), National Family Health Survey (NFHS), Longitudinal Ageing Study in India (LASI), and government health statistics, to analyse trends in health outcomes, access to services, treatment-seeking behaviour, and out-of-pocket spending on health. The analysis compares urban and rural areas, emphasising inequalities across wealth quintiles and highlighting the increasing vulnerability of urban slum dwellers.

The research reveals a complex and concerning picture of urban health. While child mortality rates have generally improved across India, the urban poor experience significantly worse outcomes compared to their rural counterparts and the urban non-poor. This disparity is evident across various health indicators, including neonatal, infant, and under-five mortality rates, as well as the prevalence of diseases like fever, diarrhoea, tuberculosis (TB), and disability. While rural areas have shown greater improvement in these indicators, urban inequalities have widened, indicating a concerning trend of divergence.

The study also demonstrates significant gaps in health service coverage and access in urban areas. Although urban areas appear better served than rural areas based on aggregate statistics of healthcare personnel and infrastructure per population, the distribution of these resources within urban areas is highly unequal. Slum populations often lack access to nearby public health facilities, necessitating longer travel distances and potentially delaying treatment. This uneven distribution, coupled with perceptions of lower-quality care in public facilities, contributes to the greater reliance on private healthcare by urban residents, including the poor.

The increased utilisation of private healthcare services by the urban poor translates into higher out-of-pocket health expenditures, exacerbating their financial vulnerability. Despite government initiatives like the National Urban Health Mission (NUHM), public health insurance coverage remains lower in urban areas compared to rural areas, further contributing to the financial burden on the urban poor. The paper argues that inadequate funding for the NUHM and fragmentation in healthcare governance and administration have hampered its effectiveness. State-led initiatives like Mohalla Clinics and Basti Dawakhanas, while laudable, often operate in isolation and face scaling challenges.

The study also provides a detailed analysis of the precarious situation of urban slum dwellers. The literature reviewed highlights the multi-dimensional vulnerabilities of slum residents, who often lack access to basic amenities such as clean water, sanitation, and adequate housing. These deprivations, combined with limited access to quality healthcare and occupational hazards, contribute to a higher disease burden, including both communicable and non-communicable diseases.

The paper concludes that urgent and focused attention is needed to address the growing urban health crisis in India. It emphasises the need for structural and administrative reforms, particularly within the NUHM, to ensure equitable distribution of health resources and improved service delivery. The study advocates for a unified administrative body to oversee urban health planning, research, coordination, and implementation. Furthermore, a substantial increase in health allocations, specifically for urban health initiatives, is crucial to address the considerable health needs of India’s rapidly growing urban population. Without such interventions, the health disparities between rural and urban areas, and between the urban poor and non-poor, are likely to worsen, with potentially devastating consequences.

The post Addressing Urban Health Challenges in India: Shifting Focus to the Urban Poor first appeared on CSEP.

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Executive Summary

The paper provides a comprehensive overview of India’s evolving framework for climate change governance, assessing India’s federal structure and proposing strategies for enhancing institutional support and coordination for climate action. As India has committed to ambitious international goals, this study outlines the need for a robust domestic framework to achieve these commitments. While India’s climate commitments are in line with international targets, addressing localised vulnerabilities remains a challenge. Adaptation strategies should include state-specific climate initiatives tailored to the unique vulnerabilities of each region. For example, instituting climate-adaptation scorecards can aid in tracking state-level progress on climate action while ensuring that fiscal mechanisms prioritise high-risk regions such as flood-prone Assam or drought-affected Maharashtra. The framework must empower subnational governments to adapt to regional climate risks, foster resilience, and ensure accountability through measurable indicators such as climate-adaptation scorecards and appropriate fiscal mechanisms.

India’s Global Climate Commitments and Domestic Challenges

India has pledged to reduce emissions intensity by 45% from 2005 levels, achieve 500 GW of renewable capacity by 2030, and rely on renewables for 50% of energy needs. However, India’s centralised federal structure presents unique challenges, with the union government controlling significant resources, while states handle critical areas like water, agriculture, and electricity distribution.

Despite existing institutions like the Ministry of Environment, Forest and Climate Change (MoEFCC) and the Prime Minister’s Council on Climate Change (PMCCC) being designated as key drivers of national climate policy, their functioning has faced challenges.

The MoEFCC, while leading India’s climate negotiations and overseeing the National Action Plan on Climate Change (NAPCC), has experienced limited inter-ministerial coordination and engagement with states.

Similarly, the PMCCC, which was intended to serve as a high-level coordinating body, has seen irregular meetings and has not used its mandate to address the complex demands of climate governance.

The Apex Committee for the Implementation of the Paris Agreement (AIPA) is relatively new and plays a more specific role—focusing on implementing India’s Nationally Determined Contributions (NDCs) under the Paris Agreement. While it coordinates across ministries at the national level, AIPA does not currently have a strong framework for state-level coordination, a key gap in India’s federal structure for climate governance.

In addition, the lack of formal climate legislation and reliance on sector-specific laws, such as the Electricity Act of 2003, underscores the need for a cohesive legal framework to integrate climate goals across sectors and enhance the effectiveness of existing institutions (Dubash & Pillai, 2023).

Proposed Institutional Framework for India

Drawing on lessons from international models and recommendations from experts, the paper explores how India can apply fiscal federalism principles to empower states while maintaining national coherence.

Key proposals include:

• National Climate Law: To bolster climate action, the paper recommends a national climate law establishing clear roles across union, state, and local levels.
• Institutionalised Coordination: A central coordinating institution, either through a better-mandated existing institution (such as the PMCCC) or by forming a permanent intergovernmental council, is urgently needed to align climate action across different levels of government, address cross-state challenges, and facilitate cooperative governance.
• Decentralised Implementation: Empowering states to tailor climate policies to local conditions while aligning with national goals. Decentralisation is particularly effective for adaptation measures, as states and subnational entities are better positioned to address localised climate impacts. However, centralised regulation is essential for mitigation efforts to prevent free-ridership and ensure coherence in achieving national and global emissions reduction targets.
• Climate Finance Allocation: Establishing a dedicated Climate Fund to support state-led projects, with performance-based incentives for achieving emissions targets and investments in green innovation (Yilmaz & Zahir, 2022).
• Role of the Finance Commission: To become a key player in climate policy implementation and act as a bridge between policy and funding gaps, India’s Finance Commission could expand its mandate to integrate environmental considerations into fiscal policy more comprehensively. Performance-based grants should reward states and localities for measurable climate outcomes, such as renewable energy installation or emissions reduction.
• Carbon Pricing Framework: Adopting a dual structure that combines an Output-Based Pricing System (OBPS) for industries with flexible, consumer- facing carbon pricing. As highlighted by international best practices, trade auctions using absolute emissions pricing rather than intensity- based benchmarks provide clearer financial incentives for reductions and robust market signals for industries. This approach promotes emissions intensity reduction without overly burdening firms while allowing states to innovate within a unified national policy.
• Transparency and Accountability: Requiring state-level reporting and independent audits, such as those led by the Comptroller and Auditor General (CAG), to track and verify climate spending and ensure transparency. In addition, an integrated climate expenditure dashboard should provide real-time insights into the usage of climate funds and their effectiveness, improving accountability and transparency.
• Public Participation: Strengthening grassroots engagement in climate planning, learning from successful state-level initiatives like Tamil Nadu’s renewable energy leadership and Assam’s flood management strategies.

Building Green Public Financial Management (PFM)

To integrate climate goals within India’s fiscal strategy, the paper recommends adopting green PFM practices, which include:

• Climate-Responsive Budgeting: Expanding climate tagging and expenditure reviews to align resources with mitigation and adaptation goals.
• Tracking and Monitoring Green Expenditures: Leveraging tools to track environmental spending efficiently, inspired by models from Denmark and France.
• Embedding Climate Risk into Public Investments: Incorporating climate adaptation and mitigation criteria into public investment management, as seen in Peru and Brazil.

India has already made significant progress in this area:

• Green Budgets: States like Odisha and Assam have pioneered climate-responsive budgeting practices, directing resources towards disaster management and green infrastructure.
• Capacity Building: The International Centre for Environment Audit and Sustainable Development iCED in Jaipur has become a regional hub for building audit capacity on climate-related expenditures, under the leadership of the CAG.

These successes provide a strong foundation for scaling green PFM practices nationwide.

Framework

For India to achieve its ambitious climate goals, a comprehensive legal and institutional framework is essential. This paper offers a roadmap to integrate climate action across the three tiers of government. Any potential framework must also empower states and foster transparent governance. A decentralised yet unified approach, supported by a national climate law, with formal mechanisms of coordination, carefully designed incentives, a carbon pricing system (including absolute pricing in trade auctions), and the necessary transparency and accountability across the tiers of government will strengthen India’s capacity to respond to climate challenges while also ensuring sustainable development. By building on state-level progress and integrating green PFM practices, India can create precisely such a cohesive and effective climate governance structure.

The post Climate Change Governance in India: Building the Institutional Framework first appeared on CSEP.

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Executive Summary

This paper focuses on a key objective of Public Financial Management (PFM)—accountability and transparency, specifically in the reporting and accounting of subsidy expenditure. Subsidies are a key policy tool for resource allocation and welfare development in India and command a large share of State spending. The central government’s reported subsidy spending (as reported in Statement 7 of the Union Budgets), and that of the state governments (as reported in the subsidy statements of their respective CAG finance accounts), stood at about 3% of national GDP in FY23 when combined. As is demonstrated later, this is an underestimate.

Accurate measurement of subsidy spending by the central and state governments faces considerable challenges due to the complexity, diversity, and opacity of the subsidy system. The paper reviews the current state of subsidy accounting in India and the quality of data reported in budgets and finance accounts in this regard. It highlights the need for a clear definition and reporting by both the central and state governments, while attempting to calculate a more accurate figure for the extent of subsidies. The paper aims to make the case for transparent and disaggregated data on subsidies as being crucial for understanding the size, design, and impact of the State’s principal instrument to achieve equity and welfare.

Measurement of India’s expenditure on subsidies faces three key challenges:

• There is no single and clear definition of “subsidy” in government documents. For example, it is unclear whether cash or in-kind transfers, implicit subsidies, and tax rebates are to be classified as “subsidy”. Their accounting by the central and state governments, therefore, also differs.
• Governments often leverage other sources of financing towards subsidisation which may appear in statements other than those of explicit subsidies. For example, some subsidies are provided off-budget, through public sector enterprises or government-backed entities, rather than being directly recorded in the government’s budget.
• Budgets also often do not show the full fiscal impact of current subsidy programmes, as some of their expenses may have been deferred. For example, governments often run arrears or accumulate carry-forward liabilities to be paid in subsequent budget outlays, when actual subsidy payments are mis-accounted for during the budget-setting. While these may be reported in future budgets, it brings significant mis-reporting on an annual basis.

The reported subsidy expenditure of the Centre and states, therefore, does not fully reflect the actual or true spending on subsidies at any given point in time. Thus, this paper attempts to include (1) other related subsidy spending; and (2) other means of financing subsidies to understand the true fiscal burden of subsidisation. We perform this exercise to find improved actual estimates of the subsidy burden of the Centre, as well as its breakdown of food, fertiliser, and fuel subsidies. Our estimation reveals that the actual subsidy spending of the Centre in FY25 is at least 18% more than what is budgeted. The Centre has also significantly mis-reported its spending on fuel subsidy, as payments deferred in the past are being repaid presently. Similar issues exist in estimating states’ subsidy spending. This renders data on subsidy expenditure incomplete and inconsistent:

• Incompleteness: Many forms of subsidies are left unaccounted for, either because of the ambiguity in classifying them or because their financing is through means other than budgetary allocations. These are difficult to quantify and may not always be recorded as part of official subsidy figures, despite being significant in size.
• Inconsistency: What constitutes subsidy spending can change across the years within a particular department, ministry, or State, leading to inconsistencies in reporting. Without the change in the accounting practice clearly delineated, a cursory look at the numbers can paint an incorrect picture.

In the case of states’ subsidy spending, a bigger and more preliminary concern is the incomparability of their subsidy statements:

• Incomparability: As a result of the above two data gaps, central and state government subsidy statements are incomparable. There is no standardised framework that aggregates all types of subsidies across the economy, leading to underreporting or overreporting in some cases.

As a result, making cross-state comparisons over a period of time is prone to significant inaccuracies. The paper attempts to address the comparability of reported food, power, and fuel subsidy spending by states by estimating the true or actual spending on these items by each state. The paper finds that accounting for food subsidy, for instance, shows large variations in underreporting across state governments—actual food subsidy spending by states in FY23 was at least three times more than what was reported.

Finally, because of the large extent of data gaps, it is important to caution the readers that the subsidy spending in this paper is itself underestimated, as many other subsidy-related and off-budget financed subsidies have been left out. Because strict identification of each government spending item would be complicated, we have limited ourselves in this paper to the most widely discussed subsidies, subsidy-equivalent programmes, as well as financing means.

It is, therefore, imperative to understand the true extent of subsidy spending. This can significantly assist in eliminating inefficient subsidies and improve targeting of the existing ones. This requires:

• A comprehensive definition of subsidies could be statutorily established by way of an overarching PFM law that applies uniformly to the Centre as well as the states.
• Additionally, the scope of the statement of subsidies must be expanded to include other subsidy-related spending and other means of financing subsidies, for improved transparency.
• Most importantly, India’s shift to accrual-based accounting will allow subsidy estimates to reflect the total burden of subsidies in any given year, irrespective of whether cash payments to subsidy-disbursing ministries or organisations have been made or deferred to the future.

Such an expansive scope of the problem requires constructive and proactive overhaul of the entire PFM framework of India, by the governments, the CAG, and the Finance Commission.

The post Bridging the Data Gaps in India: The Case of Subsidy Spending first appeared on CSEP.

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Executive Summary

This academic paper investigates the potential economic and social ramifications of the European Union’s Carbon Border Adjustment Mechanism (CBAM) on the Indian economy. CBAM, designed to mitigate carbon leakage and ensure a level playing field for EU industries, introduces a carbon price on imported goods, potentially impacting developing economies reliant on carbon-intensive exports. Given the complex economic structure and trade relationships of India, this study develops a model framework for a tailored Computable General Equilibrium (CGE) model—the CSEP-CGE—to assess CBAM’s multifaceted effects.

The paper begins by providing a comprehensive overview of CBAM, its evolution from the EU Emissions Trading System (ETS), and its potential implications for developing countries. Existing literature analysing CBAM’s impact often employs gravity models, input-output analysis, or accounting approaches, each with inherent limitations. This study argues that a CGE model provides a more comprehensive and nuanced analysis due to its ability to capture the interconnectedness of economic sectors, incorporate dynamic adjustments, and assess distributional impacts across diverse household income groups.

The CSEP-CGE model framework developed here utilises a detailed production structure, distinguishing between fossil fuel and non-fossil fuel sectors, along with varying substitution possibilities for inputs. This allows for an in-depth analysis of potential shifts in production methods and technology adoption in response to carbon pricing. The model is built on the CSEP Environmentally-extended Social Accounting Matrix (ESAM) 2019–20 for India, offering a rich dataset with disaggregated sectors, households based on income quintiles, and environmental factors. This enables a granular assessment of the impacts on GDP, employment, welfare, trade, emissions, and social equity.

A key contribution of this study lies in its incorporation of a specific breakdown of trade and customs
duties for EU and non-EU countries, addressing a gap in existing single-country CGE models analysing CBAM. This enables the assessment of trade diversion possibilities for Indian firms in response to CBAM. The model can further be utilised for examining the interplay between CBAM and existing domestic carbon pricing policies in India, exploring optimal strategies for carbon pricing and revenue recycling to minimise adverse effects and promote technological advancement in relevant sectors.

The CSEP-CGE model framework provides a valuable tool for policymakers to evaluate the complex
interplay of economic and environmental considerations associated with CBAM. It allows for the
exploration of diverse policy scenarios, including the absence of domestic carbon pricing, optimal carbon pricing strategies, and alternative policy responses such as tariffs or a global carbon policy. With its nuanced sectoral focus, household disaggregation, and specific trade breakdown for EU and non-EU countries, it offers a valuable resource for navigating the complexities of CBAM and its implications for the Indian economy. This can enable policymakers to examine the distributional impacts across different household income groups and thus design effective redistribution policies and promote an inclusive energy transition. Future research can utilise this model to further investigate specific sectoral vulnerabilities, assess the efficacy of various carbon pricing mechanisms, and explore alternative taxation strategies for revenue mobilisation to support a sustainable energy transition.

The post Developing a Framework for CGE Model: Analysing the Implications of CBAM first appeared on CSEP.

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Executive Summary

Addressing the challenge of climate change demands global collective action. An emphasis on traditional North-South paradigms of resource transfer may be one of the reasons for insufficient pace and scale of mitigation and adaptation efforts. This is largely due to inadequate financing and technological barriers within an evolving geopolitical landscape. Consequently, alternative paradigms like triangular cooperation, which emphasise improved even burden-sharing and transfer of appropriate policy and technology solutions, are worth exploring.

While India has engaged in one-off, fragmented triangular projects since the 1950s, over the past decade the country has started to engage in longer-term agreements with partner countries and multilateral institutions. These agreements tend to highlight climate resilience and energy transitions as a key focus sector. It is important to analyse whether these agreements are political wish-lists, or if they can actually result in meaningful collaboration. This paper calls for an exploration of the role that triangular cooperation plays in India’s climate diplomacy. It analyses the advantages and challenges of this model, examines India’s experience and capabilities, and proposes a research agenda to inform policy decisions and unlock opportunities for triangular climate cooperation.

The Potential of Triangular Cooperation

Triangular cooperation offers a promising alternative for climate action by:

• Leveraging Strengths: It combines the technical expertise and financial know-how of Northern partners with the context-specific knowledge and experience of pivotal countries like India. This allows for more effective knowledge transfer and capacity building.
• Building Partnerships and Networks: It fosters collaboration amongst partners across regions, who may not have traditionally engaged with each other. This enables countries with shared challenges and developmental contexts to learn from each other and build lasting partnerships for climate action.
• Institutional Benefits and Low Costs of Implementation: It promotes flexibility and innovation, moving away from rigid donor-recipient models and facilitating the co-creation of tailored solutions. It also allows for the implementation of appropriate solutions, while using established institutional channels of donor partners. The comparatively lower costs of technology procurement and human resources from countries in the Global South can lead to increased efficiency of development finance compared to direct implementation by industrialised countries.

India’s Potential as a Pivotal Partner

India has valuable experience in addressing climate change within the Global South context of economic growth and sustainable development. It has pioneered appropriate, successful domestic policies, financing technology solutions in areas like renewable energy, climate-smart agriculture, and disaster risk reduction at scale. The country’s rising economic and geopolitical influence, coupled with its commitment to SouthSouth cooperation, positions it as a credible partner for driving climate action in the Global South.

To fully realise India’s potential in triangular climate cooperation, several key research areas need to be addressed:

• Triangular Cooperation Within India’s Climate Diplomacy: Amongst different venues available for India to engage in climate diplomacy, analysis on how triangular cooperation fits into the broader climate strategy and its place amongst other forms of diplomacy is required. The partners that India chooses to engage with, institutional channels, and the choices of technology shared amongst countries are important insights to understand the role that triangular cooperation can play for India to meet its aspirations to be a global climate leader. It is important to understand whether India is passive in such agreements, merely facilitating the agenda of donor countries, or whether India actively shapes the climate agenda, bringing to the table financial and technical norms, standards, and resources? If so, it is important to study what factors drive India to navigate triangular arrangements, and what its interests are. It is also important to evaluate the extent to which these agreements have been implemented and their impact and effectiveness.
• Exploring Channels of Engagement: India engages in triangular cooperation through various channels. The first is by expanding engagement with industrialised countries that India has strong bilateral relationships with by adding a recipient partner. Second, India works as a partner with multilateral agencies such as the UN to build specific funds and programmes for projects in third countries. Lastly, the most innovative option has been for the country to spearhead global triangular platforms such as the International Solar Alliance and the Coalition for Disaster Resilient Infrastructure. If India is to expand its ambitions for global climate cooperation, it becomes important to understand how and why India engages in triangular cooperation via these different institutional mechanisms across geographies and sectors. The merit of different institutional mechanisms, their usefulness, and policy recommendations to strengthen these channels can provide domestic as well as international stakeholders with important insights to increase the success of new triangular modalities, while reducing fragmentation, poor monitoring, and evaluation.
• Balancing Horizontality and Formalisation: India, along with its partner countries, would benefit from creating guidelines, norms, and structured mechanisms around triangular cooperation to ensure the elimination of hurdles in financing and institutional channels. The challenges include creating common procedures for fund disbursement, decisions on which institutions will oversee project selection and implementation, and rules for project monitoring and evaluation. At the same time, triangular cooperation is unique in that it should allow all partner countries to manoeuvre flexibly, presenting diverse perspectives toward a common goal of coordination. This flexibility is meant to provide space to move away from hierarchical donor-recipient modalities. Lastly, to optimise triangular arrangements, the approach will ideally go beyond government engagement. Therefore, questions arise on how India will formalise its engagements while maintaining space for all partners to meet their needs. Further, the increasing role of the private sector, sub-national governments and non-government organisations will have to be explored.

Triangular cooperation holds significant promise as a mechanism for accelerating climate action in the Global South. India, with its experience, expertise, and growing global stature, is uniquely positioned to be a leading force in this endeavour. This paper argues for more empirical studies to guide the creation of effective policy and build stronger domestic capacity to engage in alternate paradigms of development in emerging economies like India. By addressing the key research questions outlined in this paper and implementing the policy recommendations, India can unlock the full potential of triangular climate cooperation, solidify its role as a global climate leader, and contribute meaningfully to a more sustainable future for all. This discussion paper raises these questions to contribute to the evidence on improving global cooperation around climate change and to showcase how newer models of cooperation need to be better understood with evidence from developing countries.

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India has a vast mineral geological potential with a similar geological history to the mining-rich regions of Western Australia and Eastern Africa, and a large portion of it lies under some of the least-developed and densely-populated districts of the country. The operationalisation of mines in these areas can act as a catalyst for growth, creating much-needed jobs, increasing revenues to the states’ exchequers, and providing for the mineral security of the nation. However, despite possessing known resources of some minerals such as potash and molybdenum, India remains import dependent for many minerals, which affects the trade balance and increases the country’s supply risks. This is particularly pronounced in the case of critical minerals required to manufacture green technologies such as wind turbines, solar panels, batteries, and electric vehicles (Chadha, Sivamani, & Bansal, 2023).

The mining sector faces several challenges that impede its sustainable growth. These include environmental concerns, community welfare, outdated equipment and technologies, poor worker safety, unskilled human capital, and inadequate infrastructure. Another crucial obstacle in India is the lack of adequate mineral exploration. Exploration is the first step in the lifecycle of a mine, where various techniques (such as aerial surveys, geological mapping, and geochemical analyses) are employed to determine the shape, size, grade, and distribution of a mineral resource. Each stage of exploration (reconnaissance, prospecting, and detailed exploration) improves the knowledge of the minerals: starting with the estimation of geological potential, resources, and reserves (i.e., economically mineable resources), and finally, production. However, it is estimated that only 10% of India’s obvious geological potential (OGP) has been explored, and less than 1% of the global exploration budget is spent in India (Ministry of Mines, 2023b). India’s mining potential remains underutilised (Bhandari & Kale, 2020). As a result, many minerals remain at the resources level, with further exploration required to take them to the reserves stage.

This Discussion Note provides an overview of India’s historical, current, and proposed exploration policies, good international practices, issues with the existing system, and recommendations for creating a globally-competitive exploration regime.

The post Incentivising Non-Fuel Mineral Exploration in India first appeared on CSEP.

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The true trend in tax revenues has been obscured by pandemic-related effects, inflation, and discretionary policy changes, which hinder accurate economic assessments for several successive years.

What can we conclude about the post-pandemic recovery based on tax revenues? How much information can we derive from the observed tax buoyancy? What does it tell us about the strength of revenue growth, fiscal sustainability, and the economy’s structural features? Such questions are relevant from the standpoint of recovery from the pandemic, the resurgence of inflation, and tax policy responses in the just-concluded financial year. Given these exceptional developments, the historical relationship of tax revenues with GDP is unlikely to have remained unchanged; rather, more probably, this might have been disturbed. This note attempts to unravel these critical issues.

Tax buoyancy, a measure of how tax revenues move with changes in output,[1] reflects the underlying attributes of an economy, effective collections, and the effects of policy measures implemented over a period. In a downturn, the metric can guide the fiscal actions needed to provide demand support in case transfers or welfare expenditures were not budgeted ex-ante. Macroeconomic signals from movements in this ratio are invaluable as they inform us about the evolution of fiscal balances. A value of one, for example, would imply no change in the tax–GDP ratio, and, therefore, indicates fiscal sustainability. A value less than unity would mean a larger fiscal deficit and the consequent need for offsetting discretionary measures. A score exceeding one would reduce the deficit ratio because greater growth will raise revenues faster than the GDP. It is also the key metric that provides the revenue outlook that authorities use for their budgetary forecasts and planning. Most importantly, the automatic movement of tax revenues along with the GDP provides information on the economy’s health—the two series are highly integrated due to a long-term relationship with profits, incomes, sales, etc.—the proxy bases.

Historical relationships can, however, be disturbed by exceptional shocks that usually induce governments to change tax policy in response, called ‘additional revenue measures’ or ARMs. Such policy measures make accurate assessments difficult. Tax policies have been a particularly critical tool in many countries’ fiscal response to COVID-19. A better and more precise measure is tax elasticity, which is net of policy changes. However, this calculation requires knowledge and quantification of tax policy adjustments, about which information is mostly unavailable or incomplete.

This note discusses three significant reasons why the observed tax buoyancy in the recovery year,
FY23, must be interpreted with caution. The coincidence of unique demand and supply conditions
owing to pandemic recovery, sustained and high inflation for two years, and numerous special
measures on the revenue side make it difficult to discern the underlying signals from the observed
tax buoyancy.

The post Tax Buoyancy: Too Noisy for Signals first appeared on CSEP.

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Abstract

Mineral royalty is the economic rent due to the sovereign owner (government) in exchange for the right to extract mineral substances. The royalty may be computed on the tonnage, value or profits. India uses two types, viz., royalty based on tonnage or value. India’s mineral royalty rates are among the highest in the world, thus, impacting the competitiveness of the mining sector. The royalty payments over and above the auction premia put a heavy burden on the mining companies. Adjusting the rates in alignment with the global best practices will facilitate investment and development in the mining sector.

The post Mineral Royalty Rates: A Policy Review first appeared on CSEP.

While some clean energy solutions like solar photovoltaics are already cost-effective, many others represent a premium to fossil-fuel alternatives. The spread in prices can be bridged via carbon pricing or bypassed via other instruments such as renewable mandates.

In the cases where there is no explicit carbon price (either a carbon tax or market price determined through an emissions trading scheme), a growing number of entities use internal carbon prices (also colloquially called shadow carbon prices, though the technical meaning of a shadow price differs) to guide investments and decision-making. These are self-chosen and non-transacted (purely internal) carbon prices that are deployed either for societal benefit or, more traditionally in corporate settings, in anticipation of future high(er) carbon prices. These ostensibly prevent future stranded assets.

Similar to widely used internal carbon prices, this paper proposes the formal use of an analogous internal (and in this case lower) finance rate for choosing clean energy and low carbon infrastructure projects. While lower financing rates (cheap capital) are important for all infrastructure, traditional planning misses the dynamic nature of costs of capital (finance rates). Not only have these rates fallen over time, sector-specific rates will further drop as the sector matures. Planners may also not anticipate global finance that can step in post-facto (after the investment is made) and fill the gap between an internal finance rate and the initial project finance (market or equilibrium) rate.

Using the example of choosing to build a conventional coal power plant versus deploying solar power with a battery, we compare both instruments—internal carbon pricing and internal finance rates—to show that while both can be used to create a cross-over from conventional to cleaner energy, internal finance rates have several advantages.

Fundamentally, internal finance rates lower the project cost instead of raising the price like a carbon
tax would. Secondly, these can rely on markets and the private sector and not just the government.
Lastly, these would apply to the entire project capital costs (which are the bulk of costs for clean energy solutions) and not just fuel costs for fossil projects under a carbon tax.

This framework also aligns with global finance which is focused on emissions mitigation disproportionally through deployment of clean energy solutions. The spread in finance costs between domestic rates in developing countries and lower ones required to make clean solutions competitive can translate to global aid, other funding, or secondary risk-reduction instruments such as insurance, counter-guarantees, discounted foreign exchange hedges, etc.

Could global support pay the equivalent of a carbon tax? This appears unlikely for multiple reasons.
Could global aid directly subsidise clean energy projects? The track record hasn’t been encouraging.
This framework is a special form of support that lends itself to lowering costs in the long-term because the finance rate spread (and, thus, support required) will decrease as projects and the industry mature, independent of learning curve and technology improvements over time. The first part of this framework is the use of internal finance cost pricing for decision-making. The second part is conversion of the internal finance rates to actual finance rates, which can benefit from global support. Even the exercise of estimating the finance rate reductions required for over the crossover to clean solutions and the commensurate scale of funding is itself a useful exercise.

Given the capital-intensive nature of clean-energy solutions and the high rates of interest prevalent
in developing countries, such an instrument could help avoid substantial future emissions.

The post Potential of Lower Costs of Capital for Faster Decarbonisation in Developing Regions first appeared on CSEP.

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Abstract:

India has abundant mineral resources that have been partially converted into economically mineable resources. India is a leading producer of bauxite, iron ore, and zinc ore. While exports of non fuel minerals and ores (excluding diamond and precious stones) are US$ 6.6 billion(2019-20),the exports of metals and alloys (excluding precious metals) are much higher at US$ 23.2 billion (2019-20). Similarly, the imports of metals and alloys (excluding precious metals) are higher than non-fuel minerals and ores (excluding diamond and precious stones) at US$ 27.5 billion (2019-20) and US$ 6 billion (2019-20), respectively. The mining sector was opened up to 100 per cent Foreign Direct Investment (FDI) in 2000 to promote exploration and investment. However, from April 2000 to September 2021, the FDI inflows in the mining sector account only for about 0.54 per cent (US$ 3 billion) of the total FDI inflows in the country. In May 2020, the central government launched the Atmanirbhar Bharat Abhiyan to make India self-reliant and attract more investment in the mining sector. This discussion note portrays the trade export-import and price patterns of metals and minerals, including bauxite, iron ore, copper, lead, zinc, magnesite, and phosphates. The nominal and effective rates of minerals and metals are also computed. Finally, it summarises the status of foreign investment and the bilateral relations with other mining jurisdictions.

