DOWNLOADS

• Download Working Paper

Executive Summary

Trade policies have taken centre stage in shaping global economic relations in recent years and are marked by a growing trend of protection. Trade protection is no longer limited to tariffs, and Non-Tariff Measures (NTMs) such as labelling and certification requirements have become increasingly prominent in shaping market access. While global tariff levels have generally declined over the years, there has been a simultaneous rise in the use of NTMs across the globe.

In India’s case, a notable trend is the sharp increase in Quality Control Orders (QCOs), which fall under the ambit of NTMs. Since 2019, the number of QCOs has surged from 88 to 765 by 2024—a more than eightfold increase—and the upward trend continues. As of August 2025, an additional 100 QCOs are in the pipeline (Bureau of Indian Standards [BIS], n.d.). This paper examines the impact of QCOs on India’s exports and imports for the affected products.

QCOs have been introduced to build a robust manufacturing ecosystem and ensure the quality of both domestically manufactured and imported products. However, their rapid and widespread implementation has created unintended economic consequences, particularly for trade and industrial competitiveness. These include:

• Stakeholders note that QCOs are increasingly being used to address price differences between Indian and foreign products, rather than being strictly applied for legitimate quality concerns.
• Risks to India’s supply chain integration, especially where QCOs target imported intermediate goods without adequate domestic alternatives.
• Compliance burdens on smaller firms, which face significant challenges in meeting certification and testing requirements.
• Worsening market concentration, as sectors already dominated by a few large players are subject to more QCOs.

While there has been considerable discussion around the potential impacts of QCOs on India’s trade, there remains a lack of empirical research to assess these effects. In this regard, this paper makes three key contributions:

• Database Creation: It systematically maps Harmonised System (HS) codes to existing QCOs, creating a comprehensive list of unique HS six-digit codes impacted by these QCOs.
• Econometric Regression: Using this database, the paper employs econometric regression techniques to estimate the impact of QCOs on India’s exports and imports, while controlling for other factors that may influence trade flows.
• Industry Stakeholder Discussion: To capture the practical nuances of QCO implementation and its effects on domestic manufacturing and trade, the paper draws on insights from industry stakeholder consultations. These discussions highlight critical challenges and operational issues faced by businesses in complying with QCOs.

Descriptive Insights

Based on the curated QCOs database, preliminary data analysis was conducted to identify emerging trends and patterns. The key insights from this analysis are as follows:

• A sharp increase in QCOs occurred after 2019, with the majority affecting intermediate goods (45.7 per cent), followed by consumer and capital goods.
• The top five sectors impacted by QCOs are: metals, machinery, and electronics, textiles, chemicals, and plastics and rubber.
• Some of these sectors also show high levels of firm concentration, raising concerns about competitive distortions.
• Tariff increases have accompanied QCO notifications in many sectors, suggesting a broader protectionist trend.
• Initial data show a decline in both exports and imports in most QCO-affected product lines.

Econometric Evidence

An econometric exercise was undertaken to understand the causal impact of QCOs on India’s trade flows, and the key findings are highlighted below.

• Imports fall by 13 per cent in the year after QCO notification, and by 24 per cent over the long term.
• Exports initially rise by 10.6 per cent in the first year, but decline by 12.8 per cent in the second year, with no long-term export gains observed.
• Intermediate goods face the steepest decline: QCOs lead to a 16 per cent reduction in imports in the year of notification and a 17.5 per cent decline in the subsequent year, and by 30 per cent over the long term.
• Overall, QCOs suppress imports—especially of intermediate inputs critical to domestic production—without improving export performance, challenging their efficacy in boosting competitiveness.

Industry Stakeholder Discussion

Engagements with industry stakeholders, particularly small and medium enterprises (SMEs), revealed several practical challenges in the implementation of QCOs.