The post Non-fuel Minerals and Metals: India’s Trade and FDI Scenario first appeared on CSEP.

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Abstract:

The paper aims at analysing Judicial efficiency for Supreme Court, high courts and subordinate courts of India. The data is taken from Annual Reports published by the Supreme Court from 2015-16 to 2018-19. Analysis is mainly based on investigating pendency in these courts and the reasons for the ever-increasing pendency. Lack of number of judges required to dispose off cases turns out to be the major reason for this problem, thereby affecting efficiency of courts. We analyse this using various regression techniques while highlighting the importance of effective justice delivery.

The post Analysing Judicial Efficiency of Indian Courts first appeared on CSEP.

Executive Summary:

While urban population is consistently rising in India, urban services have not been able to keep up with the growing needs. For example, only 75-80% of municipal waste is collected, a marginal improvement from 72% in 2010, and out of this, only about 22-28% is processed and treated. There is near unanimity that Indian Urban Local Bodies(ULB) need more funding to deliver better. However, given the enhanced fiscal stress due to COVID and now due to the Russia-Ukraine war, unlikely that ULBs will see significantly more devolution of funds in the near to medium term. Service delivery needs to be improved urgently, since cities are estimated to contribute about 63% of our NDP and hence deterioration in service delivery levels will impact their growth potential. The question policy makers need to ask is, are there ways of improving service delivery, without spending more? Thankfully the answer is yes; and it has to do with improving the spend efficiency.

Comparing expenditure on SWM and cleanliness performance for 11 municipalities, we find out that there is no systematicity between increase in expenditure and improved performance. This reinforces the findings of our Working Paper last year, where we had analysed outcome and performance of 27 municipalities for 2016 and concluded that 19 of these 27 spend more than the benchmark amount on SWM and none have perfect score on cleanliness and higher expenditure explains 23% of variation in performance.

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The post Revisiting the role of funding: Lessons from expenditure and performance on cleanliness in an inter-temporal setting first appeared on CSEP.

Abstract

The government introduced the District Mineral Foundation Funds (DMF) scheme in 2015 as a benefit-sharing scheme with the mining-affected communities. Under the DMF scheme, the mining companies would pay 30 percent of the royalty amount for leases granted before 2015 and ten percent by the leases granted through the auction mechanism post-2015. DMF funds are non-profit and independent trusts linked to the Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY). It implements various welfare programmes for the mining-affected communities and the environment. At least 60 percent of the DMF funds should be utilised for high-priority areas. This note analyses the collection, allocation, and expenditure patterns in India’s top 12 mining states through a DMF Utilisation Index (DMFUI). The DMFUI analyses the states on quantitative indicators such as the allocation to collection ratio and expenditure to collection ratio, and the qualitative indicators like the percentage of DMF allocation towards high-priority areas and the spread across priority areas. Chhattisgarh ranks number one and performs consistently better than the other states in all the indicators. The index shows the diversity of DMF welfare spending across select twelve states.

Mining is an important primary sector providing raw material to manufacturing sectors. While the mining operations provide employment opportunities and infrastructure facilities to local communities, these may also lead to negative externalities, including adverse environmental, health, and livelihood effects (Antoci, Russu, & Ticci, 2019) . The Indian government took cognisance of the welfare of the mining-affected communities, including tribal and forest-dwelling communities and hence, introduced the District Mineral Foundation (DMF) fund in March 2015 under the Mines and Minerals (Development and Regulation) (MMDR) Amendment Act 2015. Section 9B of the MMDR Amendment Act 2015 instructed the establishment of a DMF fund in every district affected by mining activities. Under the DMF scheme, the mining companies would pay 30 percent of the royalty amount for leases granted before 2015 and ten percent by the leases granted through the auction mechanism post-2015.

The DMF aims to work for the interest and benefit of persons and areas affected by mining-related operations (Ministry of Mines, 2015a). The DMF fund recognises local communities as equal partners in natural resource-led development and the protection of the environment. The fund provides a mechanism for benefit-sharing with mining-affected communities. It is a special fund that is not tied to any particular scheme or area of work, and it does not lapse at the end of each financial year. Instead, the unused funds get accumulated over the years. Currently, DMF funds have been set up in 600 mining-affected districts in 22 states of India. Non-profit trusts manage these funds. Each district has a separate trust.

In September 2015, the central government announced the Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY) to transform people’s living standards and develop the mining-affected areas. The overall objectives of the PMKKKY scheme are as follows (Ministry of Mines, 2017):

(a) To implement various developmental and welfare projects/programs in mining-affected areas. These projects/programs will complement existing ongoing schemes/projects of state and central governments.

(b) To minimise/mitigate adverse impacts during and after mining on the environment, health and socio-economics of people in mining districts.

(c) To ensure long-term sustainable livelihoods for affected people in mining areas.

Under Section 20A of the MMDR Act, all the states would incorporate the PMKKKY into DMFs rules. Accordingly, the DMFs shall implement the PMKKKY in their respective districts. At least 60 percent of the DMF funds will be utilised for high-priority areas, including (a) drinking water supply, (b) environment preservation and pollution control measures, (c) healthcare, (d) education, (e) welfare of women and children, (f) welfare of aged and disabled people, (g) skill development, and (h) sanitation. The rest of the funds will be utilised for other purposes: (a) physical infrastructure, (b) irrigation, (c) energy and watershed development, and (d) any other measures for enhancing environmental quality in mining districts.

In March 2020, the central government issued additional instructions regarding the DMF funds. The guidelines suggested that up to 30 percent of the funds could be used towards expenditure related to COVID-19.  According to the MMDR Amendment Act 2021, the central government may also give direction regarding the composition and utilisation of the fund while state governments continue to prescribe the constitution and functions of the DMF. On July 12, 2021, the central government issued an order detailing that “no sanction or approval of any expenditure out of the DMF fund shall be done at the state level by the state government or any state-level agency” (Ministry of Mines, 2021b).

Rs 53,830 crore have been collected towards the DMF funds between 2015 and September 2021. About 39 percent (Rs 20,766 crore) has been collected from coal and lignite, 50 percent (Rs 27,108 crore) from major minerals other than coal and lignite and the remaining 11 percent (Rs 5,956 crore) from minor minerals (Ministry of Mines, 2021a). The key mining states in India are Andhra Pradesh, Chhattisgarh, Goa, Gujarat, Jharkhand, Karnataka, Madhya Pradesh, Maharashtra, Odisha, Rajasthan, Tamil Nadu and Telangana. These top 12 mining states account for 96.4 percent of the total DMF collection in the country. Annex-1 provides the amounts collected, allocated and spent by the top 12 mining states.

The top four states—Odisha (Rs 14,934 crore), Chhattisgarh (Rs 7,651 crore),  Jharkhand (Rs 7,393 crore), and Rajasthan (Rs 5,468 crore)—account for almost 66 percent of the total DMF collection in the country. While a majority of the DMF fund in Odisha (77 percent), Rajasthan (82 percent) and Karnataka (85 percent) come from major non-fuel minerals, Jharkhand collects 78 percent of its DMF from coal and lignite (Figure 2). Other states with high DMF collection from coal and lignite are Telangana (89 percent), Maharashtra (88 percent), Madhya Pradesh (70 percent) and Chhattisgarh (54 percent).

Odisha has the highest DMF collection at Rs 14,934 crore but has only spent 50 percent of it. On the other hand, Chhattisgarh collected Rs 7,651 crore and spent 68 percent (Ministry of Mines, 2021a) Table 1 shows the collection, allocation and expenditure pattern in the top 12 mining states of India. Four states—Odisha, Telangana, Gujarat and Karnataka—allocated a higher amount than the DMF fund collection. However, the allocation of funds does not necessarily translate into actual expenditure. For example, while Odisha allocated the highest amount, it spent only 49 percent. Similarly, Karnataka allocated about 1.26 times its DMF collection but spent only 31 percent of its allocated funds (39 percent of the total collection).

As mentioned in Section 1, the PMKKKY guidelines suggest that at least 60 percent of the DMF funds are utilised in high-priority areas. However, the distribution within the high-priority and other priority areas has not been prescribed. Given the lack of data and other information, we assume an even distribution across the priority areas is better than concentrating the utilisation over a few. A good measure to evaluate the utilisation of DMF funds is the coefficient of variation (standard deviation divided by mean) across different areas of expenditure. A lower coefficient of variation indicates a better distribution. Table 3 shows the distribution of sector-wise allocations in 10 out of 12 top mining states (issues of data availability). Jharkhand has allocated the largest portion of its DMF funds towards high-priority areas (89 percent). However, the state shows a poor coefficient of variation across high-priority areas and other priority areas. Table 6 shows the detailed sector-wise allocations for the ten states.

Objectives

The PMKKKY suggests allocating at least 60 percent of the DMF fund to high priority areas such as drinking water supply, education, health, environment preservation and conservation, women and child welfare, the welfare of the aged and disabled, skill development and sanitation (Ministry of Mines, 2015b). The rest of the fund can be used towards other priority areas, including physical infrastructure, irrigation, energy development, and any other measures for enhancing the environmental quality of the mining areas.

The DMF Utilisation Index (DMFUI) is computed as a composite of quantitative and qualitative measures to gauge how well the fund has been spent. While the total DMF allocation and expenditure of a state or a district is the quantitative indicator of DMF utilisation, it is equally important to analyse the qualitative spread across various priority areas. Some states do better than others in achieving the objectives. The districts within a state also differ in the quantum and quality of their spending. However, updated and pertinent data is not available for all the states and districts. Based on the data available, the present study computes the DMFUI for ten states, viz Andhra Pradesh, Chhattisgarh, Gujarat, Jharkhand, Karnataka, Maharashtra, Odisha, Rajasthan, Tamil Nadu and Telangana.

Methodology

The state-level index attempts to study the expenditure patterns in 10 of the 12 top mining states, viz Andhra Pradesh, Chhattisgarh, Gujarat, Jharkhand, Karnataka, Maharashtra, Odisha, Rajasthan, Tamil Nadu, and Telangana. These states are analysed on five different indicators: quantitative indicators such as (a) allocation to collection ratio and (b) expenditure to collection ratio; and the qualitative indicators like (c) the share of allocation on high priority areas, (d) the spread of the allocations across high-priority areas, and (e) the spread of allocations across other priority areas. The other two states, viz Goa and Madhya Pradesh, could not be indexed due to the non-availability of the requisite data.

Each of these five indicators is normalised using the min-max transformation method. The minimum and maximum values have been fixed for each indicator. The normalised score ranges from 0 to 100.

The indicators are given different weights. The quantitative indicators are given a weight of 50 percent—one-third to allocation/collection and the remaining two-thirds to expenditure/collection. While the allocation data signals intentions, the expenditures represent the work being accomplished, and hence a higher weight is assigned to expenditure/collection than to allocation/collection. The remaining 50 percent is equally divided among the three qualitative indicators. A weighted average of these five indicators is used to calculate the final score of each state. The weighting diagram is given in Table 4.

The DMF index study draws upon the methodologies used in the Centre for Social and Economic Progress (CSEP) Sustainable Mining Attractiveness Index (Chadha, Kapoor, & Sivamani, 2021) the Annual Survey of Mining Companies by the Fraser Institute (Canada) (Steadman, Yunis, & Aliakbari, 2020) and the State Investment Potential Index by the National Council of Applied Economic Research (NCAER) ^{(NCAER, 2018)}.

The weighting diagram was checked for heterogeneity by simulating the weight distribution between quantitative and qualitative indicators. Increasing the weight of the quantitative indicators to 60 percent and reducing that of the qualitative indicators to 40 percent did not affect the order of the results. Further, a similar simulation by reducing the weight of the quantitative indicators to 40 percent and increasing that of the qualitative indicators to 60 percent did not distort the order of the original equal-weights results. Hence, equal weights between the quantitative and qualitative indicators have been chosen.

Data Sources

Data has been collected through various secondary sources on the five indicators mentioned in the previous section. These sources include government data from the central and state levels. Table 5 gives the detailed list of these sources. Six states have the latest data available on their Directorate of Mines and Geology (DMG) website. However, for four states, data from the CSE report (Shalya, 2020) have been used, which provide sector-wise allocations as of November 2019.

Indicators and Sub-Categories

The DMFUI analyses the quantitative and qualitative aspects of the fund expenditure and its spread. As mentioned in Table 3, the index is based on five indicators:

Allocation to Collection Ratio

This ratio is an important indicator of the longer-term intentions of the states towards spending the DMF funds. A higher ratio indicates better allocation of the DMF collection. As mentioned in section 2, Karnataka has allocated 125 percent of its DMF collection while Goa has allocated only 32 percent of its total DMF collection.

Expenditure to Collection Ratio

The expenditure to collection ratio is an indicator of the real-time expenditure patterns of the state. A higher ratio signifies better current/ongoing performance. Karnataka allocated 125 percent of its DMF collection but spent only 39 percent of its total collection on various projects. Chhattisgarh spent the highest percentage of DMF collection (68 percent) although it allocated almost 98 percent of the DMF collection.

Percentage of Total Allocations to High-Priority Areas

The states and districts could have been directly graded based upon their relative allocation and expenditure patterns. However, at the same time, it is important to capture the qualitative aspects of their allocation patterns. For example, Gujarat allocated almost 82 percent of its DMF collection to high-priority areas, while Tamil Nadu allocated the lowest percentage (54 percent) towards high-priority areas. This indicator helps us capture the adherence to the PMKKKY rules, which mentions that at least 60 percent is spent on high-priority areas.

Spread of Allocations in High-Priority Areas

The fourth indicator measures the spread of allocations across high-priority areas. The spread of allocations is an important qualitative aspect. There are eight high-priority areas (drinking water supply, environment, health care, education, women and child welfare, the welfare of aged and disabled, skill development, and others). Different states might have different priorities across the eight high-priority areas. In the absence of such information, we assume an even spread would be better than allocating to just a few priority areas. The coefficient of variation is used to measure the spread of allocations across the eight high-priority areas. Telangana has the lowest coefficient of variation, indicating a better distribution of the DMF funds across various high-priority areas. Jharkhand shows the worst spread as it has focussed its DMF fund utilisation on drinking water supply projects (77 percent).

Spread of Allocations in Other priority Areas

The fifth indicator measures the spread of allocations across other priority areas. There are four other priority areas (physical infrastructure, irrigation, energy development, and others). The coefficient of variation is used to measure the spread of allocations across the four other priority areas. Tamil Nadu has the lowest coefficient of variation indicating a better distribution of the DMF funds across various other priority areas. On the other hand, Jharkhand shows the worst spread as it has focussed its DMF fund utilisation on other measures for enhancing the environmental quality in the mining districts (11.4 percent).

Background

Table 6 gives the details of the state-level allocation patterns. The table shows that seven out of ten states (Andhra Pradesh, Chhattisgarh, Karnataka, Maharashtra, Odisha, Rajasthan, and Telangana) allocated a majority of their DMF funds to physical infrastructure projects. On the other hand, Gujarat allocated most of the funds to education, Jharkhand allocated the majority of DMF funds to drinking water supply, and Tamil Nadu allocated the largest share to their drinking water supply.

Results

The states are ranked according to their index score, which was calculated using the methodology mentioned in section 3.2. Table 7 shows the index score and rank of the ten states. Chhattisgarh ranks first, followed by Telangana (2), Gujarat (3), Karnataka (4) and Odisha (5). The states in the bottom ranks are Tamil Nadu (6), Maharashtra (7), Rajasthan (8) Jharkhand (9) and Andhra Pradesh (10). Chhattisgarh gets a top score on account of its high expenditure to collection ratio (68 percent), high allocation to collection ratio (98 percent), low coefficient of variation in both high-priority (0.92) and other priority areas (1.3) and high allocation to high-priority areas (62 percent). On the other hand, Andhra Pradesh gets the lowest score because of the lowest expenditure to collection ratio (30 percent), high coefficient of variations in high-priority (1.4) and other priority areas (1.9) and lowest allocation to high-priority areas (41 percent).

On March 26, 2020, the central government announced that state governments could use DMF funds to augment healthcare including supplementing healthcare facilities, screening and testing requirements, and any other support required (Banerjee, 2020). However, according to the directives issued by the government, the usage of the DMF funds for COVID-19 relief is capped at 30 percent of the funds left unused (Banerjee, 2020). The central government also specified that the funds should be used in those districts where at least one COVID-19 patient has been identified.

While the larger clusters of COVID-19 were concentrated in cities and major town centres, the migration of labourers to rural areas was a cause of concern regarding the spread of COVID-19 to remote areas. In most rural districts, there is a shortage of healthcare facilities such as primary healthcare centres (PHCs) and community healthcare centres (CHCs). As mentioned in the previous sections, the fund’s focus is on physical infrastructure including the construction of major roads in most states. Expenditure to other major socio-economic sectors such as women and child welfare, healthcare and livelihood support has not been optimal.

The provision of the DMF funds for COVID-19 relief is crucial for these rural mining districts as it has been used to procure testing equipment, personal protective equipment (PPE) kits, and the equipment required in ICUs, such as ventilators. In addition, it has also been used to train frontline workers.

The second wave of COVID-19 in India was much worse than the spread of the pandemic earlier. In Karnataka, DMF funds were utilised to procure oxygen cylinders and concentrators to mitigate death during the second wave (News 18, 2021). In addition to this, the funds were used to set up oxygen plants in ten district hospitals to ensure uninterrupted supply of oxygen (Hindu BusinessLine, 2021).

Goa also diverted its DMF funds for COVID-19 relief. As Table 8 indicates, Goa spent about 12 percent of its remaining funds on COVID-19. Since the pandemic began in March 2020, the funds have not been utilised for any other sector in the state. Instead, the funds were used to procure thermal imaging cameras, quattro machines, test kits, PPE kits and micro PCR systems for hospitals in the major cities of the state (Vohra, 2021).

The DMF funds were launched in March 2015 under the MMDR Amendment Act 2015. This note provides an analysis of how well have these funds been utilised across ten states.  For DMF objectives to succeed, the districts must focus on spending accumulated resources with due shares on high-priority areas and other priority areas.

The top six DMF-collecting states, cumulative until September 2021, include Odisha, Chhattisgarh, Jharkhand, Rajasthan, Madhya Pradesh and Telangana, accounting for 80 percent of the total DMF collections in the country. On the other hand, the six low DMF collecting states include Karnataka, Maharashtra, Andhra Pradesh, Gujarat, Tamil Nadu and Goa, accounting for 17 percent of the total DMF collections in the country. Only three states spent more than 60 percent of their collections, Chhattisgarh (68.5 percent), Tamil Nadu (61.3 percent) and Telangana (61.2 percent). One state spent more than 50 percent (Jharkhand) and all others less than 50 percent—Goa spent the lowest at 17 percent. However, some states have allocated spending amounts higher than their corresponding collections, Karnataka at 125.5 percent, Telangana at 115.1 percent, Gujarat (110.7 percent) and Odisha at 102.7 percent. Jharkhand, Gujarat, Karnataka and Chhattisgarh have made allocations of more than 60 percent to their high-priority areas. Some states, such as Karnataka, Chhattisgarh, and Telangana, have made relatively even allocations across the eight high-priority areas. Four states, viz Chhattisgarh, Tamil Nadu, Gujarat, and Odisha, have made relatively even allocations in the four other priority areas.

Chhattisgarh emerges as a clear winner, with DMF spending features consistently better than other states. It has allocated about 98 percent of its collections to various PMKKKY-identified areas and spent close to 69 percent of its allocations and collections (cumulative up to September 2021). Apart from these quantitative measures, Chhattisgarh allocated 62 percent of its total collections on the PMKKKY high-priority areas. Further, the allocations are relatively evenly spread across high-priority and other priority areas with low coefficients of variation across areas under the two categories.

Measured on a similar yardstick as Chhattisgarh (1), the other four states in the top five include Telangana (2), Gujarat (3), Karnataka (4) and Odisha (5). The states that should aspire to push up their PMKKKKY objectives include Tamil Nadu (6), Maharashtra (7), Rajasthan (8), Jharkhand (9) and Andhra Pradesh (10). Two of the bottom five states are among the high DMF-collecting states, viz Jharkhand and Rajasthan. The other three are in the low DMF-collecting group, viz Andhra Pradesh, Tamil Nadu and Maharashtra.

While a majority of the states have allocated relatively large proportions of their DMF funds to the improvement of physical infrastructure (not included in high-priority areas), other states have focussed on high-priority areas (Table 6). For example, Gujarat, Tamil Nadu and Jharkhand have allocated large proportions of their funds to the drinking water supply.

A major issue faced while creating the utilisation index was the poor quality of available data. The PMKKKY guidelines mention that each DMF trust fund has to maintain a website that provides updated data relating to affected areas and people and sector-wise details on the funds’ collection, allocation, and expenditure. However, only two states’ websites have provided updated district-level data on their DMF funds, though not fully.

While the DMF administration comes under the purview of the districts and states, the new 2021 MMDR amendments have given greater power to the central government regarding the composition and utilisation of the funds. The central government has ordered that no sanction or approval of any expenditure out of the DMF fund shall be done at the state level by state governments or any state-level agency. While it may not be easy for the central government to assess specific local needs, the increased supervision would motivate the districts to spend the DMF funds instead of accumulating these without spending. However, the central government must be cautious of the local district-level characteristics. As the DMF fund does not lapse at the end of the financial year, the provisions give a huge scope to plan its use, improve and expand upon what already exists. Currently, the DMF is being treated as any other development or infrastructure fund when it can be utilised for more than that. With the central government getting more decision-making power, the DMF fund might get utilised to improve the livelihoods of mining-affected people and regions.  Additionally, the Central Government has directed the DMF trust funds to set up a 2-tier administrative committee to ensure effective implementation of the PMKKKY scheme focussed on the affected mining communities (Ministry of Mines, Government of India, 2021).

The central government allocated part of the accumulated DMF funds for COVID-19 care in March 2020. The directive issued specified that up to 30 percent of the funds can be utilised for COVID-19 relief. The districts utilised the funds to provide PPE kits, procure testing equipment and equipment required in ICUs in areas with poorer healthcare facilities. Andhra Pradesh has spent the largest proportion (almost 21 percent) of its remaining DMF funds on COVID-19. Tamil Nadu, Goa and Gujarat have also spent more than ten percent of their remaining DMF funds towards COVID-19. However, states such as Chhattisgarh, Jharkhand, Madhya Pradesh, and Rajasthan have spent less than one percent towards COVID-19.

Antoci, A., Russu, P., & Ticci, E. (2019). Mining and Local Economies: Dilemma between Environmental protection and Job opportunities. Sustainability. Retrieved from https://www.mdpi.com/2071-1050/11/22/6244/htm

Banerjee, S. (2020). Utilising District Mineral Foundation funds to fight the COVID-19 crisis in India: Current and future opportunities. Brookings India. Retrieved from https://csep.org/blog/utilising-district-mineral-foundation-funds-to-fight-the-covid-19-crisis-in-india-current-and-future-opportunities/

Chadha, R., Kapoor, I., & Sivamani, G. (2021). CSEP Sustainable Mining Attractiveness Index: District-level study of Jharkhand. CSEP. Retrieved from https://csep.org/working-paper/csep-sustainable-mining-attractiveness-index-district-level-study-of-jharkhand/

Hindu BusinessLine. (2021, May 15). Karnataka to utilise DMF fund to buy oxygen tankers, concentrators. Retrieved from https://www.thehindubusinessline.com/news/national/karnataka-to-utilise-dmf-fund-to-buy-oxygen-tankers-concentrators/article34567331.ece

Ministry of Mines. (2015a). Achievements / Highlights of Ministry in the current tenure of Hon’ble Minister of Steel & Mines. Retrieved from https://mines.gov.in/writereaddata/Content/highlights.pdf

Ministry of Mines. (2015b). Order dated September 2015 – PMKKKY. Retrieved from https://www.dmf.cg.nic.in/pdf/PMKKKYorder.pdf

Ministry of Mines. (2017). Brief note on Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY). Retrieved from https://mines.gov.in/writereaddata/UploadFile/Breif%20note%20on%20PMKKKY.pdf

Ministry of Mines. (2021a). DMF Fund Status upto September 2021. Retrieved from https://www.mines.gov.in/writereaddata/Content/DMF%20DATA%20Till%20September%202021.pdf

Ministry of Mines. (2021b). Utilisation of DMF funds – Order Dated 12th July 2021. Retrieved from https://mines.gov.in/writereaddata/UploadFile/Orderdated12thJuly2021.pdf

Ministry of Mines, Government of India. (2021, December 13). Mining Sector Welfare Schemes introduced. Retrieved from Press Information Bureau: https://pib.gov.in/PressReleasePage.aspx?PRID=1780893

NCAER. (2018). Press Release: NCAER releases its N-SIPI 2018, the NCAER-STATE INVESTMENT POTENTIAL INDEX. Retrieved from https://www.ncaer.org/news_details.php?nID=260

News 18. (2021, May 15). Karnataka Decides to Utilise DMF Fund to Purchase Oxygen Tankers, Concentrators, Pulse-oximeters. Retrieved from https://www.news18.com/news/india/karnataka-decides-to-utilise-dmf-fund-to-purchase-oxygen-tankers-concentrators-pulse-oximeters-3741689.html

Shalya, C. (2020). DMF: Implementation Status and Emerging Best Practices. Centre for Science and Environment. Retrieved from https://www.cseindia.org/dmf-implementation-status-and-emerging-best-practices-10057

Steadman, A., Yunis, J., & Aliakbari, E. (2020). Annual Survey of Mining Companies. Fraser Institute. Retrieved from https://www.fraserinstitute.org/studies/annual-survey-of-mining-companies-2019

Vohra, S. (2021, March 16). Majority of Goa’s utilised DMF funds diverted to coronavirus relief. Mongabay. Retrieved from https://india.mongabay.com/2021/03/majority-of-goas-utilised-dmf-funds-diverted-to-coronavirus-relief/

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Abstract

Mining is an important activity for the growth and development of the country. However, many of the regions with rich mineral resources in India are inhabited by some of the poorest communities. While the expansion of mining activities may benefit the affected local communities, it may harm them if their benefits do not offset the negative impact on their habitat and earnings. Mining can also have adverse environmental impacts. Some of the mining court cases discussed in this note are examples of poor implementation of the laws protecting the environment and the local communities. The growth and development of the mining sector must ensure benefits to the local communities and environmental protection.

Executive Summary

Since it was a part of the ancient supercontinent Gondwana region, India’s mineral geology has been documented to be similar to Western Australia, South America and South Africa. However, only 10 percent of India’s Obvious Geological Potential (OGP) has been explored, so there is an urgent need to incentivise exploration by the government and private players. This would enable the optimum use of the hitherto unexplored geological mineral abundance. Furthermore, expanding a vibrant non-fuel mining sector could provide employment opportunities for local communities, fiscal gains for state governments, and create linkages with downstream industries.

India recognises a healthy environment as a right to life. Article 21 of the Constitution states that the “right to live is a fundamental right under Article 21 of the Constitution and includes the right to the enjoyment of pollution-free water and air for full enjoyment of life. If anything endangers or impairs that quality of life in derogation of laws, a citizen has the right to have recourse.” Along with the right to a clean environment, the Supreme Court has held the right of citizens’ liberty and scope of engagement in decisions of development projects. Some of the significant court judgements regarding mining conflicts in India have been discussed in this note. These judgments cover topics important for the mining business in India, including environmental clearances, tribal rights, fragile ecosystems, illegal mining, overproduction, intergenerational equity, mine closures and rehabilitation of degraded lands.

Mineral-rich areas should be prepared for a smooth transition to begin mining activities. By carefully integrating all the pillars—people, planet, prosperity, peace, and partnership of sustainable development—the mining sector will contribute to achieving SDGs in a meaningful manner.

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The recently released National Family Health Survey (NFHS 5) data presents some good and some sober news. Combined with the latest National Health Accounts (for 2017-18), also recently released, this paper attempts to outline some of the emerging priorities for health policy in India.

That there has been progress between 2014-15 and 2019-2020 on multiple health indicators is evident from the data released. The most prominent area of progress has been on Total Fertility Rate (TFR), which now stands at 2.0; below the replacement level of 2.1. While state differentials continue to exist, most states have made progress and the country as a whole is doing well on containing population. What this also suggests is the implications for women, who will be able to better manage their own and their children’s health, and as a family invest more on education for their children.

Declines in most mortality indicators – neonatal mortality rate (NMR), infant mortality rate (IMR) and under five mortality rate (U5MR)– point to better coverage of health interventions, and a better performing health system. Improved coverage is also evident from data on immunisation, Ante Natal Care (ANC) coverage, institutional deliveries, and other process indicators, all of which would have contributed to improve mortality outcomes.

The progress on nutrition, while present, is marginal, with a very small increase in the proportion of severely wasted children.

The progress on nutrition, while present, is marginal, with a very small increase in the proportion of severely wasted children. India has struggled with high levels of stunting, and this has reduced from 38.4 to 35.5. Progress in stunting is seen in the less developed states, largely in north and east India, including Bihar, UP, Rajasthan, Jharkhand, MP, Orissa. Some of the southern and western states have fared worse on stunting such as Maharashtra, Gujarat, Kerala and Telangana.

On the sober side, the country continues to fare poorly on several nutrition indicators with increasing incidence of overweight children and rising anaemia amongst children and women. A worsening status since the last round of the survey in 2014-15 is highlighted by the increase in the proportion of anemic children from 58.6 to 67.1 percent, in pregnant mothers from 50.4 to 52.2 percent, and amongst all women of reproductive age from 53.1 to 57 percent.

Non communicable diseases have increased, with higher levels of blood sugar incidence and hypertension.

On the process front, while institutional deliveries have increased, the proportion of caesarean section births have also increased. Coverage on four ANCs shows an increase of about 13 percentage points in the 2015-2020 period, and immunisation levels 23 percentage points.

Beyond health, coverage indicators for basic needs such as electricity, drinking water source, sanitation, clean cooking fuel have all improved, though some marginally, all of which have implications for health status. Some of these improvements point to the success of national programs such as Swachh Bharat Abhiyan aimed at sanitation and Ujjwala Yojana aimed at clean cooking fuel through LPG.

An analysis of expenditure on health, per the National health Accounts 2017-18, reveals an increase in government health expenditure (GHE) and a consequent reduction in out of pocket expenses on health (OOPs). Some scholars have argued however, that the reduction in OOP is due to forgone care, resulting from distress1. A reduction in unmet need could well account for the reduction in total health expenditure.

Of total government health expenditure, 54.7 percent is directed at primary care, 31.5 percent at secondary care and 6.4 percent at tertiary care. The respective figures for private providers is 37.6 percent, 36.3 percent and 23.3 percent. Compared with previous years, while there is an increase in government primary care expenditure, it is not significant.

Alongside acknowledging improvements in the health status, a disaggregated analysis suggests emerging policy priorities going forward. The analysis below is based on the data currently available, which does not include disaggregation by urban/rural, gender or income level. On the availability of disaggregated details, a deeper analysis will be possible. This section compares change across two survey periods: 2005-2015 and 2015-2020. While we recognise that they are not the same duration, comments on the change account for the 10 year versus five year period, with the caveat that change does not necessarily have to be linear.

Mortality Declines 

While Neonatal Mortality Rate (NMR), Infant Mortality Rate (IMR) and Under 5 Mortality Rate (U5MR) have all declined, the rate of decline has slowed: the change for NMR across NFHS 4 and 5 (2015-2020) is one third or less of the change across NFHS 3 and 4 (2005-2015) for states with the highest NMR (Kerala, Tripura and Arunachal Pradesh). Having the change in the 2005-2015 period for ease of comparison with 2015-2020 period also points to a slower decline in the later period. IMR declines show a similar trend, with multiple states witnessing a sharp decline in the rate of improvement between the two period: a 94 percent drop for Maharashtra, 66 percent for Kerala, 76 percent for Tamil Nadu. The trend is the same for most of the less developed northern and eastern states, with the exception of Uttar Pradesh which shows an increase in the rate of change (across NMR, IMR and U5MR). The data reveal similar overall trends for U5MR.

Even though many developing states such as Madhya Pradesh, Chhattisgarh, Odisha, Rajasthan, have shown signs of improvement in child nutrition but in absolute terms, they are far behind states such as Kerala and Tamil Nadu.

Though mortality rates have declined in the successive NFHS surveys, India continues to be behind in terms of achieving targets set in the National Health Policy 2017 (NHP 2017). The policy set IMR, NMR, and U5MR targets at 28 by 2019, 16 by 2025, and 23 by 2025; the current status being 35.4, 24.9, and 41.9, respectively. The status of mortality rates at the state level reveals high variations. Data reveal vast differences across states from mean value of mortality rates: NMR (mean- 19, high (25+) for seven states, low (15-) for eight states), IMR (mean-28, high (above 35) for eight states, low (below 15) for four states), U5MR(mean-33, high(above 40) for eight states, low (below 20) for five states. The significant differences in the mortality rates across states, such as Kerala (NMR 3.4, IMR 4.4, and U5MR 5.4), and Bihar (NMR 34.5, IMR 46.8, U5MR 56.8), poses questions on the implementation of child related health and nutrition programmes, especially in terms of reducing gaps between states. Existing evidence has pointed to the criticality of the first 1000 days for children to survive and thrive, with food and nutrition being immediate drivers of child malnourishment, contributing to mortality. The NFHS 5 data suggests that the percentage of severely acute malnourishment has increased in many states including Andhra Pradesh, Telangana, Assam, Gujarat, and Maharashtra. Even though many developing states such as Madhya Pradesh, Chhattisgarh, Odisha, Rajasthan, have shown signs of improvement in child nutrition but in absolute terms, they are far behind states such as Kerala and Tamil Nadu.

Maternal Health 

While increase in institutional births indicates successful implementation of cash transfer incentives through Janani Suraksha Yojana and other state specific programmes related to deliveries, it is observed that birth due to caesarean has also increased simultaneously. While the national average has witnessed an increase of 25 percent of caesarean births over NFHS 4 data, states such as Tamil Nadu witnessed a 32 percent increase, Orissa 56 percent. The increase in public facilities is higher, at 20 percent, although at 14 percent caesarean sections currently, that remains within the medical norms. Caesarean births in private facilities, at 47 percent are extraordinarily high, pointing to the need for greater regulation of maternal deliveries. Moreover, despite deliveries being covered within insurance schemes, out of pocket expenses (though reduced) remain.

Even though WHO guidelines related to deliveries suggest that birth due to caesarean (for medical reasons) should typically be in the range of 15%, many states such as Kerala, Tamil Nadu, Telangana, Andhra Pradesh etc., had already crossed this limit in 2015 (NFHS4 data). NFHS5 data now suggests that rate of birth due to caesarean sections is increasing at a significant rate in the developing states as well. The rate of change is above 50% in Bihar, Uttaranchal, Chhattisgarh, and Odisha. Existing research has suggest a correlation between birth due to caesarean and maternal and child mortality (Leonard, Main, & Carmichael, 2019). The increasing rate of caesarean deliveries in developing states could be a cause for concern for maternal and child mortality, which is already high in these states (as per sample registration system data 2016-18, average Maternal Mortality Rate of developing states is 161). It has also been found that children who are born due to caesarean are more likely to be obese and vulnerable to respiratory infection (Temmerman & Mohiddin, 2021). Given the fact that the percentage of overweight children has also increased during the same period (2015-2020), how far the increase in overweight children is related to caesarean births will be an important question for inquiry.

Progress on ANCs and immunisation in the 2015-2020 period is significantly slower than the period of 2005-2015, where ANC cover improved 241 percentage points and immunisation cover 42 percentage points in the 2005-2015 period as compared with 13 and 23 percentage in the latter period. At current cover of 51 and 76 percent respectively, these remain low. Importantly, variations in ANC coverage across states are wide: Goa, Tamil Nadu, and Jammu and Kashmir registered more than 80 percent ANC coverage whereas Bihar (25.2%), and Nagaland (20.7%), have less than 30 percent coverage. The good news is that improvements in the ANC coverage during 2015-2020 period are relatively greater across the less developed states such as Bihar, UP, Uttaranchal, MP, Rajasthan. Immunisation coverage has declined, though very marginally, in Kerala, Goa, Sikkim and Punjab, but improved in most states. The status in vaccination coverage is different where states such as Kerala, Punjab, Haryana, Gujarat, and Maharashtra, have not performed well, registering less than 80% coverage, and EAG states such as Odisha, Rajasthan, and Uttaranchal, have registered more than 80% vaccination of children under five.

Nutrition 

Improvements in stunting have been noted by the survey, with two aspects that stand out. One, stunting levels have largely improved amongst the less developed states such as Bihar, UP, Jharkhand, Madhya Pradesh, Rajasthan, but increased in some of the more developed states such as Kerala, Telangana, suggesting a trend of ‘catching up’ by the former states. Two, the rate of decrease between the 2005-2015 and 2015-2020 period suggest a slowing down of progress. While the improvement in the first period was 20 percentage points, the second period saw an improvement of merely 7.5 percentage. Adjusting for the differences in the duration of the two periods, 10 years versus five years, the 7.5 percentage is still lower than the adjusted 10 percentage points for the earlier period. Rajasthan is amongst the few states that shows an improvement in the 2015-2020 period over the 2005-2015 one.

Improvements in anaemia amongst children were noted in the 2005-2015 period, with some states demonstrating as much as 20 percent improvement. The 2015-2020 period shows a complete reversal on this front, with most states showing a deterioration in anaemia levels; with change being minimal in the states that did not worsen. In the case of anaemia levels for pregnant women, 18 states saw a deterioration in the 2015-2020 period (including states such as Tamil Nadu, Kerala, Telangana, Gujarat, Orissa, Chhattisgarh)2; seven states saw an improvement of two percentage points or more (Himachal Pradesh, Maharashtra, Meghalaya, Nagaland, Uttar Pradesh, Jharkhand, and Arunachal Pradesh) and the remaining were largely the same. In the case of anaemia for all women, Kerala shows an approximate five percentage point decline through the 2005-2020 period.

The worsening of anaemia levels is a critical issue for India, for health, productivity and income and its inter-generational impact highlights implications well beyond the individual.

The worsening of anaemia levels is a critical issue for India, for health, productivity and income and its inter-generational impact highlights implications well beyond the individual. Existing evidence suggests that women entering into pregnancy with anaemia has a negative impact on fetal growth, birth weight of the child, and maternal health. This is one of the underlying causes of child undernutrition. Recognising the intergenerational aspect of malnutrition, and the need for multisectoral intervention, the government conceptualised and launched the National Nutrition Mission or POSHAN Abhiyaan. However, the NFHS5 data poses questions on the effectiveness of the program.

The policy intervention for addressing anaemia has, in large part, been in the form of iron and folic acid (IFA) for pregnant women. While NFHS 5 shows an increase in the IFA intake for 180 days, this remains low at 26 percent. The question at the policy level is whether IFA consumption during pregnancy, even if it were to increase, is adequate for addressing anaemia, given that a couple of months of the pregnancy period would be lost by the time a woman discovers she is pregnant. Addressing anaemia requires interventions that start during childhood, continuing into adolescence, and there are few focused interventions in that regard.

Anaemia levels and extent of overweight children both point to challenges with diet, although of different kinds. The proportion of children age 6-23 months receiving an adequate diet stands at 11.3 percent, a small increase from 9.6 percent in 2015. The systemic response has continued to focus on food security, which while critical, is targeted at calorie intake rather than nutrition security. Despite debates on the need for reviewing both the Public Distribution System and meal programs (ICDS and school), the nutrition value within food programs remains a challenge. An increase of overweight children points to new risks, including an increase in NCDs.

Analysing the variance across states (highest performer versus the lowest perform) reveals a decreasing gap for most aspects except anaemia and ANC coverage (Table 4) and a disaggregated analysis of progress reveals a declining rate of change across years for some states (Table 5). For mortality and stunting indicators, states with high socio demographic status had comparatively greater annual rate of change during the period 2005-15, but the EAG states have improved during the 2015-20 period. This points to convergence between these sets of states for these indicators. Anemia shows poor performance across states. For ANC visits, though EAG states have done better comparatively, their rate of change decelerated during 2015-20, except for Bihar. There is thus a convergence visible with respect to mortality, stunting, vaccination, and institutional births, but not prominent in ANC.

Non Communicable Diseases

Higher sugar levels are visible in states such as Kerala, Tamil Nadu, Andhra Pradesh; and higher hypertension levels in TN, Kerala, AP, Karnataka, Maharashtra, Telangana. The Non communicable diseases (NCD) data presented in Figure 5 show that all states have gone through an epidemiological transition where states like Kerala, Tamil Nadu, Karnataka, Goa, Punjab, Andhra Pradesh, and Telangana have comparatively higher percentage of NCD cases such as hypertension and diabetes, whereas Bihar, Rajasthan, Assam, Uttar Pradesh, and Madhya Pradesh (the developing states) have lower proportion of hypertension and diabetes. The data suggest that states with higher social and demographic profile i.e., lower TFR (below replacement level 2), higher average year of education (more than 50 percent of women attending 10 or more year of schooling), and higher income per capita (see Table 4 and Lancet, 2017 and IHME, 2021), also have a higher NCD burden. The data also show that the proportion of deaths due to NCD in these states have crossed more than 70% (Kerala 81%, Goa 79.26%, Tamil Nadu 72.4%, Punjab 75.55%), suggesting that NCD management through the National Programme for Prevention and Control of Cancer, Diabetes, Cardiovascular disease and Stroke, will demand greater resource allocation than communicable diseases which now comprise 15-19% of the total burden of disease. As the potential causal factors for NCD lie somewhere in the rapid unplanned urbanisation, globalisation of unhealthy lifestyle, and population aging, it becomes crucial for states with high NCD burden to devise a comprehensive policy approach focusing on intersectoral collaboration to reduce modifiable risk behaviours associated with various types of NCDs. Besides this, these states will need to invest more in management of NCDs which includes detection, screening, and treatment, and providing palliative care for people in need, pointing to the need for stronger primary care systems.

Gender 

There is a notable improvement in the sex ratio, but some have pointed to possible measurement errors that may have occurred due to migration. Leaving that debate aside, the data reveal an improvement in early marriage for girls, from 26.8 percent to 23.8 percent. While indeed an improvement, the reduction is low and the extent of early marriages remains high, which is critical from the perspective of disruption in education, early child bearing and its impact on women’s and the child’s health (in particular nutrition levels). Continued attention and stronger policy interventions are required to reduce this further.

As mentioned, the reduction in TFR bodes well for population stabilisation and for women’s and children’s health. To be noted however is that the burden of family planning continues to be on women, with female sterilisation being the highest form of contraception. While the health system offers men’s sterilisation, its uptake remains stagnant and extremely low at 0.3 percent. Much more by way of communication and other forms of incentives are needed to balance the burden of contraception across women and men.

Violence is a key aspect impacting women’s health status and their ability to access healthcare. Ever-married women age 18-49 years who have experienced spousal violence, though reduced since the last survey, remains high at almost 30 percent. Another area of attention points to reviewing the extent to which India’s health system is geared to respond to this context, through designing programs and training health workers to incorporate this reality.

Health Expenditure

Expenditure data from the National Health Accounts reveals that most states have consistently increased the percentage of government health expenditure (GHE) in total health expenditure (THE). Increasing GHE suggests lower out-of-pocket expenses, which in turn point to the potential for better utilisation of funds directed at health. Where states have high proportion of health expenditures as a proportion of total state expenditure (GGE), but a low GHE:THE ratio, OOPs have been high, with possible inefficiencies in spending. Kerala, as an example, spends more than seven percent of its total state budget on health, yet has high OOPs at almost 69 percent, with GHE at less than 25 percent of THE. Such an architecture could be responsible for Kerala having high caesarean section births at 38.9 percent. Himachal Pradesh, on the other hand, also spends above seven percent of total state spend on health, but with a GHE at a high 48.6 percent, and a caesarean section birth rate of 21 percent.

There has been significant increase in government expenditure on health as percentage of total health expenditure across all the states, especially Bihar and Assam where the expenditure increased with the rate of 142 percent and 92 percent respectively, which is also reflected in reduction in the out-of-pocket expenditure. However, EAG states spend more in terms of GHE as percentage of THE, which is intriguing because increase in public health expenditure is not commensurate with the improvement in outcome indicators except child mortality.

The progress on several indicators since the 2014-15 survey points to the success of interventions on various fronts, although a cross-year comparison reveals that progress has slowed down for many states.

The progress on several indicators since the 2014-15 survey points to the success of interventions on various fronts, although a cross-year comparison reveals that progress has slowed down for many states. The gap between states has narrowed on most indicators between the period 2005 and 2020, pointing to a convergence between states, though not consistent across all indicators. Mortality and stunting indicators showing a decline in the rate of change for states having high socio demographic status, but an improvement in the rate of change for EAG states shows a convergence across EAG and non EAG states on several fronts. An improvement in the rate of change for EAG states, despite lower expenditure in comparison with non EAG ones, points to the need to examine the efficiencies of expenditure in non EAG states.

The NFHS5 data poses several questions on maternal and child health related programs at various levels. Women and child nutrition status has worsened in terms of deteriorating anaemia rate both at state and national level, and there is increasing inequality between developing states and better developed ones. The UNICEF framework on malnourishment suggest that maternal health is one of the underlying factors behind child undernutrition and mortality. Accordingly, the government introduced programs aimed at ante natal care services to curb cases of anaemia and child undernutrition. However, with average ANC coverage at 58 percent, and with considerable inter-state variations ranging from 80 percent to less than 30 percent, these need a review.

The other aspect of malnutrition points to food programs, which are in large part aimed at food security and need an equal focus on nutrition security. The response to nutrition needs to be more holistic, taking into account its links with mothers’ education (women with 10 or more years of schooling is 41 percent), clean drinking water, and sanitation.

Improvements in nutrition, and related improvements in maternal health need a strong primary health care system. High levels of sugar/diabetes, hypertension further underline the same need. With a reducing TFR, India’s population will become older, as has been noted by many. This will imply new health risks and a different burden on, and needs from, the health system. Much greater attention will need to be paid to conditions other than maternal and child health and infectious diseases, which forms the predominant part of the current health system focus. Admittedly, there is recognition of the need to address the growing burden of NCDs, through the Health and Wellness Centres but funds for a strong primary care system that can prevent and manage these will need more attention.

The National Health Policy (2017) had recommended that 67 percent of the total health expenditure be directed to primary care, with the 15th Finance Commission recommended the same. Yet, this currently stands at 47 percent (both public and private) and 55 percent of government expenditure. The need for increased investments to primary care, and focus on greater attention to more effective primary care are underlined by the latest health status.

For states such as Kerala, Tamil Nadu, Andhra Pradesh, Karnataka, Maharashtra and Telangana, this needs particular attention. These are also the states where anaemia levels amongst children have increased since the last NFHS survey and increased or remained stagnant amongst pregnant women. ANC visits in most of these states, notably Kerala, Andhra Pradesh, Telengana, have decreased since the last survey, while largely remaining the same in Karnataka and Maharashtra, but increasing in Tamil Nadu by about 11 percent. Vaccination coverage has seen an increase in the period between 2015-2020, but the rate of growth in the period is lower than the 2005-2015 period. Kerala is the only state that saw a decline, though nominal, in vaccination coverage. It will be important to interrogate why states like Kerala have not matched their previous performance, and whether allocative inefficiencies in health financing have led to funds not being directed in the most optimal manner.

Most of these aspects are a function of primary care. States where progress has been stagnant or has deteriorated need urgent attention in this area. These are also the states amongst the highest caesarean section births, which points to a large focus on secondary/tertiary care. It is possible that the increasing attention to insurance schemes (visible across several states) has emerged at the cost of the neglect of the primary care system, with these schemes covering only secondary and tertiary care.

Not only is the focus on primary care an issue that needs attention, but allocation to health across states needs attention. Despite the recommendation of the National Health Policy, 2017 and its reiteration by the 15th Finance Commission, that states allocate eight percent of their total budget to health, this has averaged six percent (Figure 6).

The most sobering aspect of the health status has been on nutrition. Analysing the allocations to nutrition therefore, a study by the Centre for Policy Research found that allocations for the Supplementary Nutrition Program (2019-20) were 44 percent of the required resources calculated by them3. The cross-state analysis revealed that allocations as percentage of required cost were less than the national average for Kerala (30 percent), Maharashtra (39 percent), and Telangana (42 percent).

The data unambiguously underlines an important fact that the context and needs across states are variable, even though a standard program is implemented across the country. Kerala, for example, has a high level of institutional deliveries, but poor outcomes in anaemia and NCDs. Yet, the allocations for the program that incentivises institutional deliveries (Janani Suraksha Yojana) continues per norms that do not take into account the ground reality and result in approved budgets for this program being 183 times the required resources (Kapur et al, 2020). That this may be at the cost of other potential areas of attention, such as anaemia, ANCs and vaccination coverage, needs attention through the exploration of more flexible funding, and the state’s own design of health financing.

While disaggregated data across social and other identities is not yet available, the data on gender suggests the need for a health system much more focused on aspects of gender and its interaction with health access and outcomes. Early marriage and violence against women are not merely social issues, but key drivers of women’s own and their children’s health status. Early marriage is an important variable for women’s nutrition, and consequently, the child’s nutrition. All of this suggests the need for a stronger convergence between the ministries of health and women and a deeper gendered approach to health delivery.

In an effort to reduce TFR, several states have deployed discriminatory policies in terms of postings, official positions and other aspects, linked with the number of children. Even though these have been debated extensively, they have continued, despite the implications for deepening discrimination against women and increasing foeticide. With TFR levels improving, there is an urgent need to review such policies.

The latest health status dataset in the form of NFHS 5 presents some good and some sobering news. There is progress on most fronts, though not very significant on several, and a deterioration on a few aspects. Importantly, it is the inter-state variations, with very variable shifts across indicators, that point to where attention is needed. There are at least four key implications emerging, or reinforced, from the recently released data sets. One, the need for greater fiscal flexibility to states to enable innovation and contextually relevant interventions that respond to the specific needs of the state. Two, increased expenditure on and attention to primary care. Three, an increased allocation by the states to health. Four, a gendered approach to health delivery.

Kapur, A., Shukla, R., Thakkar, M. & Menon, P. (2020). Financing Nutrition in India: Cost implications of the new nutrition policy landscape, 2019-20. Accountability Initiative. New Delhi: Centre for Policy Research and International Food Policy Research Institute. https://accountabilityindia.in/wp-content/uploads/2020/07/Financing-Nutrition-in-India-AI-IFPRI-Final.pdf

IHME. (2021, December 4). Retrieved from Global Burden of Disease India Compare| Viz Hub: https://vizhub.healthdata.org/gbd-compare/india

IIPS. (2021). National Family Health Survey. International Institute of Population Sciences.

Lancet. (2017). Nations within a nation: variations in epidemiological transition across the states of India, 1990–2016 in the Global Burden of Disease Study. Elsevier Ltd, 2437-2460.

Leonard, S. A., Main, E. K., & Carmichael, S. L. (2019). The contribution of maternal characteristics and caesarean delivery to an increasing trend of severe maternal morbidity. BMC Pregnancy and Childbirth, 1-9.

Temmerman, M., & Mohiddin, A. (2021). Cesarean section: More than a maternal health issue. PLOS MEDICINE, 1-3.

The post India’s Health Status and Emerging Priorities first appeared on CSEP.

Executive Summary

In accordance with the announcement in the FY 2021-22 budget, the Ministry of Power (MoP) has developed draft legislation to delicense electricity distribution to allow multiple distribution companies (discoms) in each supply area. There is general agreement on the need for reforms in the power sector, particularly in distribution. Therefore, the Government’s attention to this sector and its willingness to act are welcome. Given the importance of these proposed structural changes in the power sector, additional objective analysis and evaluation would be useful to deepen and inform the discourse. This note discusses several concerns and challenges with the proposed changes.

First, international experience suggests that, in the electricity sector, most of the economic benefits of competition come from effective wholesale markets and focusing on retail competition alone is likely to have very little effect on the overall price and efficiency in the distribution of electricity. In addition, effective wholesale electricity markets, in turn, require effective fuel markets. Unfortunately, the fuel markets in India are quite distorted. Furthermore, the benefits of retail competition for residential and small consumers are very limited. Instead, it exposes vulnerable groups to potentially exploitative marketing practices of retailers — an issue of special relevance in India with a large percentage of small consumers who are very price-sensitive. A better alternative to starting with full retail competition would be to continue to allow choice of supplier to large consumers but through improved open access provisions, as discussed in detail in this note, and let discoms continue to purchase power for smaller consumers. In addition, the threshold for open access can be progressively lowered to 50 kW or 100 kW of load, in order to allow almost all high-tension (HT) consumers choice of supplier.

Second, distribution is a natural monopoly. Making ownership and responsibility of the distribution network non-exclusive will lead to unnecessary duplication of resources and increase the cost of electricity. The experience in the Mumbai experiment with multiple licensees—endless litigation, planning and regulatory failures, and significantly higher tariffs—should be a sobering reminder of the perils of such an approach.

Third, delicensing of distribution is likely to lead to the neglect of distribution network operation, just when its importance for the sector is growing. The role of the distribution network operator will become more important and challenging in the future due to the increasing contribution from renewable energy; growing presence of distributed energy resources; new behind-the-meter technologies; and increasing use of smart meters. Delicensing distribution and spreading responsibilities for the network will dilute accountability and lead to finger-pointing, if not chaos.

Fourth, there will be very significant challenges in allocating legacy power purchase agreements (PPAs) and aggregate technical and commercial (AT&C) losses. If AT&C losses need to be socialized due to fundamental limitations of apportionment, this would obviate many of the benefits of competition. In addition, while the Government is mindful of the risks of suppliers cherry-picking the most desirable consumers and proposes solutions to this problem, these are unlikely to work. The outcome is likely to be a segregation of consumers, with the higher-paying ones being served by financially viable retailers, while the less economically attractive consumers (the smaller and poorer consumers) being served by a discom that is financially even weaker than today. Some of the cherry picking might occur not just within an area but also through the choice of geographies by the new entrants.

A better alternative to delicensing would be to pursue privatisation of discoms and harness the superior managerial and technical skills of the private sector but with competent and appropriate regulation and oversight. Private discoms would also be less likely to be susceptible to political interference in such a regulatory framework, although not completely immune from it. The Government has been promoting privatisation of distribution starting with union territories. Focusing on those efforts is likely to yield much greater benefits for the power sector. Parallel efforts to delicense distribution are likely to impede the progress on privatisation because delicensing will increase the risk for potential investors and reduce their interest in bidding. In the pursuit of privatisation, it is important that before any decision the central and state Governments consult and negotiate in an open and transparent manner with all stakeholders, particularly the unions, to address their apprehensions. While a consultative approach may seem frustratingly long and slow, it is essential for having a thriving power sector that can propel the Indian economy on a high growth path.

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Executive Summary:

Critical minerals refer to the mineral resources, both primary and processed, which are essential inputs for the production process of an economy and whose supplies are likely to be disrupted on account of non-availability or risks of unaffordable price spikes. Critical minerals have highly complex global supply chains with a high degree of concentration in the extracting and processing countries resulting in high supply risks. A Planning Commission Workshop Group on Mineral Exploration and Development highlighted the need for assured availability of minerals resources for India’s industrial growth and emphasised the need for R&D and processing of Technology Metals and Energy Critical Minerals. In addition, there must be a clear focus on well-planned exploration and management of already discovered resources.

This discussion note evaluates the India-specific criticality of 11 non-fuel minerals, of which some are deep-seated: chromium, cobalt, copper, iron, limestone, lithium, niobium, heavy rare earth elements, light rare earth elements (REEs), silicon, and strontium. The criticality is assessed along two axes, viz. economic importance and supply risk. The economic importance loosely measures the impact on the national economy of the concerned mineral no longer available in the supply chain while considering the substitutability of the mineral. The supply risk indicator seeks to measure the vulnerability in the global mineral supply chains due to the level of concentration of mineral extraction in some countries and the quality of governance in these jurisdictions. This indicator also considers India’s import reliance, trade partners, and the recycling rates of the minerals.

The analysis suggests that lithium, niobium, and strontium have the highest economic importance, adjusted by their substitutability possibilities. The supply risk, adjusted for the end-of-life recycling rate, is the highest for yttrium and scandium, followed by silicon. India must ensure the uninterrupted supplies of critical minerals through enhanced domestic mineral exploration and extraction and assured sources elsewhere. Particular attention should be given to deep-seated minerals. Import risks of critical minerals may be reduced through developing resilient supply chains, signing trade agreements, and acquiring mining assets abroad. In addition, the government-to-government engagement efforts through KABIL need to be supplemented with the acquisition of private mines.

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Abstract

As the COVID-19 pandemic brings various challenges to public finance, the magnitude of fiscal costs that need to be absorbed has highlighted and exposed the weak fiscal architecture in many countries. These challenges highlight the need for clarity in the three pillars of fiscal architecture: fiscal rules, public financial management (PFM) processes, and fiscal institutions that widen accountability over the fiscal rules. In this discussion note, we look at how countries are strengthening their fiscal systems by putting in place new and innovative coordination mechanisms. We argue that India needs to benchmark its fiscal architecture to 21st century international standards and learn from global best practices. We discuss the fiscal rules, the PFM framework, and fiscal institutions in India and observe that India needs to improve the quality and efficiency of public spending and financial management across all levels of government. We also suggest the use of information technology to make PFM more transparent, reliable, and real-time.

The COVID-19 crisis has brought new risks to public finance given its extent, the inability of subnational governments to absorb the fiscal costs, and the asymmetric regional impact of the crisis. These risks exceed those experienced in the 2008 global financial crisis. The sheer magnitude of fiscal support has highlighted and exposed the weak fiscal architecture in many countries.

A key lesson from history is that an accountable and efficient PFM system becomes more critical during crises. Without improving the adaptability and responsiveness of fiscal management, the costs to the economy from misdirected resources and inefficient resource use will compound the effects of the COVID-19 crisis.

The challenges currently being faced highlight the need for greater clarity in the three pillars of the fiscal architecture, viz. fiscal rules, PFM processes, and fiscal institutions. While many countries do not have this fiscal architecture in its entirety, a growing number are quickly putting in place new and innovative coordination mechanisms, involving governance and fiscal tools, to strengthen these pillars. Over the past decade, since the global financial crisis, international experience in fiscal rules, PFM processes, and institutional reforms has been building (International Monetary Fund, 2014). The evidence from these experiences confirms the effectiveness of stronger budgetary institutions at key stages of the fiscal adjustment process in achieving better fiscal outcomes. The fiscal reforms broadly fall under the following three heads:

Understanding the fiscal challenge: Extending the coverage of fiscal reporting, forecasting and risk assessment to the general government and, eventually, to the public sector, with independent fiscal agencies reviewing fiscal forecasts.

Developing a credible fiscal adjustment plan: Establishing fiscal rules and performance budgeting systems that review spending allocations and a medium-term budget framework that includes the fiscal impact of policies.

Implementing the fiscal adjustment plan by ensuring all major fiscal decisions are part of the ‘unity’ of the budget process by eliminating extra-budgetary funds, reducing earmarked expenditures and tightening rules around supplementary budgets.

Many countries have established overarching legal frameworks to cover these fiscal objectives and institutional reforms, including defining the roles and responsibilities of key stakeholders, especially the states and local governments. These legal frameworks have covered the critical interplay between the design of fiscal rules, PFM systems, and the establishment of fiscal councils. The central lesson from international experience is that clear and consistent PFM systems are a pre-requisite for the effective implementation of fiscal rules and fiscal councils.

India’s twenty-first-century fiscal architecture should accordingly be built on the three aforesaid mutually reinforcing pillars (Figure 1):

• fiscal rules across all levels of government which set the institutional and budgetary framework for fiscal sustainability.
• a PFM system that provides complete, consistent, reliable, and timely reporting of the fiscal indicators that are part of the first pillar; and
• an independent assessment mechanism so as to provide assurance and advice on the working of the other two pillars.

The use of information technology and computing capacities that India has developed in last few decades already provide a strong backbone to support such a fiscal architecture.

With respect to strengthening budget institutions and management practices and their accountability, many advanced and emerging market countries have set fiscal rules (including at subnational levels) to retain the confidence and trust of financial markets. The fiscal rules have evolved over time into a broader ‘second-generation fiscal-framework’, trying to balance credibility with flexibility. However, they are now being tested during the pandemic, prompting a raft of reforms, including the introduction of new rules, revamping of escape clauses, enhancement of monitoring and enforcement mechanisms, and reconsideration of procedures and practices to ensure fiscal sustainability. Many economies have now also adopted “emergency bills” to suspend their fiscal rules and enhance flexibility in sub-national regulatory frameworks as they address the fiscal challenges from the pandemic (Fifteenth Finance Commission, 2020).