• Stakeholders reported that Micro, Small, and Medium Enterprises (MSMEs) face disproportionate compliance burdens, including certification costs of ₹10,000–₹15,000 per consignment and long delays in approvals—especially for foreign suppliers.
• Limited domestic alternatives for critical inputs (e.g., cold-rolled grain-oriented (CRGO) steel) have caused production bottlenecks.
• Lack of harmonisation with international standards and inadequate testing infrastructure worsen trade friction.
• Larger firms are better able to absorb compliance costs, sometimes benefiting from the exclusion of smaller competitors.

Policy Recommendations

The analysis of the curated QCO database—examining trends and their impact on India’s trade flows—highlights the challenges associated with QCOs, which were originally intended to ensure the quality of production in India. Industry consultations brought out key nuances that helped contextualise the data patterns and interpret the results of the econometric regressions more effectively. To mitigate these challenges, several policy recommendations have been proposed:

• Clear Product Identification: QCO notifications should specify the corresponding HS codes to reduce compliance delays and operational confusion. Since these orders are issued by various line ministries, each ministry must indicate the impacted HS codes. The BIS should then consolidate this information into a single database that can be accessed by producers to understand and prepare for the compliance requirements arising from these QCOs.
• Criteria for QCO Application: Exemptions should be considered for products not manufactured domestically or produced in insufficient quantities to prevent supply chain disruptions. The imposition of QCOs should be strictly driven by genuine quality considerations—such as the protection of human, animal, or plant health, and environmental safety—not as a means to address dumping or trade imbalances, for which duties and trade remedies already exist.
• Streamline Compliance: Aligning BIS standards with international norms, establishing dedicated BIS task forces for MSME support, implementing digital verification and port-based quality checks, and facilitating timely inspections can streamline the certification process. It is also recommended that QCOs be implemented in a phased manner, allowing sufficient time for firms, especially MSMEs, to adapt to the compliance requirements.
• Identifying Anti-competitive Practices: The Competition Commission of India (CCI) should closely monitor QCO-impacted sectors, specifically those with high firm concentration, through market share and price trend analysis. The CCI should also consider having a grievance redressal mechanism for MSMEs, which can help identify and address emerging anti-competitive practices.

QCOs are essential for enhancing product quality, ensuring consumer safety, and aligning Indian manufacturing with global standards. However, their implementation must be carefully calibrated
to avoid unintended protectionist consequences and to support the competitiveness of India’s manufacturing sector. Particularly for the MSME sector, a phased approach to QCO implementation is crucial to facilitate adaptation to these regulations. It is essential to strike a balance between enforcing quality standards and ensuring sufficient product availability in the market at competitive prices, to prevent disruptions in supply chains and delivery delays, which can hinder India’s participation in Global Value Chains (GVCs).

The post Decoding India’s Quality Control Orders first appeared on CSEP.

DOWNLOADS

• Download Working Paper

Executive Summary

Over the past decade, India has actively engaged in triangular cooperation (TrC) with partner countries and multilateral institutions, with a strong focus on climate mitigation and adaptation. This paper seeks to decode India’s engagement in climate TrC by exploring:

• the role that triangular engagements play within India’s broader climate diplomacy;
• the motivations that drive India and its partners to increase engagement in TrC;
• the institutional models that India and its partner countries have used to operationalise TrC with each other; and
• India’s policy options for expanding the impact and significance of its triangular engagements, in turn strengthening its portfolio as a credible development partner.

The research questions are addressed through qualitative analysis of data collected from 26 high-level stakeholder interviews as well as expert group consultations with relevant academics and practitioners.

Triangular Cooperation within Climate Diplomacy

Climate action and clean energy have had a strong emphasis in India’s recent TrC engagements. Further, three of the four triangular multilateral initiatives spearheaded by India are climate-oriented – the International Solar Alliance (ISA), the Coalition for Disaster Resilient Infrastructure (CDRI), and the Global Biofuels Alliance (GBA). Key points to note are:

• Climate change has been high on the agenda in triangular engagements with India because partner countries have realised that the Global South urgently needs cost-effective, bottom-up solutions that India can supply to other developing countries based on its own experiences.
• The approach has been to ensure that the proposed climate solutions complement the national development goals of recipient countries, for improved healthcare, education, agriculture, gender equity, and disaster risk reduction.
• Compared to previous one-off TrC engagements, India has started to engage in long-term programmatic engagements based on its foreign policy priorities. India has shown willingness to support these engagements with finances and human resources.
• As triangular projects have been small-scale, focused on capacity-building and pilots, they cannot replace India’s broader climate diplomacy at multilateral, plurilateral, and bilateral levels.
• Therefore, TrC currently plays a symbolic role for India, signalling the country’s willingness for burden-sharing and offering alternative models of cooperation beyond North–South paradigms.
• However, TrC is instrumental for India to build up its climate portfolio in countries where it has low diplomatic presence and limited bilateral capacity to engage in developmental projects. This is especially important for engagement with large-ocean states and Least Developed Countries (LDCs).
• Finally, by leveraging the better-established institutional channels of facilitating partners, TrC provides an opportunity for India to learn through experience and experimentation on how to build up its own diplomatic capabilities.

Motivations of Partner Countries

Once, not as prominent, India has recently been an active participant formally institutionalising triangular projects in longer-term engagements. The following table describes the motivations from various partner countries to engage in TrC.

Institutional Models

The ideation of TrC is at high-level political meetings between heads of state from India and facilitating countries. The operationalisation of projects is then done by bureaucrats and diplomats from both countries. Even though India has engaged in only a handful of triangular agreements, there is substantial variation in the way these engagements are operationalised.

Agreements with Germany and the United States of America (USA) are sector specific, focused on pilot projects and capacity building respectively. They are at a “learning by doing” stage, with a few small-scale projects. These countries are cautious about committing additional finances and resources for scale up before evaluating the success of initial projects and strengthening institutional channels for project coordination.

On the other hand, the United Kingdom (UK) and France have taken a more ambitious route by proposing the establishment of joint triangular funds with India to finance the expansion of start-ups and early-stage enterprises to third countries. Operationalising these funds has been difficult with roadblocks in finding appropriate institutional channels for financial disbursement and project selection. However, if successful, the UK and France models can have a high impact as they involve significant financial amounts.

Challenges

Given its limited developmental capacity to execute projects abroad compared to facilitating partners, India should increasingly leverage triangular partnerships. If India is seen as a credible TrC partner, India can expand its diplomatic presence in the Global South through new collaborations with partners such as Australia and the Gulf Cooperation Council. However, for TrC not to lose momentum due to a lack of institutional and policy support, India must address a few key challenges:

Poor Institutional Capacity: India lacks a dedicated developmental cooperation agency with current institutional resources being insufficient to manage newer forms of cooperation, such as plurilaterals and triangular projects. This has resulted in delays in project implementation, high overheads, and poor inter-ministerial coordination.

Inability to Operationalise Joint Funds: Despite years of back-and-forth, poor institutional clarity and inexperience have created significant barriers to operationalising triangular funds with the UK and France. A key consideration is the lack of an institution in India capable of housing a triangular fund to ensure financial disbursal, conduct joint selection and monitor projects.

Weak Strategic Vision: India currently has little strategic vision of how to leverage TrC to fulfil its ambitions of becoming a developmental partner. There is no clear framework to determine which sectors, countries, and strategies to pursue. Strategies and project proposals appear to be primarily driven by background research conducted by facilitating partner networks.

Lack of Reporting and Monitoring Mechanisms: India does not have a separate reporting mechanism for triangular projects. The absence of standardised evaluation, reporting and monitoring metrics makes it difficult to quantify the impact of projects. To scale up, it is essential to maintain a proper record of past experiences and iteratively learn how to establish effective cooperation channels and operationalisation mechanisms.