International experience indicates that well-designed and well-implemented fiscal rules have helped contain the ‘deficit bias’, strengthen market credibility of the commitment to fiscal sustainability, and in enabling countercyclical fiscal management. By increasing the predictability of fiscal policy, they have helped lower output volatility and raised sustainable growth.

However, the challenge to achieve these outcomes is at least three-fold: to ensure that they are well-designed, that the PFM systems and institutions allow them to be well-monitored and implemented, and deviations from the fiscal rules allow the return to the rules in a time-bound manner. Unless these challenges can be met, fiscal rules can quickly lose their relevance and credibility. A crucial element is subjecting the process to external scrutiny and parliamentary approval, which will balance flexibility with credibility. Independent fiscal councils help in overcoming these challenges.

The aforesaid second generation fiscal-framework that has developed across countries in the past decade can be characterised by three broad features:

• Countries are now increasingly adopting more than one fiscal rule to better balance credibility (the need to create a fiscal anchor) with flexibility (the need to respond to economic shocks). One challenge with multiple rules, however, is that they can sometimes be internally inconsistent and complex to monitor, verify, and communicate.
• They typically rely on ‘escape clauses’ to create flexibility. To ensure that fiscal rules have the flexibility to respond to economic shocks, advanced economies rely on cyclically-adjusted or structural deficits. Computing the state of the business cycle and the quantum of output gaps, however, is challenging in emerging markets. Emerging markets, therefore, rely on escape clauses that allow deviations from fiscal rules in the event of exogenous shocks that are outside the policymaker’s control.
• Countries often adopt ‘automatic correction mechanisms’ which are encoded in the legislation and specify in advance how deviations from the rule will be handled. This is now a requirement for European Union countries that have signed the ‘Fiscal Compact’. An ex-ante auto correction mechanism is a visible signal of policymakers’ commitment to return to fiscal rules in a time-bound manner.

It should also be noted that countries with successful fiscal rules had also implemented overarching PFM laws to ensure that these systems were sufficiently developed to support the fiscal rules. International evidence is clear that countries with weak PFM systems were unable to monitor and effectively control fiscal targets and rules.

India was one of the early adopters of fiscal rules among emerging market countries. Through a number of amendments, the Union has updated the Fiscal Responsibility and Budget Management (FRBM) Act, adopted multiple fiscal indicators as target indicators, and has tried to bring India into the second generation of fiscal rules. As such, the Union as well as all States have their fiscal rules and numerical targets in place.

However, there are gaps and inconsistencies in these rules. For instance, the fiscal deficit defined in the FRBM Act (as the balance of operations incurring into the Consolidated Fund of India) falls short of the newly legislated debt ceiling that covers a broader definition of accounts and implementing agencies that deliver public services on behalf of the government. In practice, this has led to the fiscal rules being effectively circumvented, in particular by the use of off-budget fiscal operations, inconsistent budget classification and accounting standards, and improper use of the public accounts for budgetary purposes. Effectively, this is because the underlying PFM system meets only a fraction of best practice standards.

In short, having a fiscal rule raises the bar on the needed strength of the underlying PFM processes and fiscal institutions.

PFM refers to the set of laws, rules, systems, and processes used to mobilise revenue and allocate and account for the use of public funds. It is well-recognised that a strong PFM system is an essential part of the institutional framework for effective public service delivery—both are closely associated with poverty reduction and economic growth. The first step towards better fiscal management is improving the coverage, timeliness, quality and integrity of fiscal reporting (Figure 2).

Towards this end, most advanced and large emerging market countries have, in the past decade, established legal frameworks for PFM that set out the budget, reporting, accounting, and audit processes, and define the roles and responsibilities of key stakeholders (Table 1). These laws have aimed at aligning fiscal policy to resource allocations and have paved the way for implementing the standards in the fiscal rules in a credible manner. For instance, New Zealand sets a high standard for transparency and the lucidity of its budget documents. Among middle-income countries, South Africa’s budget documentation is highly transparent and accessible, with extensive debt reporting and clear and concise fiscal risks reports.

India’s PFM systems at the Union and State levels lag significantly behind international best practices. This is despite the last several Finance Commissions recommending a range of PFM reforms. In particular, India does not compile or monitor general government fiscal deficit and debt aggregates in line with the Government Finance Statistics Manual (GFSM), even though the States’ deficit and debt accounts for a large share of the overall general government deficit and debt. In contrast, the number of countries providing general government data has nearly doubled in the past decade (IMF, n.d). In addition, extra-budgetary resources are neither consolidated nor monitored routinely, even though they have become an important vehicle to deliver public services at the Union and State levels.

India’s fiscal architecture, therefore, needs to address these reforms and bring its PFM processes up to international standards and ensure that public and private resources are efficiently deployed for sustainable growth. Equally importantly, international experience conveys that PFM best practices are critical for the effective implementation of fiscal rules.

India’s current PFM processes are defined at the highest level, i.e. in the Constitution itself. However, many policies and operational details have evolved over time through a plethora of practices. Compliance with best practices envisaged in the fiscal rules remains challenging as a majority of the practices affecting budget formulation, execution, and reporting are still without legislative strength—being governed instead by a multiplicity of constitutional provisions, executive rules, orders, and manuals. There is also lack of consistency in practices across the levels of government, resulting in marked differences in the way PFM systems at the Union and States have emerged.

India needs to clearly define its PFM framework, strengthen budgetary institutions at key stages of the fiscal process, prescribe the accounting framework and precise definitions for target fiscal indicators, and ensure consistency of fiscal rules across all levels of government. The lack of progress in these areas continues to distort the alignment of the budget and expenditures with government policy priorities, hinders effective expenditure control, raises the public costs of inefficiency on fiscal management, and creates opportunities for creative accounting and biased forecasts; in this regard, it helps that progress is being made in bringing the food subsidy more fully on-budget in the recent budget for 2021-22.

Looking ahead, PFM reforms at the sub-national level should be consistent with reforms at the Union Government level, especially in terms of a clear PFM framework, ensuring consistent and well-defined targets and accounting standards, timely and reliable reporting of subnational fiscal operations, and strengthening automatic correction mechanisms and sanctions for non-compliance. States should seek to define subnational debt targets that are consistent with general government debt reduction targets. Box 1 elaborates on this:

India has tried, over time, to make individual and incremental reforms to successive parts of the PFM system. These have generally been stand-alone in nature, focusing on particular (and dispersed) dimensions of PFM, that have been difficult to integrate and sustain. A comprehensive legal PFM framework as highlighted by the Fifteenth Finance Commission, and as adopted by many countries in the world, may be the best way forward for India.

Globally, there has been a sharp rise in the number of independent fiscal institutions or councils set up to enhance the credibility of the fiscal rules, help impose hard budget constraints on the public sector, and monitor the long-term sustainability of government fiscal stances. A fiscal council can be thought of as an independent, non-partisan agency—set up either through a statutory or executive mandate, to publicly assess the government’s fiscal performance against its stated objectives. Fiscal rules and fiscal councils have developed as complements. Good councils learn how to better interpret fiscal rules and to suggest improvements. Well-designed rules make the task of councils easier to perform and less controversial than poorly designed or weak rules. Thus, effective rules and functioning councils are expected to reinforce each other.

Over the past decade, there has been a global trend to set up independent public bodies that provide non-partisan oversight and analysis of fiscal policy and performance to inform public decision-making. Independent fiscal institutions are now a common component of fiscal frameworks in most advanced economies, and the overall number of countries with such fiscal councils has more than tripled over the past decade. While these fiscal institutions take many forms, their tasks typically include preparing or assessing macroeconomic or fiscal forecasts, monitoring compliance with fiscal rules, budgetary analysis, long-term fiscal sustainability analysis and, for some, policy costing. There are several examples of fiscal councils tasked with a role in national and subnational fiscal coordination as well. Empirical evidence suggests that fiscal councils can improve forecast accuracy and foster compliance with fiscal rules (Beetsma et al, 2019).

A variety of institutional models exist for the manner in which fiscal councils are set up and their placement within the government system:

• Stand-alone institutions that are typically set up as part of fiscal responsibilities laws, such as those in Germany, Hungary, Ireland, Portugal, and Romania.
• Councils under the legislative branch, which include budget offices within the legislature, typically established in presidential political systems like in the United States of America and Mexico. Other countries that have adopted this approach include Australia, Canada, Italy, Georgia, Kenya, and South Africa.
• Councils that come under the executive branch, such as those in Belgium, Croatia, Denmark, Japan, and the United Kingdom.
• Councils paired with other financial institutions, such as those in France and Finland.

Effective fiscal councils should have (a) legal and operational independence; (b) strong media presence; and (c) chair and board members with non-partisan affiliations. Key safeguards for operational independence include secured funding sources, access to information on a timely basis, and ability to manage their own staff. Effective fiscal councils establish contact with the media in line with the budget cycle and at the time their reports are published.

Experience suggests that such fiscal institutions have contributed to assessing and monitoring fiscal policy, helped in effective implementation of fiscal rules, and strengthened fiscal performance. Independent scrutiny makes for better compliance with fiscal rules through their influence on the accuracy of budget forecasts.

Several experts’ bodies and committees have recommended setting up an independent fiscal council in India. Most recently, the FRBM Review Committee as well as previous Finance Commissions have recommended establishing such an institution with suggested functions and structure. Once India emerges from the COVID-19-induced crisis, this would be a key step towards improving the credibility of fiscal management.

The mandate of a fiscal council could be broadened to cover not only the production of macroeconomic and fiscal forecasts to inform the budget, but also to advise on setting and recalibrating fiscal targets and rules at national and sub-national levels, as well as monitoring compliance with such targets and rules. The fiscal council can also work towards improving the quality of fiscal statistics at all levels of government.

The fiscal impact of the COVID-19 crisis has put a premium on strengthening the institutional anchor for sustainable public finances. As the crisis continues to cast a long shadow over public finances of many countries, the need to restore fiscal credibility encourages further reforms of fiscal frameworks. In many countries, efforts are being made to address pre-existing weaknesses and bottlenecks in PFM systems and set up improved reporting mechanisms to ensure financial transparency and accountability, which would help in reallocating funds to the frontlines of the COVID-19 crisis. It is crucial to ensure full transparency and good governance in all fiscal measures, especially given their size, exceptional nature, and speed of deployment.

For India to achieve its full potential for economic growth and development, it needs to improve the quality and efficiency of public spending and financial management across all levels of government. India should work towards benchmarking its fiscal architecture to its peers, learning from the experiences of other federal countries, and adopting best practices. In this discussion note, we have identified some of the steps needed to bring India’s fiscal architecture to 21stcentury international standards.

The reforms we have outlined may take several years to be implemented fully. Regular monitoring will help decision-makers keep track of reforms over time. It will also help track progress and performance across States. Hence, there is need for an institutional mechanism driving budgetary and PFM reforms in a coordinated, transparent and inclusive way across levels of government to deliver consistency, transparency and accountability. Information technology can play a crucial role in making PFM processes more transparent, reliable and real-time by integrating and digitalising the entire PFM value chain. Many States have already started digitalising their budgetary, treasury and accounting processes through Integrated Financial Management Systems (IFMS). However, it requires further integration and comprehensive coverage to really unlock its full potential.

Towards this end, as recommended by the Fifteenth Finance Commission (2020), the Ministry of Finance should launch the process of stakeholder consultations soon and prepare a time-bound plan for the implementation of comprehensive PFM reforms at all levels of government. To bring States into these discussions, such a process could also become part of the discussion agenda of existing forums of Union-State consultations, such as the Inter-State Council or the governing council of NITI Aayog.

Bahl, R. & Bird, R.M. (2018). Fiscal decentralisation and local finance in developing countries. United Kingdom: Edward Elgar Publishing

Bahl, R. (2012). Metropolitan city finances in India: Options for a new fiscal architecture (ICEPP Working Paper No. 69). Atlanta, United States of America: Andrew Young School of Policy Studies, Georgia State University

Beetsma, R., Debrun, X., Fang, X., Kim, Y., Lledo, V., Mbaye, S., Yoon, S., & Zhang, X. (2019). Independent Fiscal Institutions: Recent Trends and Performance. European Journal of Political Economy, 57, 53-69. https://doi.org/10.1016/j.ejpoleco.2018.07.004

Fifteenth Finance Commission. (2020). Finance Commission in COVID Times: Report for 2021-26

Forman, K., Dougherty, S., & Blöchliger, H. (2020). Synthesising good practices in fiscal federalism: Key recommendations from 15 years of country surveys. OECD Economic Policy Papers, 28. https://doi.org/10.1787/89cd0319-en

International Monetary Fund. (2014). Budget institutions in G-20 countries: An update. IMF Policy Paper. Retrieved from https://www.imf.org/en/Publications/Policy-Papers/Issues/2016/12/31/Budget-Institutions-in-G-20-Countries-An-Update-PP4867

International Monetary Fund. (n.d). Government Finance Statistics (GFS). Retrieved from https://data.imf.org/?sk=a0867067-d23c-4ebc-ad23-d3b015045405

Rao, G. (2017). The effect of intergovernmental transfers on public services in India (Working Paper No. 218). New Delhi, India: National Institute of Public Finance and Policy. Retrieved from https://www.nipfp.org.in/media/medialibrary/2017/12/WP_2017_218.pdf

Sarma, A. & Chakravarty, D. (2018). Integrating the third tier government in the Indian federal system. Singapore: Palgrave Macmillan

Slack, E. & Bird, R.M. (2015). How to reform the property tax: Lessons from around the world. (IMFG Papers on Municipal Finance and Governance No. 21). Toronto, Canada: Munk School of Global Affairs, University of Toronto. Retrieved from https://munkschool.utoronto.ca/imfg/uploads/325/1689_imfg_no.21_online_final.pdf

Von Trapp, L., Lienert, I., & Wehner, J. (2016). Principles for independent fiscal institutions and case studies. OECD Journal on Budgeting, 15(2), 9-24 https://doi.org/10.1787/budget-15-5jm2795tv625

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With its focus on reducing environmental impacts, the energy transition is forcing an examination of the role of coal-based power plants. The rapid addition of new coal-based generation capacity from FY2011 to FY2016 resulted in excess power generation capacity nation-wide. Currently, there is more than enough firm generation capacity to meet the peak demand. With the volume of new capacity in the pipeline, this situation of excess could last for several years. Questions are being asked about whether the older, and often more inefficient, plants should be retired. Decisions about coal plants need to take into account two additional issues. The first is the requirement for emission control systems (ECS) to reduce emissions of oxides of sulphur (SOx) and oxides of nitrogen (NOx) as per norms announced by the Government of India in 2015. The second issue involves making coal power plants more flexible to compensate for the varying and intermittent nature of renewable energy (RE). It is often preferable to operate older plants, which usually use sub-critical technology, in a flexible mode.

These three issues—retirement of older coal plants, installation of ECS, and making plants more flexible—are currently being addressed separately, based on simple uniform rules. For example, some experts suggest coal plants older than 25 years should be retired while others suggest those older than 20 years be retired. Requirements for ECS are uniform, except that they are separated into two categories by the plant’s size and three by the plant’s age. There are no distinctions for either expected Plant Load Factor (PLF) or location of plant. Discussions about increasing flexibility have started recently and there are no specific rules or regulations yet.

However, these three issues are interlinked. Smaller, subcritical plants are more suitable for flexible operations. Older plants with very low fixed costs can operate at low PLFs without much of an impact on the cost of electricity from those plants. Hence, instead of devising uniform rules to address these issues, a more strategic approach may yield better outcomes. For example, instead of a uniform requirement for ECS, it may be better to use a phased approach, where areas with high load factors, high pollution levels and a larger population exposure to emissions get higher priority, and, perhaps, even more stringent norms. This should not be seen as a weakening of environmental protection. Instead, for the same expenditure, there will be greater protection from emissions. This discussion note suggests an integrated approach to address the three issues, based on a long-term system-wide analysis that considers costs, environmental impacts, and need for flexibility.

The energy transition has increased the share of RE in the generation of electricity, resulting in a decreasing share of coal. Due to the rapid growth of new coal capacity nation-wide over the period 2011-2016, there is excess generating capacity in India. The demand, at the grid level, reached a peak of 183 GW on December 30, 2020 (Sahai, 2020). As of November 30, 2020, firm generating capacity, which excludes RE,[1] stands at about 284 GW. Even if we exclude the 25 GW of gas-based power, because of uncertainty of supply, there is firm capacity of 259 GW.

However, this is gross capacity. If we factor in auxiliary consumption (which gives us net delivered or busbar production) and inter-state transmission losses, to get to ‘grid demand’, we lose about 10 percent. On top of this, some capacity is always down for maintenance, both planned and unplanned. There are also outages for other reasons such as issues with fuel supply. Thus, currently, there is sufficient generating capacity to meet peak demand but not nearly as much as one might think. As of October 2020, 60 GW of coal capacity was under construction (CEA, 2020a). There is a lot of uncertainty about the status of many of these power plants in the pipeline. It is difficult to ascertain when they are likely to be commissioned and it is unlikely that all of this new capacity will be brought on-line. In spite of this uncertainty, on a nation-wide basis, for several years, there is likely to be more firm generation capacity than needed to meet peak demand.

This excess capacity has been a driver for a flurry of studies and commentary recommending that older coal plants be retired. Current prices of electricity generated from additional RE are lower than electricity prices from many coal-based plants, especially ones that are far from the coal mines and incur high transportation costs. Thus, at first glance, retirement of older plants seems like a reasonable suggestion. However, one MW of RE capacity is not equivalent to one MW of coal capacity. This is because RE is intermittent and available for only part of the day. Also, the PLF of RE is usually about one-third of the level for which coal plants are designed. If old coal plants are retired, new non-RE capacity or storage will also be required to replace the older coal plants. This will be more pronounced for the evening peak hours, when RE contribution is likely to fall to very low levels.

The issue of retiring old plants should be considered along with the costs of additional measures needed to adapt the remaining coal-based plants to meet new requirements. The first is the requirement for retrofitting remaining coal plants with ECS to reduce emissions, especially of oxides of sulphur (SOx) and oxides of nitrogen (NOx). The second is the need to make some of the remaining coal plants more flexible in their operations to compensate for the variability and intermittency of RE and maintain the reliability of the grid. Depending on the degree to which a plant is to be made flexible, this could require hardware changes. Thus, both these sets of measures will require additional capital expense at power plants where ECS and/or flexibilisation is carried out. Both of these also affect the efficiency of the plant by anywhere from one to several percent. Such additional costs will lead to higher prices for electricity, to be borne by consumers.

Currently, these issues—shutdown of older plants, installation of ECS, and flexibilisation—are being treated separately. Shutdown of older plants is being recommended on the basis of age alone, usually using 25 years as the threshold. The requirement for installing ECS in power plants is governed by emission norms set by the Ministry of Environment, Forest and Climate Change (MoEFCC). The push to make coal-based plants more flexible is a more recent issue, and the exercise is now being carried out by some plants, especially ones owned by some selected utilities. All three issues are inter-related and should be treated together,[2] by balancing economic, environmental and reliability considerations. This requires that we take a long-term view that minimises system-level costs and environmental impacts. Such an approach would also require planning and an estimation of expected future output from different plants; this is likely to vary significantly by location, vintage, technology, owner type, etc.

An integrated approach would be best implemented by projecting power requirements in the medium and long run, understanding the consequential changes needed in the system mix over the long run, analysing the type of service that will be required from the coal plants and envisioning how best that may be provided. For example, while older plants are less efficient and more polluting, they have very low fixed costs. Therefore, they may be useful for service for short periods of time. Similarly, we can ask which type of ECS is best suited where, thus reducing cost of power supply but with only a marginal increase in incremental environmental impact. These savings could be spent elsewhere to offer stricter environmental controls, thus lowering aggregate emissions and, moreover, improving overall public health outcomes. A mild loosening of selected norms for a few plants is balanced by more tightening elsewhere, where the bang for buck is higher.

In the following sections of this discussion note, we identify the issues that need to be considered for each of the three categories of actions: shutting down older plants, installation of ECS, and making coal plants more flexible. In the end, we discuss an integrated and strategic approach to consider all three of these actions together.

We looked at some of the studies recommending retirement of older coal plants to understand the rationale behind these suggestions. We provide a brief description of three of these studies.

In a paper in Energy Policy, Shrimali (2020) argues that plants that have a variable cost higher than the Levelized Cost of Energy (LCOE) of RE can be retired. Based on other studies, he argues that the grid can be run reliably with these retirements. He also discusses how the remaining fixed cost obligations of these ‘to be retired’ plants can be reduced through securitisation.

In a report, Fernandes and Sharma (2020) of Climate Risk Horizons (CRH) argue that retiring plants older than 20 years will save money for two reasons. First, it will avoid the expenditure of installing flue-gas desulphurisation (FGD) on those plants. Second, they argue, if energy now coming from these ‘to be retired’ plants is replaced by energy from RE sources or the power exchange, there will be savings because of the lower cost of electricity from these alternate sources. Fernandes and Sharma also recommend freezing of new coal capacity that is in the early stages of construction.

Karthik Ganesan and Danwant Narayanswamy of the Council on Energy, Environment and Water (CEEW) made a presentation on addressing coal dependence in the power sector at a webinar in July 2020 (Ganesan & Narayanswamy, 2020). They are concerned that newer coal plants, assumed to be more efficient, are often running less than older plants. They suggest using penalties or adders to the variable costs based on the age of a plant so that the situation is corrected and newer and more efficient plants run more. While their work does not discuss retirement of older plants explicitly, it uses arguments that are similar to those used by several others to support early retirement of older plants.

On the issue of a freeze on new coal capacity, we largely agree with Fernandes and Sharma. Given excess generating capacity in the country, new capacity should be built only if absolutely required. Any new capacity could easily last for the next 40 years. With the expected decline in coal’s contribution to the resource mix, great caution needs to be exercised before adding any new capacity. The decision to stop or complete coal power plants already under construction will depend on their stage of completion. It should be based on a careful analysis of the costs and benefits of both options.

We agree that it would make economic sense to retire some old plants. But using a simple rule based on age or variable cost in comparison to RE may not be appropriate to decide which ones to shut. The long-term system level costs and environmental impacts need to be taken into account. While, for accounting purposes, the life of a coal plant is considered to be 25 years, its actual useful life is usually 40 years or longer with good maintenance. As an example, in 2017, the capacity-weighted average age of US coal plants was 39 years (EIA, 2017). Because older Indian plants are fully depreciated after 25 years, their fixed costs are very low, and they would still have 15 years of useful life left. Therefore, when considering whether to retire them after they are 25 years old, one must ensure that they will not be needed either to meet load or to provide flexible generation for the next 15 years.

The duty cycle also needs to be considered before retiring down coal plants. When a plant operates at a low PLF, say 25 percent, shutting it down doesn’t affect aggregate generation much. However, that plant may be generating during the peak time only. Shutting it down would require additional capacity to replace the energy it was providing at that time of day. If this peak period is in the evening, it is also unreasonable to compare the costs, variable or otherwise, with the LCOE of solar RE. Solar RE isn’t available in the evening without storage, which is expensive.

As more RE is added, the operation of coal plants will change. A recent report by The Energy and Resources Institute (TERI) shows that as more RE is added, the PLF of some coal plants will be lower. Some plants could even be required to do two-shifting[3] (Spencer et al., 2020). Start-stop operations are quite expensive. Low fixed costs become a valuable characteristic if some plants are needed to run for very short periods, or in two shifts. The economic impact of running a new plant with very high fixed costs for very short periods would be very high. However, for older, fully-depreciated plants, it would not matter much.

Fernandes and Sharma argue that if old plants are retired, there will be savings when that energy is replaced by purchases from RE sources or the power exchange. The argument about buying energy from the exchange to substitute for energy from ‘to be shut down’ plants is flawed. One reason for low market prices at the power exchange is current excess capacity. If plants are shut down, or as demand grows for periods that are not RE-coincident, excess capacity will disappear and market prices will likely increase. Many studies consider daily average exchange prices, ignoring time-of-day implications. Exchange prices are likely to rise disproportionately during the evening peak period when coal plants are likely to be needed.

On the issue of instances of newer and, presumably, more efficient coal plants running less than older plants, raised by Ganesan & Narayanswamy (2020), we note that newer plants may be running less for two reasons. First, some of the newer plants may not have a power purchase agreement (PPA) and, therefore, do not get scheduled as much. Second, some newer plants may have higher variable costs than older plants and thus may be later in the merit order for despatch.

If newer plants that are more efficient are not running because they do not have PPAs, then centralised despatch using, for example, Security-Constrained Economic Despatch[4] (SCED) should resolve the issue. Rather than mandating shutdowns or penalising older plants, there should be a push for such centralised despatch. On the issue of higher variable costs for newer plants, it should be remembered that differences in variable costs do not always reflect differences in efficiency. Higher variable costs for some newer plants may be for one or both of two reasons: (1) the newer plants may be much further away from the mines and the cost for transportation may make the variable cost higher; (2) some newer plants may be using coal that is more expensive, most likely due to distortions in the framework for allocation of coal to power plants.[5] If this difference in variable costs is due to differential transport costs, it cannot be ignored because transport costs are real costs paid by the distribution company. On the other hand, if this difference is due to distortions in the pricing of coal, that should be addressed. One significant challenge is that official data sometimes do not reflect the actual coal quality delivered because of ‘grade slippage’, so some plants end up needing more tonnes of coal, though they are not actually operating at a lower efficiency.

For all these reasons, it becomes difficult to support blanket recommendations for retirement of coal plants based on their age. This difficulty is illustrated by data from the study carried out by Ganesan & Narayanswamy (2020, Slide No. 10). They show the daily requirement of coal at 85 percent PLF for coal plants of different age groups. Their data demonstrate that there is no direct correlation between age and coal usage (a proxy for efficiency). Plants that are 5-10 years old use less coal than plants that are 0-5 years old; plants that are in the 20-25 and 30-35-years age group use less coal than the 15-20 year and 25-30 year age group. This clearly shows that any plant’s costs and operation characteristics depend on many factors and not just the age of the plant. Therefore, instead of basing decisions of retirement on vintage, it would be better to consider this on a plant-by-plant basis.

All three studies discussed earlier treat the decision of early retirement of coal plants from a country-wide perspective. From this perspective, if there is overall excess capacity in the country and newer, more efficient plants are running less than older and less efficient plants, then, they ask, why not retire the older plants. It would be more rational to look at this issue in a more disaggregated manner.

Decisions about power procurement are made by distribution companies. We need to consider their perspective when discussing retirements and additions of generation capacity. Distribution companies do not own generation capacity but contract for its supply. Because they are responsible for their portfolio of supply resources, decisions about changes (retirements and additions) would be made by them. Their decisions then travel back to the owner of the capacity. In some states, this responsibility for retirements lies with the distribution company itself, such as in Punjab, where distribution and generation have not been separated. Even for most other states, where distribution and generation are unbundled, the owner of generation and distribution is the same—the respective state government—and the responsibility for retirements is then effectively with the owner of the distribution company. If there is excess capacity and old plants are mandated to be shut down so they can be replaced by newer capacity (with higher fixed costs), it needs to be clear who will be responsible for paying the additional costs. There have been some suggestions that because the debt for this new, but not fully utilised, capacity has been funded mostly by public sector banks, from a societal perspective, these should be treated as sunk costs. We do not think that would be appropriate. If a distribution company shuts down an old but fully depreciated plant and contracts for new capacity, it will add the much higher fixed costs to its payment obligations. Treating these additional costs as sunk costs to be borne by society would be an unfair shifting of responsibility for bad investment decisions.

We also note that RE is effectively ‘must-run’ and the states also have renewable portfolio obligations (RPOs).[6] If indeed the older plants are not required, then distribution companies themselves will retire them, as was done in Punjab with the power plant at Bathinda. Or, if the economics line up, states won’t operate them if less expensive RE is available. As more RE is added, it can be sold through the power exchange. In the future, it can be bundled with storage and other sources and sold in the expectedly more sophisticated markets that come up. If such power from RE is less expensive than power from a distribution company’s own portfolio, then it will buy more RE-based power. Under such a scenario, the distribution company itself will realise that some of its older and inefficient capacity should be retired. Rather than mandating shutdowns, it would be better to empower and persuade distribution companies to carry out such analyses. They can shut down plants that are uneconomic, not needed, and not expected to be needed in the future.

In 2015, MoEFCC updated standards for power plants. These specified the maximum emissions of particulate matter (PM), SOx, NOx, and mercury as well as the norms for the discharge of water. Not only did this tighten particulate emissions, they added, for the first time, new pollutants including SOx to the list.[7] As most of the non-compliance is over SOx norms, we will focus on SOx emissions in this discussion note.

One major challenge with all analyses and planning is the lack of sufficient data on actual emissions from power plants. While plants are meant to have Continuous Emissions Monitoring Systems (CEMS), the data from these, including historical data, are not public. More importantly, CEMS are not used directly to map plant compliance but as inputs for official tests of compliance. This has two serious consequences for pollution levels: (1) periodic swings in output may be missed when checking for legal compliance; (2) plants may improve emission control performance when a compliance test is expected but may be non-compliant with norms at other times.

When it comes to SOx, the table below illustrates that, according to The Central Electricity Authority (CEA), 40 percent of the coal capacity is either in compliance or has awarded tenders for installation of FGD. Central Government plants have been the most active in this regard followed by privately-owned plants. The state-owned plants are lagging way behind, with only 12 plants, with a combined capacity of 4.32 GW, having awarded tenders for installation of FGD.

The benefits of installing FGD vary widely by location. A study evaluated this on a hypothetical power plant in eight different locations in India (Cropper et al., 2019). It carried out the following three steps, both with and without FGD: (1) estimating SOx emissions from the plant; (2) estimating the impact of SOx emissions on ambient air pollution; (3) estimating the impact of air pollution on premature mortality in the respective airshed. The reduction in premature mortality due to the installation of FGD represents its benefit. The study found the highest benefit was 28 times that of the lowest. These differences are largely due to varying sizes of the population exposed. The benefits were the highest in the densely populated states of North India, which coincidentally are also poorer.

The CEA recently carried out a study, in response to a directive from Ministry of Power (MoP), to examine the issue of plant-location specific emission standards instead of a uniform standard across the nation (CEA, 2020b). In its report, CEA stated it looked at SOx levels using satellite data and concluded that the problem of SOx emissions is concentrated in a small number of clusters in Odisha, Jharkhand, Chhattisgarh, Maharashtra, Tamil Nadu, and Gujarat. Another study carried out by IIT, Kanpur, also concluded that at distances greater than 40 km from source, the impact of the emissions was negligible. CEA recommended that plants be categorized by five levels of ground-based SOx. They suggested that ECS for SOx be required only on plants in locations which fell in the two highest concentrations. Plants in locations with SOx concentrations above 40 µg/m3 (about 1,460 MW of capacity) should be required to install FGD immediately. Those in locations with SOx concentrations between 30 and 40 µg/m3 (about 5,048 MW) should be required to install FGD in the next phase. It recommended that plants in locations with ground based SOx below 30 µg/m³ should not be required to install FGD.

While we are not endorsing these specific recommendations, selective installation of FGD or specifications of technology based on location-specific environmental conditions could save a significant amount of money. However, there are two points of caution. First, assumptions and data quality can affect the results to a great extent. Second, because SOx (and NOx) emissions are contributors to secondary particulates, it is important to not limit the assessment to a narrow examination of SOx concentrations alone. The question of the magnitude of impact from secondary particulates due to SOx emissions remains unanswered–a possible gap in CEA’s study. Further, selective installation of FGD would make implementation more complicated and increase the importance of good governance. A uniform emission standard is much easier to implement. If decisions on FGD installation are to be location-specific we must also ask how these decisions will be made and who will make them.

Another issue with all the approaches for reducing emissions discussed so far is that they are based entirely on upfront compliance. One advantage of this approach is its simplicity but it ignores aggregate outcomes. Many countries have operations norms that reflect day-to-day conditions, such as ‘Red Alert’ days. These assume importance when individual plants within an airshed comply but the aggregate pollution in that airshed is high. A related shortcoming of the simplistic approach is that it does not take into account the PLF of a plant. A plant that operates for short periods of the year has to meet the same emissions norm as another that operates at full capacity for the whole year, even though the annual emissions of the first plant may be much lower than those of the second.

This analysis is complicated further when we consider costs of compliance. There could be an FGD technology that reduces emissions to just above the norm. Such a technology cannot be used within the current approach of upfront compliance with a uniform norm. However, if the approach considered aggregate emissions, such a technology would be useful in a region with low emissions and at plants operating at low PLFs.

It is also important to remember that while FGD technologies can be very beneficial they can also create other challenges for power plants. For example, FGD leads to greater use of water. It may even cause a small drop in plant efficiency. When a plant is operated in flexible mode—more stops and starts, partial load, or variation in load—this complicates the FGD operation. It requires an augmentation of the control and instrumentation systems and changes in operating procedures (Sinha, 2020). Frequent start-ups can lead to the solidification of the slurry of limestone and water used to remove SOx. Rapid variation in load requires coordinated changes in the flow rates of the input streams for the FGD, necessitating more sophisticated automatic controls. Operating at low load levels can lead to a reduction in the inlet temperature of the flue gas, affecting the reaction rates in the FGD, and, hence, its efficacy. In addition, there can be significant decrease in the temperature of the flue gas as it exits the FGD, reducing its buoyancy and leading to corrosion in the duct and chimney.

There may be other ways to address sulphur in coal. Coal washing is an option. But we do not know if it is sufficient to meet the most stringent of norms, more so with heterogeneity in incoming coal quality.[8] Older plants, with looser emissions norms, can manage with dry limestone injection, which is cheaper than wet FGD solutions.

Given the many permutations of plant vintage, fuel characteristics, and technologies, it is not clear which approach is the most cost-effective. This is further complicated by the fact that few coal plants have coal of fixed quality, in particular, the amount of sulphur it contains. Many plants periodically or even regularly blend domestic coal with imported coal. Even CIL has delivered coal from different mines. In addition, coal from a mine may vary across different seams over the life of the mine.[9]

As discussed in the beginning, as more RE is added, the operation of coal plants will change. PLFs of some coal plants will be lower and some others could be required to do two-shifting. The extent of these changes will depend on how the scenario unfolds, in particular, on the volume of added RE and storage.

Three types of flexibility are required for coal plants operating under these conditions: (1) reduced minimum load level that plants need to operate at; (2) higher ramp rates both for increasing and decreasing load; and (3) a much greater number of starts and stops, particularly for two-shifting.

There are two broad categories of approaches to make coal plants more flexible. The first involves better process management through improved control and instrumentation (C&I). This approach is less expensive and easier than retrofitting a coal plant with new or modified hardware. C&I enhancements can help lower the minimum load threshold and increase the ramp rate considerably. For example, C&I changes have been used to bring down the minimum load level to 40 percent at Unit 6 of the Dadri power plant owned by NTPC. CEA reports that this required a capital expenditure of about Rs. 20 crore, which amounts to about Rs. 4 lakh per MW (CEA, 2019).[10] For comparison, the capital cost of a new coal plant is about Rs. 8 crore per MW. However, this is a relatively new plant, and older plants would require greater investment, possibly for some hardware upgrades. Equally important, the ability to achieve flexible operations as well as the investments required depend significantly on the coal quality (which not only varies by notified grade but also due to unintended variations in delivered coal compared to contracted values).

If even higher flexibility is required, for example, for very low minimum operating levels or higher ramp rates, then retrofitting would certainly be required, which is much more expensive. It also requires significant downtime for installation. Costs for retrofits depend on many factors: the type and size of the unit, its age, its operation and maintenance history, and coal quality. It is difficult to provide even an indicative estimate. In any case, such an investment, if made across all power plants, may not be required equally. Given the enormous aggregate scale of coal plants across the country, even a ‘business as usual’ ramping of 1 percent per minute, easily doable today, translates to an aggregate system-wide ramping of 1-1.5 GW per minute. This is sufficient to manage the expected swings of RE for the foreseeable future.

For economic reasons, plants that have higher variable costs should be asked to operate flexibly and plants with lower variable costs should be operated on a continuous basis. In general, supercritical plants are not run in extreme flexible mode because loss of supercriticality leads to reduction in efficiency. In order to ensure that sufficient flexible generation is available to meet load conditions, it is best to develop a system-wide strategy, covering all the coal plants in the generation mix of a company. This ensures that flexibility needs are met in an optimal manner.

• New coal-based power capacity: Considering expected decline in need for coal capacity, we need to be cautious in adding coal plants. New coal-based power capacity is likely to last for the next 40 years (or 25 years in accounting terms) and could end up stranded. Even for coal power plants under construction, an economic analysis should be carried out to decide whether to stop or continue construction.
• Retirement of old plants: Decisions about retiring coal plants, addition of FGD, and flexibilisation, should be made on a long-term, system-wide basis. It should take into consideration demand growth, costs, environmental impact, and need for flexibility in an integrated manner.[11]

While older plants may be inefficient, they may have some advantages for distribution companies that have them in their resource portfolio:

1. Because of their low fixed cost, they can operate at lower PLFs without major economic impact.
2. Subcritical plants are more suited to flexible operation than supercritical plants.
3. If plants are run for short periods, installation of FGD may be avoided or solutions with lower specifications may be used. This would result in lower costs with little change in aggregate emission levels.

• System-wide analysis by Distribution Companies: The distribution company is responsible for long-term resource planning, power procurement, and additions/retirements of generation capacity. It should carry out the long-term system-wide analyses to decide retirements, installation of FGD, and flexibilisation. This may be challenging because of difficulties in monitoring and lack of sufficient expertise at the distribution companies. This speaks to the enormous task ahead of capacity building.

As we have shown in this discussion note, the three issues of retiring older coal plants, installing ECS and flexibilising coal plants, are interlinked. For example, older plants may be more suitable for flexibilisation. Flexible operation may be more challenging for plants with FGD. We have also seen that rather than uniform rules, a strategic approach based on location, resource mix of the utility, nature of expected load growth, and expectations about future supply and storage technologies could result in better outcomes.

Clearly, an integrated and strategic approach would require more effort than the current silo-based and simple rule-based approaches proposed in the three studies discussed earlier. The question then is whether such an approach would yield significantly better outcomes in overall costs and lowered public health impact. Would the additional effort be worth it? Also, how much delay would such changes in policy cause and would that be acceptable?

As part of this analysis, it is important to keep in mind that as effective electricity markets are established, the value of flexibility and RE, and the need for capacity adequacy will become clearer. When that happens, rules for retirement or flexibility will no longer be needed. The market will not rely only on coal plants to provide flexibility to manage the intermittency and variability of RE. It will find the best mix of flexible coal plants, natural gas-based plants, storage (including hydropower duty cycles and not just pumped hydro), and demand response for flexibility. But even before that happens, it may be best to empower and encourage distribution companies to evaluate their own resource plans and decide when to add new capacity or retire old generation capacity. That analysis and evaluation is likely to lead to faster compliance and better public health outcomes at lower cost than diktats from the government.

CEA (2019). Flexible Operation of Thermal Power Plant for Integration of Renewable Generation. Central Electricity Authority, New Delhi.

CEA (2020a). Broad Status Report – Under Construction Thermal Power Projects. Central Electricity Authority, New Delhi.

CEA (2020b). A Paper on Plant Location Specific Emission Standards. Central Electricity Authority, New Delhi.

CEA (2020c). Unit wise FGD implementation status and summary sheet for December 2020.
https://cea.nic.in/wp-content/uploads/tprm/2020/12/summary_dec20.pdf. Central Electricity Authority, New Delhi.

Cropper, Maureen L., Guttikunda, S., Jawahar, P., Lazri, Z., Malik, K., Song, X., and Yao, X. (2019). ‘Applying Benefit-Cost Analysis to Air Pollution Control in the Indian Power Sector,’ Journal of Benefit-Cost Analysis 10(S1): 185-205

EIA (2017). Most coal plants in the United States were built before 1990, US Energy Information Administration, https://www.eia.gov/todayinenergy/detail.php?id=30812

Fernandes, A., & Sharma, H. (2020). ‘The 3Rs of DISCOM Recovery: Retirement, Renewables & Rationalisation’, Climate Risk Horizons.

Ganesan, K., & Narayanswamy, D. (2020). ‘Opportunities for reining in coal dependence in the power sector’, Parishad Webinars – Assessing COVID-19 impacts and stimulus needs of the Indian power sector, Council on Energy, Environment and Water, July 27, 2020.

Sahai, S. [@Sanjiv_Sahai]. (2020). Today, the all India demand for power touched 182888 MW which is an all time high (observed at 0948 hrs on 30 Dec. 2020) crossing previous high of 182610 at 1458 hrs on 30 May 2019. The entire demand was met. [Tweet]. Twitter.
https://twitter.com/Sanjiv_Sahai/status/1344241202963464193, December 30, 2020.

Shrimali, G. (2020). ‘Making India’s power system clean: Retirement of expensive coal plants,’ Energy Policy, 139 111305.

Singh, D. (2020). ‘Power and Coal: A Dysfunctional Intertwining,’ Chapter in Future of Coal in India: Smooth Transition or Bumpy Road Ahead? Tongia and Sehgal (eds.), Notion Press and Brookings India.

Sinha, A. K. (2020). Recipe book for flexibilisation of coal plants – Best practices and operating procedures, pp. 53-54. IGEF.
https://www.gtg-india.com/wp-content/uploads/2020/10/flexibilisation-of-Coal-Based-Power-Plants_A_K_Sinha.pdf

Spencer, T., Rodrigues, N., Pachouri, R., Thakre, S., Renjith, G. (2020). ‘Renewable Energy Pathways: Modelling the Integration of Wind and Solar in India by 2030,’ The Energy and Resources Institute.

The post Need for an integrated approach for coal power plants first appeared on CSEP.

The mining royalty rates in India are among the highest in the world. There is a need to reduce the rates to facilitate investment and development in the mining sector. Lower royalty rates would encourage future exploration and production of minerals in India. Royalty rates need to be aligned with the international best practices for ensuring competitiveness. Western Australia could be a role model. India should consider profit-based royalty rates which would allow the government to share the benefits of higher commodity prices. A hybrid system may be worked out with the government setting a minimum percentage/ amount that has to be paid. For example, Queensland uses a hybrid approach for bauxite royalties, 75% of the profits or 1.5 AUD per tonne (whichever is higher). The process for reviewing the mineral royalties is slow and time-consuming. The Study Group for the revision of royalty rates was constituted in February 2018 and submitted its report in July 2019. In January 2020, another 11-member panel was set up to examine the issues raised by the stakeholders. The rates haven’t yet been revised.

The mineral royalty rates are specified in the Second Schedule of the Mines and Minerals (Development and Regulation) Act (MMDR), 1957, which was enacted post-independence to regulate and develop the mining sector in India. This discussion note takes a view of the various systems of mineral royalty and their implementation for different minerals in India over time, followed by a comparison with the systems implemented in other developing and developed nations.

Mineral royalty is the economic rent due to the sovereign owner (government) in exchange for the right to extract the mineral substance.

There are three types of royalty taxes –

• Specific or unit-based royalty on a tonnage basis is mostly applied to high volume, low-value homogenous minerals. It is easy to administer and guarantees a continuous revenue flow to the government.
• Profit-based royalty assessment methods tend to be detailed, reflecting all revenues and costs, including capital and recurring operating costs, and arriving at the resulting profits to miners.
• Ad valorem royalty (value-based) is output-based royalty that is levied as a percentage of the value of production of minerals in a mining project.

Chakraborty et al. (2016) show that tonnage-based royalty rates are much lower than other regimes as costs of “mining, smelting, milling and refining do not affect the royalty base” and thus, reduce the risk to the government revenues. Profit-based royalty rates, on the other hand, are much higher as the “royalty base” is more volatile. Ad valorem royalty rates fall between tonnage-based and profit-based royalty rates.

2.   Royalty rates system in India

2.1.  Royalty Study Group

India has one of the highest royalty-rates regimes in the world (Chakraborty, 2014). Currently, India follows a combination of tonnage-based and ad valorem royalty rates. Every three years, the Government of India sets up a Royalty Study Group to suggest revisions in the royalty rates across minerals. The royalty rates cannot be revised more than once every three years as specified in Section 9 of the MMDR Act. Generally, there is an upward revision of the royalty rates of minerals by this study group. The last revision was published with the 2015 amendments to the MMDR Act. The Study Group recommended upward revisions of 21 major minerals including bauxite, copper, iron ore, lead, limestone, and zinc.

In February 2018, the Ministry of Mines had set up a Study Group for the revision of royalty rates. This Study Group had submitted its report in July 2019 for review and comments from the stakeholders. But royalty rates have not been finalised yet. In January 2020, another 11-member panel had been set up to examine the issues raised by the stakeholders.

2.2.  Historical movement of royalty rates

Till 1966, the royalty rates for 21 minerals were based on the unit of production (tonnage basis) but were subject to a cap of 20% of their ad valorem value (Indian Bureau of Mines, 2011). The remaining mineral royalties were based on the ad valorem system. Therefore, all the minerals were linked, directly or indirectly, to the value of minerals (ad valorem).

The Government of India set up the first Study Group in 1966 before which the royalty rates were modified when deemed necessary for different minerals at different rates. The Study Group was set up to undertake a comprehensive review of the royalty rates on all minerals, keeping in view the impact of royalty on production, exports, and the inflow to the state revenues by mineral-based industries.

Additionally, under various state acts, the state governments imposed individual cesses on mineral production, which were linked to the royalties. In 1990, the Supreme Court passed a judgement to remove these individual cesses (Indian Bureau of Mines, 2011). As a response to that, the central government increased the royalty rates to accommodate and protect the state revenues. Consequently, there was a sharp increase in royalty rates in 1992.  

In 1997, the Study Group published a revision of the royalty rates. The revision reflected the policy of liberalisation to make the royalty rates comparable with international rates by extending the scope of the ad valorem system to 19 minerals. The Study Group aimed to increase state revenues, and make the rapid development of the mining industry and “a complete switch over to ad valorem rates” possible (Indian Bureau of Mines, 2011).

The royalty rate regime has not yet achieved the “complete switch over” but has broadly moved away from tonnage royalty regime to ad valorem royalty regime. The tonnage-based royalty rates were reduced from nine minerals in 2011 to seven minerals in 2015.

2.3.  Calculation of royalty rates

The royalty on an ad valorem basis is calculated as follows (Indian Bureau of Mines, 2011) –

Royalty = Sale price of mineral (grade-wise and state-wise) published by the Indian Bureau of Mines (IBM) X rate of royalty (in percentage) X total quantity of mineral grade produced/dispatched

The royalty on metallic minerals like copper, zinc, lead, bauxite, etc. is based on the price movements of the London Metal Exchange (LME). The royalty to be paid based on the London Metal Exchange (LME) or London Bullion Market Association price is calculated as follows:

Royalty = rate of royalty (in percentage) X sale price of the metal for the month published by IBM X total quantity of metal contained in ore/total by-product metal produced

The royalty on a tonnage basis is calculated as follows –

Royalty = quantity of mineral removed/ dispatched X specified rate of royalty (in rupees)

2.3.1.      Average sale price

According to the Mineral (other than atomic and hydrocarbons energy minerals) Concession Rules (2016), at the time of the removal or consumption of the mineral from the lease area, the royalty is calculated based on the latest available average sale price of the said mineral grade and the same is paid to state governments as a provisional payment. Once the IBM publishes the average sale price of the mineral for the month, adjustments of the actual amount payable can be made towards the provisional amount paid.

The computation of the Average Sale Price is done using the ex-mine price as specified under section 42 of the Mineral Concession Rules. The ex-mine price of a mineral grade or concentrate for exported minerals is the free-on-board (F.O.B) price of the mineral minus the actual expenditure incurred beyond the mining lease area, divided by the total quantity exported, whereas the ex-mine price for domestic sales is the sale value of the mineral minus the actual expenditure incurred, divided by the quantity sold. If no sale has occurred, the average sale price published monthly by IBM is used. If the information for a state is not published by IBM, the last available price published in the last six months is used. If that is also not available, then the latest All India price published by IBM is to be used.

3.   Global royalty rate system

Developed nations like Australia and Canada have adopted a combination of ad valorem and profit-based systems while African countries majorly use ad valorem royalties. In contrast, the Asian and Pacific countries use a combination of ad valorem and tonnage royalty systems. There are very few developing countries like Mexico and Brazil that have adopted the profit-based royalty system.

The research undertaken by the Government of Western Australia (2015) suggests that most countries apply ad valorem rates to coal, metallic minerals, and gemstones. But certain countries like Canada use only profit-based systems. Their research also shows that developed countries like Australia apply the specific rate royalties to low-value, high volume, non-metallic commodities, particularly construction material. A similar pattern is followed in India with specific rate royalties being applied to non-metallic, bulk minerals such as limestone and limeshell. The complete list of mineral royalty rates of the top 19 mining jurisdictions can be referred to in Annex-A.

4.   Choice of royalty rates

Mineral sector taxation changes according to the business cycle. The governments take advantage of high commodity prices in a business cycle by adjusting their taxation rates. James Otto (2017) provides evidence of this in his research. He shows that during the “commodity price boom in 2002”, countries such as Liberia, Malawi, Solomon Island, and Zimbabwe introduced self-adjusting royalty schemes.

At the same time, tax policymakers must decide whether to apply a unique system for each economic sector or a common system for all sectors. Each economic sector has different costs, revenue, and government objectives like maximising employment or generating revenue. If the tax system is “non-uniform, it will be more complex and more difficult to administer” (Otto, 2017).

Yet most governments choose to design a unique mining tax system based on the following issues:

• Differentiating by mineral type: Many nations define groups of minerals that are subject to different royalty rates. This is the most common method as operating economies may vary between mineral types. For example, iron ore mines have the potential to generate higher profit levels than gravel mines, and hence, the royalty rate would be higher for iron ore mines. This method is applied by mining jurisdictions like India, Queensland (Australia), Brazil, and Alberta (Canada) among others.
• Differentiating by level of investment: There are a variety of mine sizes — small, medium, large, artisanal. Some mining jurisdictions exempt artisanal mines from paying royalty while small mines enjoy reduced royalty rates. The Northern Territory of Australia provides an exemption to small scale miners by applying royalty only where the annual gross production revenue of a unit exceeds 500,000 AUD. Chile and Quebec (Canada) use similar methods by assigning different rates to different sale amounts.

4.1.  Summary of royalty rates in India

Of the major non-fuel minerals notified by the government (Second Schedule of MMDR, 2015), tonnage-based royalty rates are levied on only six major minerals of various grades. They are chrysotile, graphite (all grades), limestone (all grades), limeshell, monazite, and tungsten. The rest of the minerals/metals royalty rates are on an ad valorem basis. Their royalty rates range from 2% (Brown Ilmenite, Ilmenite, Rutile, and Zircon) to 25% (bauxite – non-metallurgical grade). The complete list of royalty rates can be found in Annex-B.

Figure 1 shows the movement of the tonnage-based royalty rates over the years. The shaded region shows the range of the tonnage rates. The figure shows a sharp increase in 1992 which was due to the removal of individual state cesses. These cesses were accommodated into the 1992 royalty rates. The mineral chrysotile (asbestos) has the highest tonnage rate (₹880 in 2015) over the years while tungsten has the lowest rate (Rs 20 per percent of WO₃ per tonne of ore) since 2000. Until 1997, the tonnage royalty rates were as low as Rs 2 per tonne (manganese concentrate). The detailed royalty rates for 2009 and 2015 are shown in Annex-B. Table 2 specifies the lowest and highest tonnage royalty rates from 2000 to 2015.

Figure 2 shows the movement of the ad valorem royalty rates over the years. The shaded area shows the range of the ad valorem rates. Figure 2 also shows an increase in 1992. A sudden decrease is observed in 1997 as the Study Group adopted the policy of liberalisation to make the rates comparable to international rates. The Study Group increased the minerals under ad valorem systems from four minerals (tin, diamond, cobalt, and antimony) in 1992 to 19 minerals (antimony, brown ilmenite, ilmenite, rutile, zircon, chromite, cobalt, copper, diamond, fluorite, garnet, gold, kyanite, magnesite, sillimanite, silver, tin, wollastonite, and zinc) in 1997. All of these minerals had low rates. In 1997, copper had the lowest royalty rate at 0.7% of the copper concentrate produced, prior to which copper royalty rate was fixed at ₹17 per percent of the copper metal contained in the ore (1992). On the other hand, seven minerals (antimony, cobalt, diamond, kyanite, magnesite, tin, and wollastonite) had the highest ad valorem rate at 10% of average sale price in 1997. From 2000, the lowest ad valorem royalty rate fell below 1%. Table 3 specifies the lowest and highest ad valorem royalty rates from 2000 to 2015.

The ad valorem rates prevailing in Western Australia were the reference point while deciding the rates in 2009 (Indian Bureau of Mines, 2011).

4.2.  Iron ore royalty rates

Figure 3 shows the changes in iron ore royalty levied by the government. It shows that the royalty transitioned to an ad valorem basis in 2009 at 10% of the average sale price. Iron ore royalty also shows an increasing trend over the years. Furthermore, there was an increase in the royalty rate from 10% in 2009 to 15% in 2015. The dashed line (projected tonnage rates) shows the ad valorem rates as tonnage-based rates. They were calculated by multiplying the average sale price for the year with the ad valorem rates (Adams (2007); Stawowy (2001)). This shows that from 2009, the royalty rate has increased significantly.

Figure 4 shows a comparison of the countries that use ad valorem royalties for iron ore. India has the highest royalty by about seven to eight percentage points.

Jurisdictions like Queensland (Australia), South Australia and Alberta (Canada) that fall under the category of developed nations generally use profit-based royalty rates ranging from 1.25% (Queensland) to 12% (Province of Alberta) of the profits. Some developing nations like Mexico and Brazil have also transitioned to profit-based systems for iron ore with the rate ranging from 3.5% to 7.5%.

4.3.  Bauxite royalty rates

Figure 5 shows the trend of the royalty rate on bauxite used for alumina/aluminum manufacturing while Figure 6 shows the trend of the royalty rate of non-metallurgical bauxite. The same methodology as mentioned for iron ore is used to calculate the projected tonnage rates. Till 2000, there was no distinction between metallurgical and non-metallurgical bauxite. They had the same royalty rates. Currently, non-metallurgical grade bauxite has a royalty as high as 25% of the average sale price. The royalty rates transitioned in 2000 to ad valorem systems (at 0.35% of the average sale price). Till 1997 (tonnage-based rates), an increasing trend can be observed.

Though the ad valorem rates remained unchanged from 2009 to 2015, the average sale price increased which is shown by the sudden upward shift of the projected tonnage rates from 2009 to 2015.

Figure 7 is a comparison between some jurisdictions that use ad valorem rates for bauxite. Other countries do not classify bauxite into metallurgical and non-metallurgical ore. India has the highest rate at 25% on an ad valorem basis. The current royalty rate for metallurgical bauxite is 0.6% of the LME aluminum metal price chargeable on the aluminum metal contained in the ore.

Developing nations like Brazil and Mexico levy about 3-8% royalty using profit-based systems. On the other hand, Queensland uses a hybrid system for bauxite – 75% of the profits or 1.5 AUD per tonne (whichever is higher).

4.4.  Limestone royalty rates

Figure 8 shows the change in limestone royalty rates. They follow a tonnage-based system and show an increasing trend over the years with a period of stagnation from 1992 to 2000. Limestone is one of the few minerals that still has royalty on a tonnage basis.

Very few jurisdictions apply tonnage-based royalties for limestone. These include Queensland (Australia) at 0.75 AUD per tonne and Alberta (Canada) at 0.441 CAD per tonne.

4.5.  Zinc royalty rates

Figure 9 shows the transition of zinc royalty rates. Until 1968, zinc royalty was fixed on an ad valorem basis at 7% of the average sale price. From 1968-1997, the rates were based on tonnage regimes and were changed to ad valorem basis (linked with the LME prices) from 2000. Currently, the royalty is set at 9.5% of the LME zinc metal price chargeable on the zinc metal contained in the ore.

Only India links the royalty rates directly to the LME prices and the metal contained in the ore. For most jurisdictions, the zinc royalty rate is based on the metal produced/sold. Some countries like China base their rates on the zinc concentrate sold (2% – 6% of the gross zinc sales) while South Australia charges royalty on the zinc ore produced (5% of the net value of zinc ore).

5.   Economic issues

Certain economic issues need to be kept in mind while determining the royalty rates:

• Investor Perceptions: As investor perceptions are very important, taxation levels need to be set at the optimal level. If the taxation is too high, the investors shift focus to other alternatives whereas if they are too low, the country loses revenue used for public welfare. If governments levy high levels of rent from “currently operating mines which are captive to the country in which their resources are located, it would discourage future exploration and development in the country and redirect capital towards countries with more attractive and stable mining regimes” (Guj, 2012).
• Administrative Ease: A system that enables easy administration and does not give scope to leakages should be adopted. Hence, “a complete range of royalty options need to be adopted rather than limiting to simple methods” (Indian Bureau of Mines, 2011).
• Revenue Stability: As shown by Guj (2012), mineral commodity prices and revenue to mining projects are highly volatile. “Besides being economically inefficient, the stability of relying on fixed taxes prevents the government from sharing in the high rents when the commodity prices are high”(Guj, 2012).
• Productivity of mines: The cost of the mine needs to be taken into consideration while setting the royalty rates. Older mines would have higher operating costs than newer mines like in the case of old copper mines where copper is found much deeper in the earth and is very expensive to extract. The newer mines would also be more productive as higher-grade ores would be extracted first (Otto, 2017).

6.   Concluding remarks

This discussion shows that India has moved away from tonnage royalty regime to ad valorem royalty regime, but internationally competitive rates have not been achieved yet. A comparison of iron ore and bauxite with international royalty rates showed that India has very high royalty rates compared to other jurisdictions whereas an analysis of limestone revealed that very few jurisdictions (Queensland and Alberta) follow tonnage-based systems. The analysis of zinc showed that India is the only country that directly links the royalties of metallic minerals to the LME price and the metal contained in the ore. Most of the other jurisdictions directly charge royalties on the metal. The advantage of linking royalty rates to the “metal contained in the ore” is that it allows for the variation in the mineral grades and obtain more revenue from higher-grade ores.

In its attempts to compare royalty rates between countries, the paper observes a lack of similarity between the royalty rates. This variation could be attributed to the differences in legal systems, their history, level of investor interest, national objectives, and other factors. There is no universal royalty rate, therefore, a system that is compliant to easy administration, stable revenue, and supports investor interests should be adopted.

Bibliography

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Chakraborty, L. (2014, May). Public Policy on Non-Tax Revenue: Analysing the Impact of Mining Royalty on Competitiveness. National Institue of Public Finance and Policy.

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The post Minerals royalty rates in India: Comparison with other countries first appeared on CSEP.

Introduction

While there is rich extant literature on India’s dependence on and its long-term need for natural gas and coal, there is not a similar understanding of non-fuel minerals, particularly the critical minerals. A study by the Department of Science and Technology and the Council on Energy, Environment, and Water (DST-CEEW, 2016) points out that there isn’t enough research in India on ensuring mineral resource security for the manufacturing sector.[1] The study looked at 49 non-fuel minerals, including rare earth minerals, and assessed the impact of critical minerals on manufacturing sector due to supply constraints.[2]

The criticality of non-fuel minerals has been evaluated through considering economic importance and the supply-side risks. The economic importance of a non-fuel mineral is implicitly based on a) use of the mineral across various manufacturing sectors, and b) value addition by these sectors to the manufacturing GDP. “Even if a mineral is used in small quantities, in a high-value-add manufacturing sector it can be more critical as compared to a mineral used in large quantities in a low-value-add manufacturing sector,” says the DST-CEEW (2016) study. The supply-side risks for a mineral are based on domestic endowment, geopolitical risks of trade, substitutability and recycling potential. The study identifies 13 minerals which would become most critical by 2030. Six of these were critical even in the reference year 2011.[3] The study recommends that India should undertake institutional reforms outlined in the National Mineral Exploration Policy, NMEP 2016, including creation of a not-for-profit National Centre for Mineral Targeting (NCMT), enhanced exploration and R&D in mining and mineral processing technologies, and strategic acquisition of mines abroad and signing of diplomatic and trade agreements.[4]

Critical minerals have highly complex global supply chains. Their production is subject to a high degree of monopoly. Hence, the availability of these minerals faces high levels of supply risks. The International Energy Association (IEA, 2020) has identified that China produces 63% of world’s output of rare earth elements (REEs) and 45% of molybdenum. More than 70% of cobalt is mined in the Democratic Republic of Congo, with China having a majority ownership of these mines. Australia produces 55% of world’s lithium with China as its major importer. South Africa mines 72% of world’s platinum output (International Energy Agency (IEA) Report, 2020).[5]

The IEA Report (2020) cautioned that the future availability of clean energy would require reliable global supply chains of critical minerals as well as availability of equipment like solar panels, wind turbines and electric vehicles. There is a need to analyse the global challenge of accelerated transition toward clean energy in case the global supply chains get fractured during the post-COVID-19 era. Efficient and fast-charging batteries need embedded use of lithium, cobalt and nickel. Copper is an important conductor of electric currents. Some of the REEs, like neodymium, are used to make powerful magnets as major components of wind turbines and electric vehicles.