Policy Options

India must take steps to strengthen state capacity, integrate lessons from initial projects, and develop a systematic understanding of regions and sectors to target. Focusing on climate-friendly solutions and creating a database of replicable innovations for third countries will also be crucial. The following section provides key policy options on how India can become an improved triangular partner:

Strengthen Domestic Institutional State Capacity

• Create a dedicated department: India can establish a dedicated development agency or a new division within the Ministry of External Affairs (MEA) to manage development cooperation projects, including triangular engagements.
• Develop a vision document: India should position TrC within a broader framework, considering its short, medium, and long-term foreign policy ambitions. For instance, countries such as Brazil have included TrC as an important foreign policy tool at multilateral forums including the G20. This vision document should guide India’s strategic engagements to enhance its credibility as a developmental partner.
• Adopt best practices from facilitating countries with well-established developmental models: India should learn from and adopt best practices of facilitating partner countries, such as institutional mechanisms, operational channels, and network-building strategies adapted for the Indian context to enhance its own development portfolio.

Integrate Initial Learnings for Smooth Operationalisation

• Improve Monitoring and Evaluation: Based on ongoing and completed projects India can develop its own systems for reporting, monitoring, and evaluation of TrC projects. For instance, the MEA needs a mechanism to detail what has worked, what has not, and the potential way forward to scale up projects. This will provide insights into the impact of these projects to assess whether replication is viable in the long term.
• Develop Joint Norms, Standards, and Regulations: Establish joint norms and standards for implementation, adapting them to the needs of the Global South rather than merely following the standards of the Global North. This approach will enable India to create its own distinct operating procedures as a development partner, which are more bottom-up and suited to the developing world.

Build Systematic Understanding of Regions and Sectors

• Categorise the current need for technological solutions in different regions: Utilise resources of facilitating partners to conduct studies on the demand for technologies in recipient countries and undertake effective supply-demand matching between India and third countries.
• Identify countries interested in partnering with India: Determine which countries are receptive to partnering with India and how these countries impact India’s foreign policy diplomacy.

Catalyse Private Sector Participation

• Create facilitating platforms: The private sector, often absent in TrC, plays a significant role in scaling up solutions in third countries, particularly through grassroots entrepreneurs and start-ups. India can serve as a conduit for private sector participation by creating and supporting initiatives similar to the Sankalp Africa Summit, which provides a platform for social entrepreneurs to secure international capital for projects in third countries.
• Create incentives for expansion to third countries: Given India’s limited domestic capacity abroad, the private sector can be provided opportunities to expand to third countries. These can be concessional financing, mentoring, incubation and de-risking mechanisms to work abroad.

Leverage TrC to Strengthen Climate and Resource Diplomacy

• Showcase TrC models at multilaterals: Through triangular partnerships, India can build credibility as a climate leader by showcasing successful projects at international forums and multilateral platforms such as the Conference of the Parties (COP) and G20. India should highlight TrC as a horizontal, needs-based approach to climate governance, focusing on the Global South’s needs.
• Continue Focus on Climate Solutions for Development: The approach should stress on India’s unique focus on climate-friendly solutions that benefit the development of the Global South, such as those in agriculture, health, and gender equity. India should continue to focus on climate adaptation and mitigation technologies, using think tanks and facilitating partners to create databases of the most effective domestic solutions for replication in third countries.
• Improve Energy Security and Expand into Green Supply Chains: Through new partnerships created through TrC, India can create resilient supply chains for critical minerals and technology transfer needed to enable its domestic energy transitions. India can also leverage its partnerships to co-create energy solutions that can integrate the country’s manufacturing capacity into global green supply chains.

The post India and Global Triangular Climate Cooperation: Motivations, Institutional Models, and Policy Options first appeared on CSEP.

DOWNLOADS

• Download Working Paper

Executive Summary

China’s engagement with South Asia has grown significantly over the past decade, particularly under its Belt and Road Initiative (BRI). While research on the material aspects of China’s engagements in the region has expanded, including by measuring its growing economic capabilities and security footprint, the discursive and ideational aspects remain understudied. As China’s role in the region becomes more complex, this limited knowledge of Chinese semantics could lead to practical consequences, such as the loss of valuable signals and consequent policy misjudgements about China’s goals and intentions in the region.