The supply risks of critical minerals may occur due to domestic factors and interruptions in international trade. Domestic factors include unrest and civil wars, environmental factors, mining disasters and political conflicts within the producing countries. Risks also arise from trade wars. It was in 2010 that China suspended exports of REEs to Japan for 59 days. The impact was such that the prices of rare earth oxides increased in the range of 60% to 350% and returned to the pre-dispute levels after a year. China is typically not considered as a major resource exporter and yet is world’s largest producer of 18 critical minerals.[6] China holds 85% of the world’s capacity to process REEs into material inputs required for manufacturing various high-tech products. About four-fifths of REEs imported by the United States originate from China.[7] The post-COVID-19 slowdown in manufacturing activity is likely to lead to major changes in trade of REEs between China and the U.S., lithium between Australia and China, and cobalt between Democratic Republic of Congo and China. China thus plays a crucial role in the global supply chains of critical minerals including REEs.

The IEA Report (2020) provides a description of key challenges around global supply of select critical minerals. A justified tightening of labour and environment standards in Congo might impact cobalt production and downstream supply chains. In the case of nickel, there has been a track record of delays and cost overruns in new mines. Indonesia, the largest producer of nickel, has banned its exports. China is the largest producer of REEs and dominates value chains across mining, processing and producing magnets.

COVID-19 has been a wake-up call for monitoring the critical mineral supply chains for ensuring adequate production of clean energy as well as high-tech aviation and IT equipment. Disruptions in supply chains can get exacerbated if battery and electronic vehicle production takes a hit in Japan, South Korea and some other countries. IT equipment and IT-enabled services shall become important means of doing business when physical movement of people is restricted for in-person meetings and events during the post-COVID-19 era.

The 21^st century needs of clean energy and other high-tech equipment are proving to be a challenge due to the economic slump caused by COVID-19. India needs to undertake serious research and build a policy framework of being self-reliant in clean energy and high-tech equipment by acting fast on exploration and excavation of critical minerals and setting up investments in the downstream value chain of manufacturing requisite equipment at home.

New horizons of growth: Need for critical minerals and downstream products

The Indian economy had started slowing down even pre-COVID-19, in 2018-19 and 2019-20. The growth has been less than 4.5% in 2019-20 and is likely to be 2% or even less in 2020-21. Given that the global economy is going to slow down, the Indian economy needs a big boost from domestic factors which aim at making India self-reliant.

There are some major pending reforms to be adopted in the mining sector. The sector can act as a catalyst for traditional as well as high-tech manufacturing and hence boost India’s GDP and provide jobs, not only in the mining sector, but in many downstream sectors.

In his speech on May 12, 2020, Prime Minister Narendra Modi expressed serious concerns about the devastating impact of COVID-19 on India and the world.[8] He announced a stimulus package of Rs. 20 trillion to revive India’s economy. India would adopt Atmanirbhar Bharat Abhiyan (Self-Reliant India Movement) through boosting local production. Consequently, the Finance Minister announced the details of the stimulus through five different tranches. The Part-4 tranche, announced on May 16, 2020, refers to the ‘New Horizons of Growth’, which focused on the upgradation of industrial infrastructure. Incentives shall be provided for promotion of “New Champion Sectors” including manufacturing of solar photovoltaic (PV) and advanced cell battery storage. It addresses various policy reforms and initiatives in sectors such as mining, defence production, aircraft maintenance, civil aviation, space activities, power and atomic energy.[9]

The announcements on reforms in the non-fuel minerals sector are extremely crucial for ensuring the success of manufacturing sector as well as integrating “assemble in India for the world” into the larger “Make in India” initiative. The major new announcements include:

1. Introduction of a seamless composite exploration-cum-mining-cum-production regime
2. 500 mining blocks would be offered through an open and transparent auction process
3. Introduce joint auction of bauxite and coal mineral blocks to enhance the aluminium industry’s competitiveness
4. Remove distinction between captive and non-captive mines to allow transfer of mining leases and sale of surplus unused minerals, leading to better efficiency in mining and production
5. Ministry of Mines is in the process of developing Mineral Index for different minerals
6. Rationalisation of stamp duty payable at the time of award of mining leases

The mining sector reforms would help fulfill India’s commitment to a clean and sustainable energy future as well as ensuring availability of other high-tech equipment including solar panels, electric vehicles, IT and aviation equipment. There is a clear and urgent need to develop value chains of critical minerals, including lithium, cobalt, nickel, manganese and rare earth elements (REEs).

Identifying activities: Self-reliant KABIL India

India has excellent geological potential for many critical minerals including REEs. These include minerals like lithium, tantalum, niobium, titanium, vanadium, nickel and platinum group elements (PGE) and some others. REEs can be sourced from ilmenite and monazite from beach sand and from alkaline rocks and cogenetic carbonatite complexes.[10] While India has developed some expertise in extracting and processing some REEs, mainly monazite, the manufacture of downstream products has not yet happened.[11] The government is working on attracting investments by foreign companies for producing solar panels, lithium batteries, solar charging infrastructure and other advanced technologies in India, with the underlying objective of moving towards clean energy.

One of the major steps to ensure supply of critical minerals, mainly in the context of energy security and the national mission on Electric Mobility, was taken on August 1, 2019. An expert committee for exploration and procurement of required critical minerals was set up in consultation with the Ministry of Mines, Government of India. The committee would examine domestic reserves as well as possible tie-ups with the mining sectors of other countries, particularly for sourcing cobalt and lithium from Australia, Argentina and Bolivia. A joint venture company, named Khanij Bidesh India Limited (KABIL)[12], would be set up as a joint venture of three central public sector enterprises, viz. National Aluminium Company Limited (NALCO), Hindustan Copper Limited (HCL) and Mineral Exploration Company Limited (MECL) in the ratio of 40:30:30. KABIL would work towards ensuring a consistent supply of critical minerals with attention to import substitution not only for energy security but also for sectors such as defence, aviation and space research. It would also work towards acquisition, exploration, mining and processing of strategic minerals in other countries for ensuring adequate supplies to the domestic markets. This would be done through G2G collaboration or strategic acquisitions or investments in the exploration and mining assets in foreign countries.[13]

As a follow-up of a virtual summit meeting between the prime ministers of the two countries, India and Australia have signed a Memorandum of Understanding on June 4, 2020 for supplying critical minerals to India. These include lithium, cobalt, zircon, antimony, tantalum and rare earths.[14]

Reforms in the mineral sector: The way forward

The National Mineral Policy (NMP) 2019 had put forward a vision for accelerated growth of production of non-fuel minerals.^[15] It highlights that exploration and extraction should boost the country’s economic development through making in India and reducing import dependence. It recommends a regulatory environment that is conducive for “ease of doing business with simpler, transparent and time-bound procedures for obtaining clearances”, along with security of tenures with rights of transferability of concessions. Efforts shall be made to prospect and explore minerals where India has the geological potential, but poor resource and reserve base. These include “energy-critical minerals, fertilizer minerals, precious metals and stones, strategic minerals and other deep-seated minerals which are otherwise difficult to access and for which the country is mainly dependent on imports.”

The recent set of Atmanirbhar reforms of the mineral sector announced by the Finance Minister under the Part-4 of the post-COVID-19 stimulus package are likely to give a big boost to exploration of all the minerals, including critical minerals.

While attention needs to be paid to efficient exploration and allocation of leases to all non-fuel minerals, critical minerals including REEs need focused attention. KABIL should consult with private sector players, from mining as well as manufacturing, to seek useful and practical suggestions for becoming self-reliant in critical minerals and downstream products now, and in future.

As recommended by the DST-CEEW study, a not-for-profit National Centre for Mineral Targeting (NCMT) should be set up, exploration and R&D in mining and mineral processing technologies should be enhanced and due consideration should be given to strategic acquisition of mines abroad and signing of diplomatic and trade agreements.

While exploration and extraction of critical minerals is important, it can be accomplished commercially only when the entire value chain is developed simultaneously, from exploration to mining, to extraction, and product development. Investors should be incentivised to make risky investments with assurance of the security of title and tenure.[16]

Improving the post-leasing clearance mechanism is one of the most important reforms for making mining activity efficient. Instead of getting separate environmental and social clearances, evaluation may be done on the basis of one integrated impact assessment, viz. environment and social impact assessment report (ESIA). This comprehensive report would factor in the environment, forest and biodiversity, and the local community aspects of the mining project under consideration.[17]

A much-needed single regulatory authority has been envisioned in the National Mineral Policy (2019): “A unified authority in the form of an inter-ministerial body under Ministry of Mines, with members like Ministry of Coal, MoEarth Sciences, MoEFCC, Ministry of Tribal Affairs, Ministry of Rural Development, Ministry of Panchayati Raj, Ministry of Steel, including state governments, shall be constituted to institutionalise a mechanism for ensuring sustainable mining with adequate concerns for environment and socio-economic issues in the mining areas, and to advise the Government on rates of royalty, dead rent, etc.”. It would be ideal if the authority executes its work to facilitate optimum development and utilisation of mineral resources.

In a previous piece, we have argued that to become “a globally competitive and self-reliant sustainable mining hub, India must ensure mineral security for the 21^st century, provide inter-generationally optimum resources to the states’ exchequers and adequate returns to the mining companies, rely on state-of-the-art technology and create additional jobs, while ensuring environmental sustainability and welfare of the affected communities.”[18] It is only then that the mining sector can become a true catalyst for growth and development.

DOWNLOAD THE DISCUSSION NOTE

[1] Gupta, Vaibhav, Tirtha Biswas and Karthik Ganesan (2016), Critical Non-Fuel Mineral Resources for India’s Manufacturing Sector: A Vision for 2030 (DST-CEEW): https://www.ceew.in/sites/default/files/CEEW_Critical_Non_Fuel_Mineral_Resources_for_India_Manufacturing_Sector_Report_19Jul16.pdf

[2] Indian Bureau of Mines, Ministry of Mines (2018), Indian Minerals Yearbook, 2016, Rare Earths: https://ibm.nic.in/writereaddata/files/01242018120048Rareearths%202016(AdvanceRelease).pdf

[3] Minerals critical in 2011 as well as 2030 include chromium, limestone, niobium, rare earths (light), silicon and strontium. Minerals that would become critical by 2030 include rhenium, beryllium, rare earths (heavy), germanium, graphite, tantalum and zirconium.

[4] Ministry of Mines (2016), National Mineral Exploration Policy: Non-Fuel and Non-Coal Minerals: https://mines.gov.in/writereaddata/Content/NMEP.pdf

[5] Kim, Tae-Yoon and Milosz Karpinski (2020), Clean energy progress after the Covid-19 crisis will need reliable supplies of critical minerals, International Energy Agency (IEA): https://www.iea.org/articles/clean-energy-progress-after-the-covid-19-crisis-will-need-reliable-supplies-of-critical-minerals

[6] Wilson, Jeffery (2019), Critical Minerals for the 21^st Century Indi-Pacific, PerthUSAsia Centre: https://perthusasia.edu.au/getattachment/Our-Work/2019-Perth-USAsia-Centre-Annual-Report-(2)/ITZ-Issues-Brief.pdf.aspx?lang=en-AU

[7] https://www.reuters.com/article/us-usa-trade-china-rareearth-explainer/u-s-dependence-on-chinas-rare-earth-trade-war-vulnerability-idUSKCN1TS3AQ

[8] https://www.youtube.com/watch?v=P4QjOhu9eIQ

[9] Finance Minister, Atmanirbhar Bharat,  Part-4, May 2020, New Horizons of Growth, Ministry of Finance: https://164.100.117.97/WriteReadData/userfiles/AatmaNirbhar%20Bharat%20Full%20Presentation%20Part%204%2016-5-2020.pdf

[10] Geological Survey of India , Ministry of Mines (2013), General Information Dossier for Rare Earth Elements (REE): https://employee.gsi.gov.in/cs/groups/public/documents/document/b3zp/mdyy/~edisp/dcport1gsigovi062253.pdf

[11] Dadwal, Shebonti Ray (2019), China’s Continuing Rare Earth Dominance, Manohar Parrikar Institute for Defence Studies and Analyses:  https://idsa.in/idsacomments/china-continuing-rare-earth-dominance-shebonti-270919

[12] Khanij and Bidesh are Hindi words. Khanij means mining and Bidesh means foreign. The acronym KABIL is a Hindustani word which means capable / qualified /deserving.

[13] https://pib.gov.in/PressReleasePage.aspx?PRID=1581058

[14] https://www.minister.industry.gov.au/ministers/pitt/media-releases/australia-and-india-sign-critical-minerals-agreement

[15] Ministry of Mines (2019), National Mineral Policy: https://mines.gov.in/writereaddata/Content/NMP12032019.pdf

[16] Chatterjee, Biplob and Rajesh Chadha (2020), Enhancing Mineral Exploration in India, Brookings India https://www.brookings.edu/research/indias-mineral-exploration-legacy/

[17] Banerjee, Srestha (2020), Regulatory reform for non-Fuel minerals: Improving the post-leasing clearance mechanism: https://www.brookings.edu/research/regulatory-reform-for-non-fuel-minerals-improving-the-post-leasing-clearance-mechanism/

[18] Chadha, Rajesh and Ganesh Sivamani (2020), Non-Fuel Minerals and Mining in India: Background and the way forward: https://www.brookings.edu/wp-content/uploads/2020/01/Non-Fuel-Minerals-and-Mining-in-India.pdf

The post Skewed critical minerals global supply chains post COVID-19 first appeared on CSEP.

Few would dispute that change is required in the legislative and regulatory framework of the power sector in India.  To that end, the government has proposed amendments to the Electricity Act of 2003; this being the third series of amendments, and in many ways, less ambitious than previous attempts. However, these amendments do not get to the heart of the problem. Electricity in India is a concurrent subject, under the state and central purview, and many of the challenges today are not simply techno-economic, or even ones of system design, but political. Our analysis finds that incremental steps, sometimes only addressing selected challenges, are unlikely to address root causes, and the Act notwithstanding amendments, does not go far enough to give a direction to the industry where issues of sustainability, technology, market design, and private sector participation will be key.

Recently, problems pertaining to proposed renegotiation of renewable energy (RE) contracts in Andhra Pradesh and defaults by distribution companies (DisComs) with respect to payments to generators have drawn attention in media reports. It would be easy to get caught up in finding resolutions to these problems but that would not solve the problems of the sector. Attention must be focused on the bigger challenges. With the already slowing economy being slammed by the COVID-19 pandemic, rapid economic growth has become absolutely important, and a thriving and robust power sector is equally imperative to fuel that economic growth.

There are three major challenges that the power sector is facing. First, there are many features of the Electricity Act of 2003 (EA2003) that have not been implemented or are not working properly. The reasons for these failures must be understood and required corrections made. Second, the power sector is changing rapidly with greater contributions from renewable energy, the presence of distributed energy resources (DER), the expected growth of energy storage particularly in the form of batteries, several new behind-the-meter activities such as electric vehicle (EV) charging and new technologies to control consumption. The legislative and regulatory framework for the power sector must be ready for this dramatically changed future. Third, because of the interconnectedness of the power sector, it is important that the functioning and structure of each sub-sector (fuel markets, wholesale electricity markets, retail electricity markets, generation, transmission, and distribution) is consistent with that of the other sub-sectors. While work continues in each of these subsectors, more often than not, it is being done in isolation, leading to inconsistencies that create technical, economic, or operational obstacles. Even when the average impact is positive, we cannot ignore winners and losers as well as structural distortions. Therefore, developments in the subsectors need to be carried out in a coordinated and consistent manner.

In addition, to the challenges identified above, there are political problems that have led to a significant deterioration of the financial health of DisComs, such as, cross-subsidies and low tariffs for agricultural, residential, and small consumers. Stricter regulations with penalties for non-compliance are not likely to solve these problems either, which need to be resolved at the political level using principles of cooperative federalism based on negotiation and discussion. Not only states, but consumers too, have to be taken along.

Against this backdrop, the proposed amendments in the Electricity (Amendment) Bill 2020 fall considerably short of addressing these challenges. Some elements of the proposed amendments, such as the creation of an Electricity Contract Enforcement Authority (ECEA) and ensuring payment security seem more focused on addressing the grievances of upstream players rather than addressing the aforementioned problems.

In order to confront revenue shortfalls for DisComs, EAB 2020 proposes greater centralization. It proposes to have a Central Selection Committee for Members and Chairpersons of SERCs, CERC, ECEA, and APTEL. This could very likely lead to SERCs peopled with individuals loyal or even beholden to the Centre with little understanding of the local context or language. It could also greatly reduce the effectiveness of SERCs. Centralization is also being pushed by reducing the autonomy of SERCs in setting tariffs, and having instead to rely on the directives in National Tariff Policy, prepared by the Centre.

It is not clear how the proposed amendments will produce the desired outcomes. Ignoring upcoming challenges for the power sector will make the sector unprepared for the future. A coercive approach and greater reliance on Centralization is likely to be strongly resisted by both the States and consumers. This could lead to endless litigation or at best, a stalemate with states covertly resisting policies of the Centre, as in the recent case with the central push towards Open Access or renewable energy (especially rooftop solar). Many of the problems targeted in EAB 2020 can be tackled with existing laws, regulations, and institutions, which may need strengthening. The more ambitious aspects of the amendments are specifically the ones most likely to face resistance. If COVID-19 has created a pause from Business-As-Usual, perhaps we can use this period to strive for not just a “New Normal” but also a robust and future-ready power sector.

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The Mines and Minerals (Development and Regulation) Act of 1957 regulates the mining sector in India, including specifying the rules for the allocation of mining leases. The Mines and Minerals (Development and Regulation) Amendment Act, 2015 introduced, amongst other changes, the system of auctions to be used by state governments when granting mining leases and prospecting licence-cum-mining leases (also known as a composite licence). The purpose of changing the method of allocation of the resources was to remove the discretion that state governments previously had, and move towards a fair, objective, and transparent system.

As of October 4, 2019, 70 mineral blocks have been auctioned, with an estimated value of resources of Rs 2,52,515.90 crores. This information has been released by the MoM, with an assumption that the estimated quantity of resources in the mineralised area will all be mined. Mining companies will have to make statutory payments of royalties for the minerals mined, and make contributions to the District Mineral Foundation fund, as well as the National Mineral Exploration Trust. The total estimated payments the miners will have to make over the lifetime of the mines comes to Rs 2,02,125.99 crores, or 80% of the value of resources, leaving just Rs 50,390.91, or 20% of the value of resources, with the mining companies.

The post An analysis of non-fuel mineral blocks auctions in India first appeared on CSEP.

India implemented the world’s most stringent nationwide lockdown,[1] and as it enters the period of phased recovery, there will be enormous challenges summarised by two key issues:

• How do we align the short-term (immediate and urgent) needs with the long-term ambitions and visions, especially of economic viability and sustainability? If the largest challenge facing the energy sector was not just the transition but ensuring it is a just transition, what happens post-COVID-19?
• In the short-term, what are the best actions needed to provide support that aren’t either distortionary or foster moral hazard?

The government just announced enormous stimulus packages, perhaps in the order of 10% of GDP! In the first phase announced, Rs. 90,000 crores of stimulus is aimed at DisComs. Our initial analysis indicates this is welcome (and necessary). But it would likely be insufficient if we apply a long-term lens. Not because of the amount, but how it’s structured. This is either a loan or changes to existing financing, and it isn’t a grant or a write-off, and it’s unclear how this addresses underlying issues.  As details emerge, we will subsequently write more about the stimulus, rather, stimuli.

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[1] https://www.economist.com/finance-and-economics/2020/04/04/emerging-market-lockdowns-match-rich-world-ones-the-handouts-do-not

Recommended Citation: Tongia, Rahul: “DisComs Post COVID-19: Untangling the historical challenges, short-term needs, and long term ambitions,” Brookings India Discussion Note, May 2020.

The post DisComs post-COVID-19: Untangling the historical challenges, needs, and long-term ambitions first appeared on CSEP.

Covid-19 has hit the world hard. As on May 11, 2020, there have been a total of 4,215,274 positive cases across the world with 284,672 reported deaths. The U.S. has suffered the highest number of 80,800 deaths. India has reported 67,724 Covid-19 positive cases and 2,215 deaths.[1]

The global economy is facing an unprecedented crisis of COVID-19, which might impact the world in terms of deteriorating human health, worse than the Spanish Flu pandemic of 1918 (till 1920) and the Great Depression of 1929 (till 1939). There is no way yet to compute the peak and duration of health and economic downturns. As the IMF World Economic Outlook (WEO), April 2020, puts it, “Depending on the duration, global business confidence could be severely affected, leading to weaker investment and growth than projected in the baseline. Related to the uncertainty around COVID-19, an extended risk-off episode in financial markets and tightening of financial conditions could cause deeper and longer-lasting downturns in a number of countries.”

In January 2020, the IMF WEO Update had projected the 2020 world economy to grow at 3.3%, advanced economies at 1.6%, emerging markets and developing economies at 4.4%, India at 5.8% and China at 6.0%. It didn’t have any mention of the novel coronavirus. Covid-19 has seriously impacted these growth numbers. The corresponding numbers, as per IMF WEO (April 2020) are projected at -3.0% (world), -6.1% (advanced economies), -1.0% (emerging markets and developing economies), 1.9% (India) and 1.2% (China). The world trade volume, which, in January 2020, was expected to expand by 2.9% is now estimated at a decline of 11.0% (-11%). The drastic downward revision within one quarter must be a record slippage in the history of IMF.[2]

The Indian economy has already been facing serious deceleration in economic growth, quarter after quarter, since Quarter-1 of 2018-19 when it posted a growth of 8% in GDP at market prices. The decline has been sharp with expected growth in Quarter-2 of 2019-20 estimated at 4.5%.[3] The aftermath of Covid-19 might put India’s growth rate for 2020-21 anywhere below 2%, or even lower. These are guess-estimates and would very much depend on the peak, length and the likely returning waves of Covid-19 after its first phase gets flattened. However, it is just not feasible to put economic cost to the human lives lost.

India must consider various options to invigorate the domestic economy in the coming months/years. One of the options lies in strengthening its manufacturing sector through greater participation in the fractured global value chains (GVCs). Such participation is expected to boost jobs and income. China is currently the most important hub of GVCs for many multinational enterprises (MNEs). While the SARS coronavirus had impacted GVCs in 2003, the impact of Covid-19 in 2020 is going to be much worse. India has great awaited potential for attracting investment from MNEs which may now be looking for diversifying/shifting their production facilities away from China. It should make the best use of this opportunity which has evaded it during the last two decades.

II. Covid-19 disequilibrium of Global Value Chains

China gained the maximum advantage from the process of production fragmentation since the early 1990s and could attract investments into manufacturing via the global value chains. Of course, while China facilitated the assembly for many MNEs. These MNEs as well their home countries benefited from having their production platforms located in China. The U.S. has been one of the top beneficiaries.

Wuhan in Hubei province of China was the epicentre of the novel coronavirus outbreak. By February 2020, the virus had spread to 18 additional provinces (Dun & Bradstreet, 2020). Over 90% of all active businesses in China are located in these provinces. More than 51,000 companies across the world, including 163 Fortune 1000 companies, have one or more direct or Tier-1 suppliers in the impacted region. The number of companies having one or more Tier-2 suppliers in the impacted region exceeds five million including 938 Fortune 1000 companies.[4]

The big MNEs relying on “just in time” deliveries through GVCs have faced serious supply chain risks. The after-effects of the SARS outbreak in 2003 were much less severe. China’s share in world GDP, which was 4% in 2003, has quadrupled to 16% now. Its exports of textiles and apparel account for 40% of the world exports. China now is a major importer of metals and minerals. Its share in world mining imports has risen to 20% compared with 7% in 2003 (The Economist, February 15, 2020).[5]

A survey of 628 U.S. companies, including 52% manufacturing and 48% non-manufacturing units, conducted by the Institute of Supply Management, reveals that the companies are seriously impacted due to the spread of Covid-19. Nearly three-fourths of the companies have reported disruptions in their supply chains. Close to 57% responses reported longer lead times for components sourced from Tier-1 sources in China. About 60% of the companies, which normally travel to China for business, don’t intend to travel over the next six months.[6]

There is intense discussion around the world about diversifying GVCs with many of the MNEs considering shifting parts of their production platforms away from China. The United States is contemplating creation of an Economic Prosperity Network through an alliance with trusted partners. The likely alliance countries include Australia, India, Japan, New Zealand, South Korea and Vietnam. The effort would be to move global value chains production away from China into friendlier countries.[7]

Japan has announced a $2.2 billion stimulus package to help its companies for shifting out their production bases away from China into other countries.[8] This would enable Japanese firms to move away from the risk of unexpected failures in dealing with China.

While many MNEs and countries might wish to diversify their production platforms away from China, it is easier said than can be done. Post Covid-19, many of the companies shall be starved of cash and may not be able to move away from China to invest in other countries in an abrupt short-term manner.

III. Can India gain its missed glory?

The Global Value Chain Development Report (2019) published by World Bank, jointly with WTO, IDE-JETRO, OECD and UIBE discusses technological innovation, supply chain trade, and workers in a globalised world. It states that the share of GVCs in global trade has declined since the financial crisis of 2008. Many of the developing countries have been able to integrate into the global economy with gains in jobs and income. While the GVCs have moved up the technological sophistication, the consumer demand has also grown, thus leaving scope for developing countries to participate in low-skilled labour-intensive tasks which need human dexterity. However, the new technologies are posing a challenge the impact of which is not yet known. Automation and digital technologies might disrupt the current GVC arrangements and widen disparities across countries. However, these provide SMEs to play a more active role. Trade openness continues to remain a facilitating route as compared to import-substituting efforts to raise the share of domestic value-added.[9]

Much of the extant literature has identified India as one of the major potential countries which could have participated actively in GVCs but couldn’t. Indian industry, as well as the government, have been quite keen to play a major role. It is unfortunate though that while labour-intensive manufacturing could have created many more jobs, the share of manufacturing in GDP has remained sticky at about 17% for more than two decades.

The US-China trade war tensions in 2019 led to some of the firms shifting production out of China. A Nomura study reported relocation of 56 firms, during April-August 2019, shifting production away from China. 26 of these firms went to Vietnam, 11 to Taiwan and 8 to Thailand. Only three companies came to India and two went to Indonesia.[10]

The World Bank’s flagship World Development Report (WDR 2020) is titled Trading for Development in the Age of Global Value Chains. It was released in mid-November 2019, the eve of Covid-19 crisis. It carried a clear message, “GVCs can continue to boost growth, create better jobs, and reduce poverty provided that developing countries undertake deeper reforms and industrial countries pursue open, predictable policies.”[11]

The share of GVC trade in world trade had increased from about 37% in 1970 to a little over 41% in 1990, a gain of about 4 percentage points in 20 years. The next 18 years witnessed an impressive rise of 12 percentage points and the share of GVC trade in world trade touched the peak of 52% in 2008, i.e. in the year of global financial crisis. It has been declining thereafter. The growth in trade has been sluggish with a slowing down of expansion of GVCs. India could have played a major role but it couldn’t due to its own lacklustre domestic reforms. A lot more yet needs to be done on logistics and infrastructure fronts.

Some of the poor countries, including Bangladesh, China and Vietnam, could take advantage of establishing manufacturing/assembly platforms of MNEs and could benefit from increased productivity and incomes resulting in steep declines in poverty. Much of the growth in GVCs came from trade-led comparative advantage originating from labour-intensive manufacturing/assembly.

The WDR-2020 highlights two major factors which can potentially threaten the GVCs growth model, viz. labour-saving technologies, including automation and 3-D printing, and trade conflict between the large countries, the U.S. and China in particular. Little did the world know that Covid-19 would take the intensity of trade and foreign policy conflict between the U.S. and China to an unprecedented threat level. Given that many other countries have also been affected seriously, all eyes are now on how the evolving global trade and foreign policy order would evolve with regards to their respective relationships with China. The realities would emerge as the world starts coming out of the Covid-19 fatalities.

Incidentally, India’s Economic Survey 2019-20 also has a chapter on exports of network products through global value chains (Chapter 5, Volume I).[12]

Post-liberalisation, India’s share in global merchandise trade increased three times, from 0.6% in 1991 to 1.7% in 2018. China’s share at 12.8% in 2018 is 7.5 times that of India. It is time that India must participate in GVCs through a sharp focus on labour-intensive “network products” for which the production processes of MNEs are globally fragmented. These products include equipment for IT hardware, electricals, electronics and telecommunications, and road vehicles.

India must integrate “Assemble in India for the world” into “Make in India” programme. The Survey estimates creation of 40 million well-paid jobs by 2025 and 80 million by 2030. However, the post-COVID estimates are likely to be at variance with these numbers.

India has potential to integrate with global trade through exports of traditional buyer-driven networks of labour-intensive goods including toys, footwear, textiles, garments, etc. (Veeramani and Dhir, 2016).[13] The examples include Walmart, Adidas, Nike, etc. India also has great potential to assemble and export “network products” (NP) through final assembly (Athukorala, 2014[14]; Veeramani and Dhir, 2017[15]). These are producer-driven GVC networks controlled by leading MNEs such as LG, Samsung, Apple, etc. These products have fragmented production across many different countries. Each country specialises in one or more fragments of the process with final sophisticated parts and components produced in capital and skill-intensive countries and final assembly done in developing low skilled labour-intensive countries like China and Vietnam. MNEs, headquartered in developed countries including Japan, South Korea, the U.S. and E.U. own the R&D and specialise in capital-intensive stages of fragments. Network products may be divided into two main categories, viz. parts and components (P&C) and assembled end products (AEP).

The Economic Survey predicts the NP exports to grow from US$5.6 trillion in 2018 to US$6.9 trillion in 2020, US$24.8 trillion in 2025 and US$49.1 trillion in 2030. The share of India’s NP exports in world NP exports is expected to rise from about 1.2% in 2020, to 3.6% in 2025 and up to 6.1% in 2030. However, these numbers have gone through a drastic revision post-COVID-19.

What is the way forward for enabling new opportunities to succeed in GVC integration? It is time to undertake deeper domestic policy reforms, particularly the factor market reforms, land, labour and capital. Focused attention must be given to the ease of doing business, efficient logistics and infrastructure. India must also get future-ready for greater participation in technology and capital-intensive sectors of GVCs through upgradation of requisite skills, and R&D on patents and designs. Looking only at labour-intensive sectors would be a rather short to medium-term effort. The longer-run success lies in paying attention to trade in sophisticated network products. One of the most important enablers is international cooperation and keeping the trade open.

[1] https://www.worldometers.info/coronavirus/

[2] https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020

[3] https://www.indiabudget.gov.in/economicsurvey/

[4] https://www.dnb.com/content/dam/english/economic-and-industry-insight/DNB_Business_Impact_of_the_Coronavirus_US.pdf

[5] https://www.economist.com/international/2020/02/15/the-new-coronavirus-could-have-a-lasting-impact-on-global-supply-chains

[6] https://www.instituteforsupplymanagement.org/news/NewsRoomDetail.cfm?ItemNumber=31171&SSO=1

[7] https://www.reuters.com/article/us-health-coronavirus-usa-china/trump-administration-pushing-to-rip-global-supply-chains-from-china-officials-idUSKBN22G0BZ

[8] https://www.businesstoday.in/current/world/coronavirus-impact-japan-to-offer-22-billion-to-firms-shifting-production-out-of-china/story/400721.html

[9] https://www.worldbank.org/en/topic/trade/publication/global-value-chain-development-report-2019

[10] https://economictimes.indiatimes.com/news/economy/indicators/trade-war-why-manufacturers-are-not-rushing-into-india-indonesia/articleshow/71474941.cms?from=mdr

[11] https://www.worldbank.org/en/publication/wdr2020

[12] https://www.indiabudget.gov.in/economicsurvey/doc/echapter.pdf

[13] Veeramani, C and Dhir, Garima. 2016. “India’s export of unskilled labour-intensive products: a comparative analysis” in C. Veeramani and R Nagaraj (ed) International Trade and Industrial Development in India: Emerging Trends, Patterns and Issues, Orient Blackswan.

[14] https://testnew.ncaer.org/image/userfiles/file/IPF-Volumes/Volume%2010/2_Prema%20Chandra%20Athukorala.pdf

[15] Veeramani, C and Dhir, Garima. 2017. “Make What in India?” in S Mahendra Dev (ed), India Development Report 2017, Oxford University Press, New Delhi.

[more-blog-posts]

The post Fractured Global Value Chains post COVID-19: Can India gain its missed glory? first appeared on CSEP.

India has a landmass of 3.2 million km with a multitude of geological – tectonic domains, which evolved through the entire course of geological past and developed varied mineral potential. India also has a significant legacy of mining from pre-historic times which continues to this day.

For centuries, India produced iron ore, copper, zinc, lead, gold, silver, diamonds, and other precious gemstones and fascinating facing and building stones which are visible in our historical architecture. While in British colonial times, mining of precious metals and stones, as well as of coal (and petroleum) was the twin focus, it also laid the foundations of modern geological studies in India through the establishment of the Geological Survey of India (GSI) and institutions such as the Presidency College of Calcutta, which housed India’s first geology departments. Large iron ore deposits were discovered by the pioneering GSI geologists in eastern, central, and southern India towards the beginning of the 20th century and entrepreneurs like Jamshed Ji Tata accepted the challenge of setting up the foundations of India’s steel industry. The British also started the great geodetic survey of the South Asian region, while the GSI started the geological mapping of the entire sub-continent.

This spectacular legacy of geological mapping and survey continued post-independence, as India embarked on the path of rapid industrial growth and development. India’s bulk mineral commodities like iron ore, coal, manganese, limestone and later, bauxite contributed to India’s infrastructural development. Most of the major minerals in the country were produced by India’s public sector units (PSUs). GSI, Mineral Exploration Corporation Limited (MECL), and later, Coal Mine Planning and Development Institute (CMPDI), a subsidiary of Coal India Limited (CIL), took up the cudgels of mineral exploration in the country. Together, GSI and CMPDI carried out significant explorations in defining the coal resources of India.

However, most of the bulk commodities were either dispensed as Mining Leases (ML) to PSUs or allocated to the private sector with minimal exploration data. Very limited mineral exploration was carried out for bulk commodities by the ML holders in the last 70 years, which unfortunately resulted in a significant gap towards the conversion of geological resources to mineable reserves. Even the GSI carried out very limited exploration for bulk commodities once large areas were dispensed for ML in any of the mineral districts. Thus, many greenfield areas are yet to be explored even for bulk commodities. For non-bulk commodities, there was focused exploration in some of the mineral districts such as the Aravallis and Singbhum Sheared Zone (for base-metals), the Dharwar Craton for gold, and others. These led to the discovery of many medium to small mineral deposits, only a few of which were converted to mines. However, India remained grossly under-explored for both bulk and non-bulk commodities compared to the rest of the world. Exploration spending in India remained less than US$100 million annually, while the top exploration domains in the world such as Canada, Australia, Southern America, China, Western Africa, SE Asia received hundreds of millions of dollars of exploration investments annually. A general estimation is that India had detailed exploration in less than 10% of the total Obvious Geological Potential area.

The liberalisation of India’s economy in 1991 progressively opened India’s major minerals sector to private sector investments. PSUs like Hindustan Zinc Limited (HZL) and Bharat Aluminium Company Limited (BALCO) were disinvested through private sector investments and many coal blocks were allocated for private sector captive development. India made significant changes to the Mines and Minerals Development and Regulation (MMDR), 1957 Act to align the same with the minerals code of the best-known minerals jurisdictions, which allowed private sector investments for mineral exploration in India on assets dispensed on First Come First Serve (FCFS) basis. In about 13 years of exploration, in different phases in different parts of India, since MMDR 1993 and its modified versions were implemented, few large and some of the junior Indian and international companies including Rio Tinto, De Beers, BHP Billiton, Anglo American, Phelps Dodge, Geomysore India Limited established their exploration units in India and carried out limited but high-quality modern integrated exploration including airborne and ground geophysics, sophisticated remote sensing, geochemistry, and detailed drilling programs. Rio Tinto and De Beers were the most successful in making many discoveries of kimberlites – the source rocks for diamonds. Rio Tinto’s Bunder Diamond discovery is hailed as one of the largest clusters of diamond deposits found in the last two decades, globally. Additionally, few gold and base metal deposits were also discovered. HZL, which was disinvested to Vedanta Group, added more than 200 million tonnes of additional lead and zinc Geological Resource in Rampura Agucha to make it the world’s largest zinc–lead deposit. HZL also discovered brownfield resources at Sindesar Khurd, making it a world-class deposit.

However, India’s mineral exploration came to a near-complete halt after 2010, as none of the states issued exploration licences (RP and PL) to any company till the introduction of the new MMDR Act 2015. Meanwhile, the Supreme Court declared the blocks allocated to private sector lease holders for coal as illegal; soon thereafter, the Shah Commission and the Supreme Court stopped much of the mining activities in the state of Karnataka and Goa, while partially halting mining in the states of Odisha and Jharkhand. The MMDR 2015 (Amendment) Act was brought in to address the major concerns of Supreme Court in terms of lack of transparency, fairness, and objectivity to mineral asset dispensation process. The minerals code envisaged a rigid framework of Mineral Auctions based on Evidence of Mineral Content (EMC) Rule, which necessitated dispensation of a mineral asset for Composite License (CL) or Mining Lease only if the asset has a defined Geological Resource of (United Nations Framework Classification for Resources) UNFC G3, G2, or a higher category. This rule instantly split the minerals value chain into two – the exploration-to-discovery phase of a mineral resource was taken out of the purview of private sector explorers and left to the conventional process of government sponsored exploration; while the resource once discovered by a government-sponsored entity was to be auctioned for exploration to develop further confidence on the Geological Resource, followed by development and mining by a Composite License or a Mining Lease. While some bulk commodity assets were auctioned through the new process, the exploration and discoveries of non-bulk commodities, for most part, reduced to a trickle.

This Discussion Note takes a look at India’s exploration needs in the 21st century, the changes in India’s minerals code to bring in objectivity, fairness and transparency in the mineral asset allocation process, and key initiatives that must be implemented to create a competitive exploration investment environment to achieve the Vision 2035 for the mining sector.

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The Input-Output model is a quantitative economic model that represents the interdependencies of various sectors in an economy. Wassily Leontief was awarded a Nobel Memorial Prize in Economic Sciences “for the development of the input-output method and for its application to important economic problems”[1]. A key use of the input-output model is in computing the effects of the change in demand of a sector on other sectors in an economy. The Ministry of Statistics and Programme Implementation (MoSPI) provides Supply and Use Tables (SUTs) for India, and using the latest publication of SUT 2015-16, the Input-Output Transactions Table 2015-16 has been constructed.

The Input-Output transactions table provides details of total outputs of non-fuel ores and minerals including iron ore, manganese ore, bauxite, copper ore, other metallic minerals, lime stone, mica, and other non-metallic minerals. The total output of each of the ores and minerals comprises of cost incurred on inputs used (goods and services), net indirect taxes paid, and incomes earned by factors of production (gross value added). The transaction flows also provide information on the usage of these ores and minerals in the production processes of other sectors of the economy, and, in particular, manufacturing sectors. The values of exports and imports are also available in this table. The information provided in the input-output table can be used to compute backward and forward linkages of the mining sectors as well as income, output and employment multipliers.

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The mining sector in India, which has been subjected to serious regulation on various counts, has not posted growth to its full potential. This sector can become a catalyst for much-needed socio-economic growth. Agriculture and mining are the two primary sectors of production in the economy.

Growth of the mining sector for reconnaissance, exploration, and extraction can help boost employment (direct, indirect, and induced), accelerate manufacturing activity as well as overall economic growth. Additional jobs could be created for the unemployed and the under-employed workers in agriculture. Increased production is expected to result in higher exports and lower imports and thus help reduce overall merchandise trade deficit.

The number of reporting non-fuel mines (total metallic and non-metallic, excluding atomic, fuel and minor minerals) has been declining in recent years. The number declined from 1,616 in 2016-17 to 1,405 in 2018-19. The number of metallic mineral operating mines went down from 685 in 2016-17 to 625 in 2018-19; the corresponding numbers for non-metallic mines were 931 and 780, respectively.[1]

India has a skewed distribution of mining leases (about 4,382 in total).  While about 58% of mining leases are less than 20 hectares in size, just 9% are 200 hectares and above, and 33% of leases are between 20 to 200 hectares.[2]

The mines and minerals sector in India is regulated by the Mines and Mineral (Development and Regulation) Act, 1957.[3] After India’s economic liberalisation in 1991, a comprehensive National Mineral Policy was announced in 1993.[4] It outlined for the first time the idea of opening up exploration to the private sector. This was followed by some amendments to the MMDR Act in 1994 to facilitate private sector investment, including foreign direct investment (FDI), in the mining sector. Later, in 1999, MMDR was further amended introducing reconnaissance permit (RP) for private entities as a precursor to getting prospecting license (PL) followed by mining license (ML).[5] In 2006, 100% FDI was permitted in the mining sector, through the automatic route, which does not require approval by the government. Even though many applications were received for RPs and PLs, only a few converted into MLs. Public sector entities like Geological Survey of India (GSI), Mineral Exploration Corporation Limited (MECL) and state government agencies had inadequate resources to take this work forward. In any case, firstly, these entities are not technically suited for the cutting-edge, highly specialised work of exploration of all minerals; secondly, state enterprises should be wary of expending tax resources on the highly risky work of exploration. Of course, GSI has done excellent work on creation and upgradation of geoscientific information and mineral resource assessment. MECL has accomplished exploration under multiple projects. Based on the report of a High-Level Committee of the erstwhile Planning Commission, a revised National Mineral Policy was announced in 2008.[6]

More recently, the Mines and Minerals (Development and Regulation) Act, 1957 was amended in March 2015 and re-titled as the Mines and Minerals (Development and Regulation) Amendment Act, 2015, deemed to be effective since January 12, 2015.[7] Based on subsection (1) of Section 9B, District Mineral Foundations (DMF) would be set up in any district affected by mining-related operations to benefit affected persons and areas. A follow-up announcement was made by the Ministry of Mines in September 2015, which mandated the mining companies to contribute 10% of royalty to respective DMFs for mining leases granted on or after January 12, 2015 and 30% for the ones with leases granted before January 12, 2015. A new programme was also launched by the Ministry of Mines titled Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY) to be implemented through DMF funds. Subsection (1) of Section 9C mandated the government to establish a non-profit trust, viz. National Mineral Exploration Trust (NMET). The trust would spend resources on exploration as prescribed by the central government. The holders of mining and prospecting-cum-mining leases shall pay a fee equal to 2% of royalty to NMET.

Subsequently, the government announced the National Mineral Exploration Policy (non-fuel non-coal minerals) in 2016. The policy outlines the strategy and a plan of action for ensuring comprehensive exploration of non-fuel mineral resources in the country.

A National Geoscience Data Repository (NGDR) is proposed to be constituted by GSI. It would collate, process, interpret and disseminate baseline and other mineral exploration information through a geospatial platform.

In 2018, the Ministry of Mines prepared the National Mineral Exploration Trust Amendment Rules to amend the 2015 rules.[8] States will now have to deposit the fund collected under NMET to the Consolidated Fund of India instead of the trust’s own bank account. However, it will still be administered by the Ministry of Mines as earlier.

The National Mineral Policy (2019)[9] (NMP) provides a vision of how India should implement future policy to accelerate growth of the production of non-fuel minerals. The Indian government has set multi-pronged targets to advance socio-economic growth in India. The NMP states: “The outcomes expected from these policy proposals are, an increase in the production of MCDR (Mineral Conservation and Development Rules, 2017) minerals (in value terms) by 200% in 7 years; and on the other hand, reduce the trade deficit in minerals sector by 50% in 7 years.”[10] Other related targeted expectations include: to make India a US$5 trillion economy by 2024-25; to increase India’s exports from US$500 billion in 2018 up to US$1000 billion by 2024; and doubling farmers’ income by 2022-23 (from its 2015-16 level). These targets seem more distant now that the fifth bi-monthly Monetary Policy Statement of the RBI (December 5, 2019) states that India is likely to grow by only 5% in 2019-20. All the subsectors of the economy have taken growth hits.

The NMP unambiguously states that exploration, extraction, and management should add to the country’s economic development by boosting the domestic industry (Make in India) and reducing import dependence. It provides assurance for a regulatory environment that is conducive for “ease of doing business with simpler, transparent and time-bound procedures for obtaining clearances”, along with security of tenures with rights of transferability of concessions. The Indian Bureau of Mines (IBM) and the State Directorates of Mining and Geology would be the regulatory agencies through e-governance and IT-enabled monitoring along the mining chain. The state would facilitate and regulate exploration and mining activities, collect taxes, and provide infrastructure. Incentives shall be provided to private entities to invest in state-of-the-art technology. The policy also mentions “an endeavour to auction mineral blocks with pre-embedded statutory clearances”.  However, it would be pertinent to review and suggest alternative methods of allocation that are objective, fair, and transparent.

The government agencies would continue to perform the tasks of survey and exploration and encourage the private sector to undertake exploration activities. Public funds shall be used to explore areas that lack private investments due to uncertainty.

Efforts shall be made to prospect and explore minerals where India has the geological potential, but poor resource and reserve base. These include “energy-critical minerals, fertilizer minerals, precious metals and stones, strategic minerals and other deep-seated minerals which are otherwise difficult to access and for which the country is mainly dependent on imports.”

A much-needed single regulatory authority has been envisioned in the policy: “A unified authority in the form of an inter-ministerial body under Ministry of Mines, with members like Ministry of Coal, MoEarth Sciences, MoEFCC, Ministry of Tribal Affairs, Ministry of Rural Development, Ministry of Panchayati Raj, Ministry of Steel, including state governments, shall be constituted to institutionalise a mechanism for ensuring sustainable mining with adequate concerns for environment and socio-economic issues in the mining areas, and to advise the Government on rates of royalty, dead rent, etc.”. It would be ideal if the authority executes its work to facilitate optimum utilisation of mineral resources.

NMP 2019 states: “Under the ‘Make in India’ initiative, the Government of India aims to increase the share of the manufacturing sector in the economy. This national initiative requires a holistic development of the mineral sector on a sustainable basis in order to fulfil the demand of downstream industries dependent on mineral/ore supply.”

Finally, “The success of this national mineral policy will be critical in propelling India on to a loftier development trajectory. Successful implementation of this policy and shall be ensured by achieving a national consensus among various key stakeholders and their commitments to fulfil its underlying principles and objectives.”

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In the transmission sector, India’s regional grids (Northern, Eastern, Western, North-Eastern, and Southern) are currently integrated into one national grid. By the end of the 12th plan period (2012-2017), India had total inter-regional transmission capacity to transfer nearly 75,050 MW. This is expected to increase to about 1,18,050 MW by the end of the 13th Plan (2017-2022) and will be adequate to meet the energy flow requirements across the regions within India.

The distribution sector consists of Power Distribution Companies (Discoms) responsible for the supply and distribution of energy to the consumers (industry, commercial, agriculture, domestic etc.). This sector is the weakest link in terms of financial and operational sustainability. It is worth noting that the total outstanding dues of Discoms payable to generators/creditors as of February 2019 stood at an alarming level of Rs. 418.81 billion, as per data from 58 Discoms reported by 17 participating GENCOs (Generation Companies). This included the overdue amount of Rs. 267.56 billion > 60 days payable to the generators.

Discoms’ efficiency and power sector sustainability

Power distribution companies collect payments from consumers against their energy supplies (purchased from generators) to provide necessary cash flows to the generation and transmission sectors to operate. Due to the perennial cash collection shortfall, often due to payment delays from consumers, Discoms are unable to make timely payments for their energy purchases from the generators. This gap/shortfall is met by borrowings (debt), government subsidies, and possibly, through reduced expenditure. This increases the Discoms’ cost of borrowing (interest), which is inevitably borne by the consumer. This also undermines the ability of the Discoms to purchase and distribute power to fulfil their Universal Supply Obligation (USO) as defined in the Electricity Act 2003 or borrow for capital expenditure to meet load augmentation and growth requirements. Discoms must therefore, (a) buy cost-efficient power for consumers, (b) ensure supply reliability with quality by minimising losses/leakages (c) accurately meter, bill, and collect payments from the consumers, and (d) thereby, enable timely payments to the generators. These are key steps towards sustaining the entire energy value chain without power supply disruptions.

Since India gained independence in 1947, the central and state governments have launched a number of schemes and initiatives aimed at improving the operations and financial health of Discoms. Despite these steps, their success has been limited so far and the distribution sector continues to be a resource drain on the Indian economy. The power sector has seen multiple interventions by government – financial restructuring/ bailout (Ahluwalia Committee 2001, Central FRP Scheme 2012), operations, infrastructure, and technology improvements (APDRP 2001, R-APDRP/IPDS 2008, DDUGJY & SAUBHAGYA 2014/2017, Smart Grid Pilot project & NSGM 2012-15), and structural reform (Electricity Act 2003). UDAY (Ujwal Discom Assurance Yojana) scheme, launched in November 2015, is the latest attempt to address the severe financial stress due to accumulation of debt by the Discoms, with a focus on improving the overall efficiency and financial turnaround.

The UDAY scheme envisages the financial and performance turnaround of India’s Discoms. In all, 27 states and five Union Territories have signed up to participate. The scheme’s objectives are:

a) Financial turnaround.

b) Operational improvement.

c) Development of renewable energy.

d) Reducing the cost of generating power.

e) Energy efficiency and conservation with the ultimate objective of availability of 24×7 power for all at an affordable price.

As the data on distribution sector financials and operations shows, the power sector today faces the critical challenge of avoiding a financial crisis. In all likelihood, another scheme to address the shortfall of UDAY’s targets, is on the horizon. The objective of this paper is to critically analyse the performance of Discoms in the context of UDAY, launched by the Government of India almost four years ago, for the operational and financial turnaround of the Discoms.

This paper also aims to offer an analysis of Discoms’ performance, and establish the key areas of focus going forward, with strategies proposed for each focus area.

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With high resolution data, we can now do a Time of Day (ToD) level analysis of India’s power generation system. The tracker provides data from 21-Nov-2018 till present and is updated continuously. The discussion note provides a preliminary analysis of how demand and generation from different sources varies over days, weeks and months, as well as during the day. It further delves into how the timings of daily peak demand, daily minimum demand and daily RE generation vary over different seasons. The role of different generation sources in ramping is also investigated as well as the limitations and errors of the data discussed.

This note intends to be an exploratory exercise and we hope that the readers will also come up with further ideas that should be incorporated in a future analysis.

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The post Insights from the Brookings India Electricity and Carbon Tracker first appeared on CSEP.

Amending the act is an opportunity to change the course of policy direction, design and implementation, to address the critical issues currently faced by the sector more importantly, incorporating changes to tackle the future transitions envisaged in the sector.

The 2018 Amendments to EA2003 appear to focus on distribution companies (Discoms) as the problem area for the Indian power sector and hence, any amendments brought into force can have far reaching and long term implications towards future sustainability of Discoms in India.

The proposed Amendments span a spectrum of change, ranging from simple tweaks to modest modifications to dramatically different policies.  The major thrust areas that the draft amendments propose are –

1) Carriage and content separation – separation of the wires business and the retail business, creating 2 layers within today’s Discom world, the Distribution Licensees, and the Supply Licensees (DL and SL)

2) Quality supply and procurement of power – mandate for licensees to establish medium and long-term PPAs to meet the annual average demand of power of the area which it has the obligation to serve. RPO and RGO obligations. Penalties extending to cancellation of license on failure to supply quality power.

3) Subsidies and pricing – Removal of cross subsidies within three years. Subsidies to be paid directly to targeted consumers via DBT. Ceiling tariffs to be established for supply licensees.

4) Oversight and regulation – Increased oversight by State Commissions, appropriate Government, CEA. Shift in momentum towards rule based approach.

5) Innovation and transformation – significant mention of smarter grids, easing of norms for renewables, EVs, decentralised distributed generation.

There are potential concerns with each of them which remain unaddressed, like, the theory versus practice of carriage and content separation, uncertain dynamics and apportionment, quality mandated via 100% power purchase agreements (PPAs), governance challenges, regulatory mindset over an enabling one. These have been discussed in detail in the note.

Some of the items in the proposed Amendments aren’t “new” but are reframings or enforcements of what was already in the EA2003, but wasn’t achieved/enforced. Examples include reduction of cross subsidies to 20 percent, requirement for quality supply, etc.  Now, there is mandate for 24×7 supply (a desirable goal) but it raises a new set of issues of how this mandate will be met. The government’s proposed Amendments to the EA2003 should make us circle back to certain fundamental questions: If there are complaints of lack of quality supply, and the proposed solution is new regulations asking for quality supply, aren’t there rules and regulations existing that mandate quality supply? Is this simply an enforcement problem? If not, are there structural deficiencies that have prevented quality supply so far?

Historically, we have always faced the twin challenges of enforcement and coordination. If central government policymakers believe states have been slow in improving performance, strengthening their institutions instead of taking away their flexibility (or even some powers) may be more sustainable in the long run (not to mention will create more state-level buy-in).

Another problem with the current amendments is that too much is left “to be determined” (TBD), and a few things are over-specified. A legislation must lay out the framework and intent, for which subsequent details via rules/regulations/notifications would apply. PPA and loss apportionment are already listed as issues left TBD. The challenge isn’t just the specifics or intent, but how do we get there?  The only solution for this is deeper analysis, multi-stakeholder iteration and transparency.

In this note, we put forth the summary of the amendments and our analysis of the proposed changes. We end with specific comments on the draft Amendments as part of public comments, as an appendix, with line-item suggestions.

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COMMENTS ON THE EA2003 AMENDMENTS

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At the same time, there is a spurt of public data in the form of models, portals and other initiatives by ministries, departments and enterprises in the public sector. While the necessity of quality control in the form of a centralised information management system in the energy sector has never been stronger than before, we realise it is a massive
institutional undertaking that requires a considerable amount of time to plan and implement. Therefore, we propose that as a first step, we have higher standards and consistency in the availability and reporting of public data on energy.

In the absence of critical data, researchers end up relying on rules of thumb passed down from year to year, with no basis for re-evaluating the underlying assumptions.

This note offers suggestions for owners of energy sector public data to update their methods and reporting so that the data they disseminate can be more meaningful to researchers and other stakeholders for evidence-based analysis.

A number of new initiatives have been taken in the form of online government portals, including some that give real-time data on demand-supply, access, distribution and infrastructure, such as the NITI Aayog’s India Energy Dashboards, GARV Dashboard, MERIT, URJA, UJALA, GARV, GTG India, etc. Each of these focusses on specific aspects: from a generalised view on energy demand and supply and its constituents, to performance of DISCOMS, to status on electrification and
household access, to disbursal of energy efficient lighting, to more technical aspects of financial and operating performance of power plants and renewable integration.

The spurt in the reporting of such data to supplement traditional reports (often annual) from the Central Electricity Authority (CEA), Ministry of Coal (MoC), Coal Controller’s Office (CCO), Ministry of Petroleum and Natural Gas (MoPNG), Ministry of New and Renewable Energy (MNRE) etc. is necessary, useful and welcome in analysing past and current performance and coming up with evidence-based policy research. This can be further improved with some standardisation and offering choices to the user to customise the data, unpack the assumptions and study trends.

We have attempted to highlight some suggestions for improving data dissemination, and assess how some of these can be incorporated in the ongoing efforts. We also give examples of websites/data compilations already following the particular suggestion/s.

Suggestions for improving data dissemination:

1. Make data available for downloading
Several dashboards have great data but are geared towards online visualisations. Downloading allows researchers and other stakeholders to undertake their own efforts in analysis and visualisation, reducing the effort on data owners to try and “show it all”.
Examples: PPAC’s Oil and Gas Marketing Data, NITI Aayog’s India Energy Portal

2. Provide historical data (as best available)
Several dashboards give great data but are limited to a few days or months. It would help to have archives available online. As of now, some scholars and institutions run scraping tools to get data regularly. This is a step that can lead to errors and is avoidable by providing archived data. The use of archives also allows historical data to reflect any corrections/updates, which instantaneous data may not capture properly.
Examples: MoSPI’s Energy Statistics, CCO’s Coal Statistics, MoPNG’s Petroleum and Natural Gas Statistics

3. Enable long-term archiving with appropriate nomenclature
Online repositories should standardise nomenclature of data sets, files, etc. to enable easy identification and differentiation. Instead of calling a file “ouput.xls” or “Annual_Report.pdf” it would help to have these segmented into folders and have names such as”load_ouput_20.09.17″ or “Annual_Report_2016”. This is particularly important because when a researcher lists an Annual Report as a reference in a study, the web address may lead to a different version of the Annual Report.
Examples: CEA’s Load Generation and Balancing Reports, MoSPI’s annual publications

4. Make data available in the right format(s)
i) There are two parts to this. In some cases, there is no download available, and so just having HTML data is difficult to work with. There can be good visualisations online, but downloadable data is amenable for analysis. Second, where data are available for download, they should be more than PDFs. In fact, some PDFs are images,
despite the underlying data being generated in numerical/database/excel format. Excel formats are a neutral mode, since databases can be proprietary.

ii) A good starting point, especially in case of online portals, would be to archive data in the periodicity chosen into downloadable excel sheets. This will supplement (i) and enable more granular analysis.

iii) Where hard copies are available, have soft copies available as well, which avoids printing and mailing costs. Data providers can continue to charge for such data as required, but in the long run, all public data should be available online and free.
Examples: PPAC’s Petroleum and Natural Gas Price Statistics, NITI’s India Energy Portal

5. Give multiple options and end-user-controlled user interfaces for visualisations
To complement real-time visualisations, which likely will be data-owner driven, having a set of choices for data visualisation will help users. Examples range from the ability to choose time periods, locations, granularity, show comparisons, etc.

Example: NREL and MoP’s Greening the Grid

6. Clarify/Standardise/Improve the headings and meta-data
i) This starts with having units properly listed, but extends to making formulae transparent when numbers are shown. CEA does this in places, where they show, for example, column P = [F – G]/B. In the long run, we suggest standardisation of headings, even to the extent of .xml schemas. We (as scholars/researchers) can help the government with such an exercise.

ii) Several times researchers have to compare between different sources to obtain a sense of the information that is being conveyed. In case of MoSPI and CEA data on electricity generation, the scope of the exercise (whether captive generation is included in the numbers or auxiliary consumption is netted out) is unclear to compare and
it can at best be inferred that the higher numbers in one case include captive generation. Even so, it is highly likely that it does not get fully accounted. With the spurt of new data in the public domain, we should be careful to ensure there is no difference between what we intend to convey and what we end up conveying. Such standardisation must be an integral part of the data maintenance protocol on new data sources such as tools and dashboards.
Example: CEA’s General Reviews

7. Be transparent in data sources and references
i) This not only helps in tracking down primary data and sources, but even to link to underlying methodologies. A weblink is an ideal reference, except in the case where a link may not be available. In both cases, detailed information is helpful. For example, instead of just saying “Source: CEA” it would be helpful to explicitly state which CEA report or document was the source.

ii) References are especially important for webpages, online reports, etc. This is sometimes done, but often the presentations by staff/officers found online lack this information.
Example: NITI’s India Energy Portal

8. Share methodologies and assumptions
i) To the extent possible, through a note or additional explanation, clarify relevant assumptions and methodologies. For example:
(1) Is the number for gross or net?
(2) Where is this number calculated (for what location or node)? At the unit, plant, bus-bar, boundary meter, etc.?
(3) Is a particular number instrumented, reported, or calculated via some methodology?
(4) As an example, for stating power shortfall, it should be specified if it is instrumented or calculated.

ii) This is particularly important for sources that intend to convey a systems perspective (especially models and tools) or draw from multiple assumptions (empirical, thumb-rules, etc.). This should be clarified and stated upfront, along with the units of analyses, any rounding off, etc. For example, it would help if NITI’s Energy Dashboard also provided a basis for arriving at consumer category-wise connected load.

In relation to (4) above, the methodology and nomenclature should also be standardised across the board. So the Aggregate Technical & Commercial (AT&C) and Transmission and Distribution (T&D) losses reported in MoSPI and CEA should conform to their strict definitions to enable comparisons.

Example: NITI’s India Energy Security Scenarios

9. Give a date for all materials {both dissemination date and relevant data period date(s)}

i) For reports and data sets, the date of release and the date of underlying data are both helpful. For presentations and reports, date is important as the material presented otherwise can lack context. This is particularly useful for archived data.

ii) Sometimes, presentations made by government officials at various forums are made available online. These often contain previously unpublished data but nevertheless can be traced to a credible source. These sources should be accompanied with dates so that it becomes easier to use them for analysis.