This paper uses discourse analysis to examine and interpret hundreds of mostly Chinese-language texts. These include official speeches, interviews, and signed articles by the People’s Republic of China’s (PRC) leadership between 2013 and 2023. To explain Chinese narratives on South Asia, we structured our research around key questions: How do Chinese officials define the region’s boundaries? How do they see the predominant role of India, as well as its relations with Pakistan and other smaller states? How do they perceive the economic and democratic models of governance in South Asia? And how do PRC officials conceptualise China’s own role in the region?

This study reveals critical insights into how China perceives and communicates its role in the region. By systematically engaging with Chinese narratives, India and other South Asian countries can craft more informed and effective policies to navigate their complex relationships with China. Strengthening regional collaboration, developing independent research capacity, and maintaining a diversified strategic outlook will be key to managing China’s influence in South Asia.

Key Findings in Chinese Discourse on South Asia

1. Flexible Definitions of South Asia: Chinese officials adopt multiple perspectives to define South Asia, including ecological, economic, geopolitical, and civilisational. Ecologically, South Asia is framed around the Himalayan region, emphasising shared environmental concerns. Economically, the region is viewed as an underdeveloped space requiring integration into broader Asian connectivity frameworks. Geopolitically, South Asia is portrayed as a contested space where external, non-Asian powers should not interfere. Civilisationally, it is depicted as part of a larger Asian identity that shares historical and cultural ties with China.
2. India’s Central Role: Both an Impediment and an Indispensable Partner: China’s discourse reflects three major narratives regarding India:
   • India is described as an asymmetric power that dominates its smaller neighbours, whereas China promotes a model of equal relations.
   • The India–Pakistan rivalry is seen as the primary obstacle to regional cooperation, and China seeks to balance its relations with both countries, portraying them as “equal powers.”
   • China frames India as a potential partner for regional development through trilateral initiatives (e.g., China–India–Nepal cooperation), though India’s perceived reluctance to engage is seen as an obstacle.
3. Economic Development and China as the Provider: Chinese discourse presents South Asia as a missing link in global economic corridors, with China playing the role of an infrastructure and public goods provider. The BRI, including corridors such as the China–Pakistan Economic Corridor (CPEC) and the Bangladesh–China–India–Myanmar (BCIM) initiative, is depicted as a solution for underdevelopment in the region. Chinese officials frame these projects as transparent and mutually beneficial, despite criticisms of debt risks and sovereignty concerns.
4. Political Stability and Governance—China as a Guide and Mediator: Chinese narratives highlight South Asia’s political instability and governance challenges. The Chinese model of “people’s democracy” is offered as an alternative to Western-style governance. China also positions itself as a neutral mediator in regional conflicts, including India–Pakistan tensions, Myanmar’s Rohingya crisis, and Afghanistan’s political transitions. This reflects China’s broader ambition to enhance its diplomatic influence in the region.

Policy Recommendations and Future Research Avenues

To effectively navigate China’s growing influence in South Asia and develop informed policies, the following recommendations are proposed:

1. Investing in the China Policy Research Ecosystem: There is a significant knowledge gap in South Asia regarding China’s strategic intentions, driven partly by a lack of expertise in the Chinese language and discourse analysis. Governments, particularly that of India, should increase investment in China studies programmes at universities, think tanks, and diplomatic training institutions. Strengthening policy-oriented research will ensure better decision-making and more accurate assessments of China’s regional role.
2. Decoding and Responding to Chinese Discourse: Policymakers must systematically analyse Chinese official rhetoric to identify shifts in China’s strategic posture. Investing in dedicated research capacity to interpret Chinese diplomatic speech and documents can help anticipate Beijing’s next moves and mitigate misinterpretations.
3. Contextualising and Comparing Chinese Speech with Actions: South Asian decision-makers should beware of the gap between Chinese discourse and practice. Comparative studies of China’s engagement in other regions, such as Africa and Latin America, can provide useful insights into the potential trajectory of its South Asian strategy. Monitoring whether China’s spoken commitments translate into tangible actions will enable more informed policy responses.