Example: Indiastat

10. List a point of contact for data queries

There should be a means to contact someone (who may or may not be the data “owner”) for clarifications and queries.
Examples: NITI’s India Energy Security Scenarios and India Energy Portal

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The post Energy sector data: Suggestions for improving data quality and usability first appeared on CSEP.

There was a consensus among the panelists that we are in a world of flux and the rules-based order is under increasing strain. According to Menon, the Indo-Pacific region has undergone a structural shift. It has witnessed the world’s greatest arms build-up in the last two decades while doctrines underpinning the strategic environment have changed. The emergence of authoritarian leadership in many countries has also reduced the states’ capability to negotiate and undertake diplomacy. Peter Varghese highlighted the narrowing predominance of the U.S. in the Indo-Pacific and the unqualified strategic ambition of China to be the dominant power in Asia. Dino Patti Djalal also voiced similar concerns, in addition to the erosion of multilateralism around the world and ASEAN’s struggles with ASEAN centrality.

With the world undergoing significant shifts, the strategic culture in the Indo-Pacific is more likely to be shaped and dominated by Chinese values going forward. The Chinese strategic culture, dominated by a one-party system architecture, is likely to be different from the rules-based order that the U.S. advocated. As such there is currently no framework that can adapt, balance as well as engage with China at the same time. Menon and Varghese believe that the process of creating a new framework will be organic, based on the evolution of balance of power in the region and individual interests of countries. Informal coalitions such as the trilateral between India, Indonesia and Australia can be one of the many different answers to this adjustment of power.

With the world undergoing significant shifts, the strategic culture in the Indo-Pacific is more likely to be shaped and dominated by Chinese values going forward.

It is important to highlight that each of the countries in the trilateral view China through different prisms. India views China through the prism of a difficult neighbor with a complicated history. For Australia and Indonesia, China is an important economic partner, with its strategic ambitions being a concern for both. As such their issues with China differ from each other. Nevertheless, there is also convergence of interests between the three countries. India, Indonesia and Australia share common concerns over issues such as maritime security, trade and cyber security and believe in democratic values and open economies. They are also concerned about the breakdown of the rules-based order in the region.

India, Indonesia and Australia share common concerns over issues such as maritime security, trade and cyber security and believe in democratic values and open economies.

In conclusion, geopolitical weight is now moving to the Indo-Pacific from the North Pacific. Many countries in Asia are now simultaneously strengthening, shifting geopolitical goalposts. Chinese assertiveness and lack of confidence in American leadership are also creating significant disruptions in the world order. Given this context, cooperation between countries with converging interests remains a sensible strategy in diplomacy.

Geoffrey Flugge, a research intern at Brookings India, contributed to this report.

The post What about India, Indonesia, Australia: The new trilateral?  first appeared on CSEP.

Global trade roughly accounts for about 25% of global gross domestic product. In an era of interconnected markets and global supply chains, the current trade tensions between the U.S. and China are likely to have significant contagion effects around the world. Participants at the discussion agreed that the world economic and political order was undergoing a significant shift. Although the United States was taken for granted as the primary provider of public goods, under President Donald Trump, it was no longer willing to play that role and support a liberal rules-based order. On the contrary, there are concerns about it becoming more protectionist.

In an era of interconnected markets and global supply chains, the current trade tensions between the U.S. and China are likely to have significant contagion effects around the world.

On the other hand, China’s predominance in the global economy is becoming increasingly evident, with Asia now emerging as a China-centred trading system. For a majority of G20 countries, China is the largest trading partner, forming a solid base for trade and investment, and therefore engagement. This is coupled with an overlay of hard infrastructure provided by China through its Belt and Road Initiative. While the United States might be a part of the manufacturing chains in the region, it has no retail or consumer goods presence in ASEAN countries. This phenomenon has fragmented the world economic order into smaller blocs, creating new political spaces that can be exploited by China. Therefore, a potential trade war has significant implications not just for the economic order but also for the global political order.

Some participants were of the view that the current tensions between China and the United States were as much about jostling for strategic space as they are about trade, and that trade had become a tool for wider strategic competition. Certain sections of the U.S. population feel threatened by the rise of China and want to see the Chinese contained. The U.S. would also like to see changes in China’s economic structure and not just a reduction in its trade deficit. China on the other hand would likely be less willing to negotiate on structural changes like the Japanese did in the 1980s.

As for the impact of the U.S.-China trade dispute on India, it can be expected to not only affect India’s trade volumes but also the Rupee exchange rate.

In terms of future projections, it appeared unlikely that either China or the United States would back down from their positions because of domestic political compulsions. Xi Jinping, as the Communist Party’s General Secretary, has managed to consolidate all reins of power in China. With the Chinese economy slowing down, he would likely be basing his legitimacy increasingly on nationalism. As such, he could not be seen to buckle under U.S. pressure in the trade war. There is also a structural shift within corporate America against China, which forms a core political constituency for Trump. This means that just the settlement of trade or tariff issues is unlikely to see an end to tensions. We are therefore likely to see a systemic escalation going forward.

As for the impact of the U.S.-China trade dispute on India, it can be expected to not only affect India’s trade volumes but also the Rupee exchange rate. In the recent past, the Chinese have devalued their currency by 8 to 10 percent, making Indian goods less competitive. Nevertheless, the general view was that India should not take sides between the two strategic behemoths. While one is an immediate neighbour, the other is a valued strategic partner. India needs to reconcile its overall objective of higher economic growth with keeping its strategic relationships unimpaired. Some participants at the discussion also viewed the trade displacement caused because of this dispute as an opportunity for India. The Indian industry will need to identify sectors in which India has a comparative advantage and promote them as alternatives in the international market. Most importantly, the Indian government will have to closely monitor its domestic policy and take action on pending reforms.

In conclusion, it is too soon to gauge the economic and political impact of this dispute, and the next few months will provide a clearer picture. India should seize the opportunity presented by these tensions by being more competitive and following through on domestic reform.

Geoffrey Flugge, a research intern at Brookings India, contributed to this report.

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Ambassador Gongsakdi highlighted Thailand’s commitment to BIMSTEC because of a shared economic future with India and South Asia more broadly. He believes that BIMSTEC now has the potential to grow, unlike in the past, because each of the members now have greater economic potential. Amidst strategic and economic competition between rising economies, Ambassador Gongsakdi emphasised the importance of multilateral institutions such as ASEAN and BIMSTEC to propel growth and prosperity in Asia. Multilateralism presents a way of structuring relations with big powers, especially on difficult issues. He also highlighted the critical role that India, as one of the fastest growing economies, can play in driving the BIMSTEC agenda.

Multilateralism presents a way of structuring relations with big powers, especially on difficult issues.

Ambassador Gongsakdi recommended that the BIMSTEC agenda should outline five broad areas of cooperation instead of the 14 that currently exist: connectivity, trade and investment, people to people ties, counter-terrorism and security, and science and technology. Counter-terrorism and security in particular are new issues to be considered within the BIMSTEC framework. From Thailand’s point of view some of the important areas of interest are: a masterplan for BIMSTEC connectivity focusing on land and sea; BIMSTEC coastal shipping agreement connecting ports; connecting the trilateral highway with the East-West Economic Corridor; and the BIMSTEC Free Trade Agreement.

Counter-terrorism and security in particular are new issues to be considered within the BIMSTEC framework.

In the panel discussion that followed, Joyeeta Bhattacharjee discussed the complementary nature of BIMSTEC and SAARC and emphasised that the two groupings are not in competition with each other. India is undoubtedly an anchor for BIMSTEC but it remains to be seen if India will accord it the attention and privilege it requires amongst the different multilateral groupings that India is a part of. Prabir De highlighted that while there has been some progress on BIMSTEC since the framework agreement was signed in 2004, there have only been four summits in the last 21 years.

Ambassador Rajiv Bhatia stressed that the real test of a successful summit would be its continued relevance in the long term. While the signing of a free trade agreement in Kathmandu might be an impossible goal, consensus on five to six key agreements would be considerable progress. He also underscored the importance of the BIMSTEC initiative requiring support across the government spectrum and not just being driven by the Ministry of External Affairs on the Indian side. Constantino Xavier stressed that the main barrier to any improvement is the lack of funding for the BIMSTEC secretariat, which was only established in 2014 and has less than 10 people working as staff. With a meagre budget of only 200,000 USD, operational issues are hindering cooperation efforts between the BIMSTEC countries.

In conclusion, India can play a pivotal role in driving the BIMSTEC agenda. However, its leadership must be inclusive, with an important role for the smaller partners in the group. It is important to remember that BIMSTEC does not compete with other multilaterals such as ASEAN but rather enhances South Asia- ASEAN integration.

Geoffrey Flugge, a research intern at Brookings India, contributed to this report.

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U.S. President Donald Trump, many people believe, is not causing but is accelerating significant shifts in the international order. In foreign policy, Trump appears to have a clear and defined world view that hinges on an inherent scepticism of the post-World War II alliance system and the multilateral order. However, his foreign policy team does not always seem to share his world view. His rhetoric therefore may not be an actual representation of his administration’s policies.

To understand Trump, one needs to go beyond his hyperbolic statements and rhetoric, and observe the intersection between his world views and that of his team of closest advisors. We see this interaction between Trump and his foreign policy team play out in different ways, in different issues and areas. On many areas such as the Middle East and Asia, Trump’s policies have been largely consistent with the traditional Republican foreign policy framework. Even on global issues such as withdrawal from the Paris climate agreement and the UN Human Rights Council (UNHRC), Trump is not too far outside the realm of traditional conservative foreign policy prescriptions. The true departure from the traditional Republican position is mainly in the trade sphere.

To understand Trump, one needs to go beyond his hyperbolic statements and rhetoric, and observe the intersection between his world views and that of his team of closest advisors.

On Asia, despite Trump’s rhetoric, his foreign policy team has been able to implement its own worldview, underpinned by strong American defence posture in the region. There has actually been an increase in allocation of resources to American defence capabilities in Asia. An important underlying factor here is the deep scepticism within the American strategic, political, and economic communities of China and growing reluctance to continue cooperating with it. Moving forward, the U.S.-China relationship will increasingly be characterised by tension, competition and even rivalry.

In Europe, in spite of Trump’s anti-alliance world view and intrinsic suspicion of the European Union and NATO, his team has been able to push through troop redeployments in the east, increased arms to Ukraine, and sanctions on Russia. Although Trump has shown a willingness to cooperate with Putin, Democrats and Republicans alike uniformly oppose any kind of concessions to Russia. Trump’s foreign policy team is therefore willing and able to implement policies that are consistent with the traditional Republican worldview, disregarding Trump’s own agenda.

The one area in foreign policy where views of Trump and his national security team actually converge is in the Middle East. There is overwhelming consensus within the strategic community, dominated by military veterans from various regional wars, that many of the region’s problems can be traced back to Iran, and that Tehran should be confronted and contained. There is also a belief that Israel needs to be protected at all costs.

The one area in foreign policy where views of Trump and his national security team actually converge is in the Middle East.

Trump is also truly distinctive in his worldview on trade and has managed to find a team that shares his protectionist views. We therefore see Trump’s rhetoric actually translating into policy in the trade sphere. This view on trade might be rational politically but is economically unreasonable given the interdependent nature of global supply chains. Nevertheless, Trump seems to have tapped into the atavist tendencies of American public opinion for political ends, with important implications for the international trade order.

American leadership of the post-World War II order is being challenged by a China that is transactional and mercantilist in its approach. While China has been trying to assert its leadership in multilateral structures, it does not subscribe to the liberal values that created these structures. Complicating this situation is the fact that the U.S. and China are part of a common economic architecture, despite being strategic rivals.

Therefore, we are now seeing an asymmetric bipolarity in the international order where the U.S. and China are not yet equal in terms of power, but China is clearly the second leading power. There is also significant distance between China and the other countries following it. Around China and the U.S., there does seem to be a multipolar structure with rough parity among states such as Germany, France, India, Japan, Russia and others. All these states, regional and global players in their own right, are trying to hedge their positions vis-à-vis the United States and China. This scenario is complicated by the fact that there is no security architecture that can adequately contain great power conflict and represent the interests of all relevant powers. The international community will have to conceptualise and implement a new security architecture that is not dominated by institutions such as the UN Security Council or by western-led blocs such as the NATO, neither of which can be successful in containing great power tensions. An ideal international security structure will incorporate rising, constructive powers and thereby moderate great power conflict.

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Brookings India and the New Zealand High Commission co-hosted a discussion with Gabriel Makhlouf, Secretary and Chief Executive to the Treasury of New Zealand and Shamika Ravi, Senior Fellow and Director of Research at Brookings India and Member of the Prime Minister’s Economic Advisory Council. The discussion was moderated by Dhruva Jaishankar, Fellow for Foreign Policy at Brookings India.

It has taken six to seven years for New Zealand’s government to develop a living standards framework. The framework can be broadly understood in terms of four economic capitals – natural, social, financial, and physical. These capitals are meant to enhance intergenerational well-being. Emphasis is also being laid on ensuring a sustainable growth for these capitals, leading to overall growth in the economy. The Treasury has been tasked with listing the indicators and assessing the state of the four economic capitals. The government will then allocate a budget based on this assessment.

It is challenging to quantify some of the economic capitals. Social capital depends on the degree of trust people have in institutional bodies, which is difficult to measure. With natural capital, it is difficult to gauge what to measure and where to draw the boundaries. While measuring human capital in terms of education and skills is a challenge, health and especially mental health, is particularly critical. It is complicated by the fact that mental health data is often not available or is of questionable quality. One of the key challenges is to create awareness among the public and ensure practical implementation of this framework. There is a need to integrate a broader conception of economics into public policy discourse.

There is an urgent need to rethink India’s statistical capacity. While India does possess robust data systems, it does not have the capacity to collect real-time data which is critical for policy interventions.

India, in comparison to New Zealand, is far behind in terms of measuring well-being. Human development has shown a gradual improvement over time with conscious efforts by the government to improve human development indicators through Sustainable Development Goals, etc. The next budget may become the first budget to focus on gender and children. Going beyond the basic understanding of GDP as an indicator, health and education are also being recognised as indicators of well-being. While these indicators require a certain degree of ordering, emphasis is also being given to quality of public health and education services. It is important to note that in a diverse country like India, quality and functioning varies drastically across states. This variance can affect real-time decision making. Therefore, there is an urgent need to rethink India’s statistical capacity. While India does possess robust data systems, it does not have the capacity to collect real-time data which is critical for policy interventions.

Until now, the definition of growth has been understood rather narrowly, mostly in terms of fiscal policy. India is now on the way to being self-sufficient in terms of hard infrastructure that traditionally signified growth. It now needs to consider cultural growth, as well as problems of health and education in terms of quality of education, stunted growth, malnutrition, obesity, etc. For example, mental health is an important concern for all modern societies. Because mental health data is scarce in India, it is important to move beyond institutional data to formulate policy. Much more attention needs to be focused on improving health indicators among women and children in particular.

Many argue that the new indicators for wellbeing seem more relevant and applicable to developed countries like New Zealand. However, a strong case can be made for adapting the framework broadly to developing countries like India as well. For example, issues like poverty and nutrition among children are common to New Zealand and India. Ultimately, the quality of data plays a key role in policy formulation and implementation. While politicisation of data is an issue, institutional trust in organisations that collect and disseminate this data is critical and can be generated over a period of time.

Manasi Rao and Yamini Sharma, research interns at Brookings India, contributed to this report.

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The India-Russia bilateral relationship has a long history and a broad international context, amid the evolution from a unipolar order to a possible multipolar structure. This uncertainty is resulting in all great powers, including India and Russia, attempting to hedge and prepare for all possibilities. Given this international context, the changing India-Russia relationship is not only affecting bilateral ties but also India’s relationships with the United States, China, Afghanistan, and other countries.

Traditionally the India-Russia bilateral relationship has been based on multiple pillars of common interest. Both India and Russia share a similar worldview, based on a multipolar order.  They have also had a strong economic relationship in the past. When the Soviet Union collapsed in 1991, it was India’s biggest trading partner and supplier of defence technology. There were also strong people-to-people exchanges, with many young Indian professionals being educated in Russia.

While there has been some improvement in economic relations between India and Russia in the last two years, the relationship today essentially hinges only on military technological cooperation, where Russia supplies about 60% of India’s imported military equipment by value. This dependence on military technical cooperation to sustain the bilateral relationship might be problematic in the long run based on India’s economic growth projections and doubts about Russia’s ability to satisfy Indian demands.

The India-Russia relationship has been under some strain in the last years. There was a growing perception in the Russian establishment that India was growing closer to the United States. The informal summit in Sochi was an attempt to address this perception. On the other hand, it is not just Russia that is worried about the India-U.S. relationship. India too has concerns about Russia’s growing relationships with China and Pakistan, and its contentious relationship with Washington.

After the Ukraine crisis in 2014, the Russia-China relationship has become stronger, with important implications for India and other rising powers. Both Russia and China are being challenged by the United States, politically, economically, and strategically. While China has been able to sustain competition with the United States, a weak Russian economy is increasingly making Russia dependent on China for economic cooperation. This dependency can further extend to political and strategic domains over time. Also tied to Russia’s growing relationship with China is its increasingly close relationship with Pakistan, causing concern in the Indian strategic community. India is most concerned about the open hostility between United States and Russia on various issues.

The India-Russia relationship has been under some strain in the last years. There was a growing perception in the Russian establishment that India was growing closer to the United States. The informal summit in Sochi was an attempt to address this perception.

Russia’s position on areas of tension in the world, whether it is Ukraine, Georgia, West Asia, Afghanistan or North Korea, appears to openly challenge U.S. predominance. This tension catches India between its growing strategic partnership with the United States and its dependence on Russia for defence technological needs. Despite these strains, a strong India-Russia relationship is important because it gives extra manoeuvring space for both countries vis-a-vis other actors. Consequently, both India and Russia need to explore other avenues of cooperation, beyond defence technical cooperation to strengthen this relationship.

From the Indian perspective, there is scope for improvement in trade between Russia and India if the international North-South corridor through Iran, and the Vladivostok-Chennai sea route can be operationalised. India can benefit from hi-tech cooperation with Russia in the fields of artificial intelligence, robotics, biotechnology, outer space and nanotechnology. It can also cooperate with Russia on upgrading its basic research and education facilities. There is scope for growth in the energy sector, beyond mutual investments. Mutual benefits in trade of natural resources such as timber, and agriculture can also be harnessed.

On the strategic side and economic side, there seems to be a realisation in Russia about its over-dependence on China. This is particularly difficult because of the large Chinese market, not just for Russian energy exports, but also for Russian military exports. However, Putin has made a conscious attempt to energise his relationship with Japanese Prime Minister Shinzo Abe. Russia has also been trying to develop ties with Vietnam and other Southeast Asian countries through the East Asia Summit and ASEAN. Given India’s long-term association with these countries, India can help Russia in navigating these relationships.

Unnikrishnan also spoke to Dhruva Jaishankar at Brookings India separately about the future of the India-Russia relationship. Watch the video:

Yamini Sharma, a research intern, contributed to this report

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To discuss the Wuhan Summit and the trajectory of future cooperation between India and China, Brookings India hosted an expert roundtable discussion chaired by Shivshankar Menon, Distinguished Fellow at Brookings and India’s former National Security Advisor and Foreign Secretary.

The Wuhan Summit was a useful, timely and necessary step because the narrative on the relationship between India and China in the last few years has been increasingly negative. As such it was an important signal of intent by both countries to revive the relationship and better understand areas of convergence.

Since this was an informal summit, the purpose was not clearly stated and therefore there were no fixed outcomes. However, it is possible to provide a broad context to the summit and outline future cooperation efforts.

India and China are both part of a complex international situation that makes it necessary for them to engage with each other. Both countries share a common periphery and are interested in keeping it stable, and free from extremism and conflict. But from the Indian point of view, growing Chinese interference in its neighbourhood including in Nepal, Sri Lanka, Maldives etc. has been a cause for concern.

While it is unrealistic to expect China to stop asserting its influence in the periphery, it is possible to manage interests and look for areas of convergence.

The summit also comes at a critical time for India domestically, with general elections scheduled for 2019; therefore, the Indian political leadership is particularly interested in keeping its periphery stable.

To understand Chinese motivations for hosting the summit, it is important to understand its situation domestically as well as internationally.

Worsening trade situation with the U.S. and the unpredictability of the U.S. administration have made the Chinese leadership nervous. An increasingly independent North Korea is also a cause for concern. With the U.S. following a more confrontational policy, China has been making outreach efforts to countries in its periphery including Japan, South Korea, Vietnam, and Indonesia among others. An attempt to thaw relations with India should also be seen in this context.

Internally, Chinese President Xi Jinping has also been facing problems. He has not managed to implement the market reforms that he had promised in 2013; Chinese society is also less manageable than before in terms of societal state control. Obvious negative social media response to Xi Jinping’s Belt and Road Initiative and massive expenditures on internal security could be indicative of strain on the domestic front.

On the economic front, Chinese growth is already decelerating. China used to have the ability to manipulate and control its trade flows, exchange rates and capital flows simultaneously. This ability to keep its economy afloat through tight controls, without external repercussions, is slowly unravelling.

China has also been facing an increasing backlash, not just from India but other countries in Europe and elsewhere, on the economic unviability of its investments under the Belt and Road Initiative. With no internal rates of return on these investments, the Chinese economic system is under huge strain to cushion these shocks. Therefore, China has a special interest in pacifying its neighbourhood, while it deals with its economic and socio-political issues.

On the other hand, the Chinese leadership is now more assertive about its place in the global order and particularly in the Asia-Pacific. Chinese core interests have changed over time and the old shibboleths about Chinese non-interference in the internal politics of other countries and non-presence of troops abroad do not hold true anymore.

Jinping’s outreach to Japanese Prime Minister Shinzo Abe and Prime Minister Modi can also be seen as part of an attempt to build a China-centric order, replacing the old U.S.-led order.

The Wuhan Summit, which covered a variety of issues, was an attempt to bring the India-China relationship to a more even keel. As such, we can hope for a year of relative calm in the relationship before the Indian general elections in May 2019.

One of the outcomes of the summit was the strategic direction by the leaders to their militaries, to manage differences on the border and not raise tensions.

Moving forward, the India-China economic relationship will greatly depend on the outcomes of the U.S-China relationship in the strategic as well as trade spheres. The greater the uncertainty in that relationship, the less attention the India-China relationship is likely to get.

Regional issues are likely to see the greatest unpredictability in the short run. Cooperation between in China and India in Afghanistan, discussed at the summit, is one such example.

Finally, moderating expectations and assessments of Chinese behaviour, especially in our periphery, will be a challenge for India over the next year.

Menon also spoke to Brookings India separately about the takeaways from the Wuhan Summit. Watch the video:

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Hamid presented this talk at Brookings India in New Delhi on May 3, 2018, and on May 9 in Mumbai.

Hamid uses Islamic exceptionalism in a value-neutral sense i.e. exceptionalism can be either good or bad, depending on its manifestation. Nevertheless, it is true that Islam has proved resistant to secularisation and is therefore exceptional.

Two factors that contribute to its exceptionalism relate to the founding moment of Islam and the nature of its main scripture, the Quran. History and theology matter and should be understood particularly in the context of Islam. Prophet Mohammad was not just a man of religion, but a politician, a state-builder and leader of a state. The Quran therefore addresses the socio-political context of that time as well as issues of governance, law, and order. Religion and politics are interwoven within the teachings of Islam. In contrast, Jesus Christ was a dissident against the state, and did not rule or hold territory. Therefore, the New Testament does not talk about governance.

Islam was revealed to its followers in a pre-modern era, when Islam imbued an entire social, moral, political and religious architecture. It has proven difficult to adapt it to the modern nation-state era.

The second factor relates to the Quran. Muslims believe that the Quran contains the word of God and is actually God’s speech. This can be one of the reasons why secularists have failed to gain traction in Muslim-majority contexts. Given the divine nature of the text, it is difficult to argue against the Prophetic model and convince believers of its inability to replicate itself in the modern era.

According to Hamid, these two factors make Islam fundamentally different from other religions like Christianity and Judaism, and contribute to Islam’s unique relationship between law and governance.

This founding moment of Islam and role of the Quran has implications fourteen centuries later in the modern era, in everyday politics in West Asia and North Africa. Another political event, the formal abolition of the Ottoman Caliphate in 1924, is particularly important in understanding modern conflicts in the region such as the Iraq war, the Arab Spring and its demise, or the rise of ISIS.

From the time Prophet Mohammad established a Caliphate, there have always been one or more Caliphates representing the Muslim ‘ummah’ or community. After 1924 however, with the advent of modern nation-states, there has been a constant struggle to establish a legitimate Muslim political order in West Asia and North Africa. Hamid argues that at the center of this struggle are a set of issues: Islam’s relationship to the state, state’s relationship to Islam, and role of religion in public life.

Islam was revealed to its followers in a pre-modern era, when Islam imbued an entire social, moral, political and religious architecture. It has proven difficult to adapt it to the modern nation-state era.

This leads to the rise of Islamists and the role of Islamism in everyday life in West Asia and North Africa.

Hamid describes Islamists as those that believe Islam or Islamic law should play a central role in political life. Islamism was essentially created in response to one fundamental challenge of the 20^th century, that of secularisation and western ideologies being imported into West Asia and North Africa. Islamists can only exist in opposition to secularists; when they believe that their way of life is under threat and that political organisation is necessary to defeat the secularist impulses. This fundamental divide between Islamists and non-Islamists or secularists was evident during the Arab Spring and its aftermath. It follows then that identity matters very much and is almost an existential crisis for Islamists as well as secularists.

With the demise of the Arab Spring, Islamists in West Asia and North Africa risk being excluded from the political process because they are considered a ‘problem’ to be solved by governments, often through authoritarian means. This severely undermines the governance process since these parties represent a significant section of the population in most countries in the region. Given this situation, the best solution, Hamid argues, is to accept Islam’s role in public life and accommodate different perspectives, even conservative ones, on the condition all stakeholders respect the democratic process and the constitution. Democracy is based on accommodating and respecting people with different beliefs, but doing so peacefully. Democracy, even if illiberal by western democratic standards, is preferable to authoritarian, repressive, and exclusionist regimes.

Hamid also spoke on Islamists parties in Morocco and Tunisia in this conversation with Madiha Afzal and Dhruva Jaishankar:

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On April 24, Brookings India hosted a high level academic and diplomatic delegation from New Zealand to discuss Indian perspectives on the Indo-Pacific. The New Zealand delegation included Simon Draper, Executive Director of Asia New Zealand Foundation, Sekhar Bandyopadhyay, Professor at Victoria University of Wellington, and Manjeet Pardesi, Lecturer at Victoria University of Wellington. The discussion was initiated by H.K. Singh, Director General of Delhi Policy Group, Harsha Vardhana Singh, Senior Fellow at Brookings India, and Gurpreet Khurana, Executive Director of National Maritime Foundation. The discussion focused on diplomatic, trade and security aspects of Indian engagement with New Zealand and the Indo-Pacific region more broadly.

[more-blog-posts]

India’s posture towards the region has been that of a regional balancer. It believes that an open, multipolar and rules-based order is central to any security architecture in the region. As evidence of this, India has stepped up its engagement with other like-minded powers such as Vietnam, Indonesia, Singapore, Japan, and Australia. Trilateral partnerships between India-Japan-Australia and India-Japan-U.S. based on a commonality of interests are also particularly important. To that end, the concept of the ‘Quad’ is more of a strategic partnership between the U.S., India, Australia and Japan, rather than an alliance. The Quad does not function at the expense of ASEAN centrality, but as a possible insurance against the erosion of it.

Trade is an incentive structure to maintain peace and stability that is critical to any region. In that sense, trade and security are intertwined. India recognizes that it cannot grow without an engagement with the word. Maritime Asia therefore forms an important part of India’s economic growth trajectory. Countries in the Asia-Pacific interact with each other through plurilaterals and the World Trade Organization (WTO). With stalling of the WTO process, regional agreements like the Regional Comprehensive Economic Partnership (RCEP) and Trans Pacific-Partnership (TPP) become critical for trade. While India is still unwilling to consider being a part of the TPP, it is extremely interested in RCEP and is willing to engage in all ways possible. India has already made important concessions, for example in its investment policies, in order to engage in RCEP. However, sensitivities remain about the nature of services in the RCEP agreement.

India and New Zealand see the world and the security architecture in the region differently because of significant differences in their demographics, geography and economic prowess. Unlike India, New Zealand does not face any traditional security issues such as territorial disputes. Non-traditional security challenges such as crime in maritime spaces, pollution, environmental degradation, and piracy are more dominant challenges. New Zealand believes in openness of trade, competitive advantage and enhancing capabilities through technology transfers and education. New Zealand also believes in an inclusive security architecture in the region, with ASEAN as its center. It wants to engage with China while ensuring that the changing regional architecture aligns with its values and interests.

While there are significant differences between India and New Zealand on issues such as agricultural trade and services, there are also common interests. There can be opportunities for both countries to explore maritime cooperation between their navies. Humanitarian and Disaster Relief (HADR) and counterpiracy are important areas of concern for both countries. Ecological and environmental challenges can also have common solutions. Trilateral cooperation with like-minded countries like Australia and Singapore is also worth exploring. In conclusion, trade agreements like the RCEP, ASEAN-centric security architectures, and Indian diaspora linkages can form important strategic links between India and New Zealand.

The post Perspectives on Pacific geopolitics first appeared on CSEP.

This report and the underlying workshop was a by-invitation discussion session with experts in the power and IT sectors on issues of how to think of improving power sector outcomes through data. The initiative is being led by Brookings India with the support of Shakti Sustainable Energy Foundation.

Participants included experts from NSGM, CEA (Central Electricity Authority), Think Tanks and NGOs, DisComs, IT companies, ISGF (India Smart Grid Forum), and others.

This workshop was a discussion session focused on the following issues:

1.  How do we think about data in the power sector (especially for DisComs and consumers)?
2. Why isn’t data being harnessed more today?

To download, please click here

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Forecasting is just one part of the puzzle – “what next” is the key issue. If you deviate from the forecast, should you be penalised, and by how much? These are key issues.  These will link closely to the norms for forecasting, not just in terms of accuracy or time (how far ahead) but even the scale of aggregation.  Forecasts per wind turbine or solar panel are expensive and don’t add much value, but aggregated forecasts across a very wide area (like state) also don’t help the grid operator who needs to balance not just generation but also transmission.  An ideal balance is usually forecasts aggregated at a transmission pooling station level.

To read this Discussion Note, please click here

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