The post Semantics as Strategy: Interpreting China’s Official Discourse on South Asia first appeared on CSEP.

DOWNLOADS

• Download Working Paper

Executive Summary

Various studies have estimated the climate finance requirement for India in the range of US$160 billion and US$288 billion annually. However, these estimates have been arrived at by following top-down approaches, which fail to assess sector-specific climate finance needs. This gap is sought to be bridged by this study as it follows a bottom-up approach to estimate the climate finance requirement of four key sectors—power, road transport, steel, and cement – accounting for over half of India’s carbon emissions. While most other studies cover the energy sector, studies covering the road transport, steel, and cement sectors are few and far between. The period covered for assessing climate finance requirements is from 2022-2030 [1]. It refrained from estimating the climate finance requirements beyond 2030 due to the many uncertainties, especially those relating to technological developments.

Climate finance estimates in this paper reflect the additional capital expenditure required solely for mitigation or moving to a low-carbon economy, i.e., over and above the investment already planned in these sectors in the business-as-usual (BAU) scenario. It employs two distinct methodologies for the four sectors. For the power and road transport sectors, climate finance is estimated as an additional capital expenditure required for a progressive switching over from fossil fuel-based sources to renewables (power) and from internal combustion engine vehicles (ICEVs) to electric vehicles (EVs) – road transport. For the steel and cement sectors, climate finance has been worked out as the total capital expenditure required to mitigate existing as well as incremental carbon emissions that will arise in these two sectors up to 2030.

The study also evaluates: (i) the macroeconomic consistency of the estimated climate finance; and (ii) the fiscal space to finance climate action by the public sector.

Key Findings:

Climate Finance Requirement

Total climate finance requirement for India to substantially decarbonise the four key sectors (power, road transport, steel, and cement) are estimated at US$467 billion (at current prices) from 2022 to 2030, which works out to US$54 billion or 1.3 per cent of its gross domestic product (GDP) annually.

The steel sector is estimated to need the largest amount of climate finance of US$251 billion, followed by the cement sector of US$141 billion. Both the steel and cement are hard-to-abate sectors, requiring largely the use of carbon capture and storage (CCS) technology to decarbonise them. CCS is expensive but is the only feasible technology option available at present.

The power sector is estimated to require an additional capital expenditure (capex) of US$47 billion to switch from fossil-based sources of power to non-fossil-based sources. In addition, capex of US$10 billion is estimated as storage costs for renewables. Thus, India will require climate finance of US$57 billion for the power sector [2].

Overall, climate finance for road transport is estimated at US$18 billion. The transition from ICEVs to EVs is estimated to require an additional capex of US$10 billion. In addition, there will also be a need to develop the charging infrastructure for EVs, the capex for which is estimated at US$8 billion.

The decarbonisation of the four sectors will reduce the use of 291 million tonnes of coal and 72 billion litres of petrol and diesel, which could mitigate 6.9 billion tonnes of CO2 emissions (excluding road transport).

The climate finance estimates in this study are based on the cost of current available technologies. Should newer technologies develop and be more affordable, the climate finance estimates arrived at in this study could undergo a change.

Macroeconomic Consistency of Climate Finance Estimates

Overall, capital and financial flows net of the projected current account deficit (CAD) for India are estimated at US$530 billion during 2023–2030 in the BAU or 1.4 per cent of its GDP on an annual average basis. However, consistent with the expansion in the monetary base, India can manage only up to US$474 billion during the same period. Thus, India would need to skilfully manage both external financial flows in the BAU and climate finance from external sources. For financing climate action in the four sectors, India may need to: (i) widen its CAD, but for prudential and financial stability concerns, it should be subject to a maximum of about 2.5 per cent of GDP, depending on the availability of climate finance from external sources; and (ii) step up its saving rate.

Fiscal Space to Finance Climate Action by the Public Sector

Despite fiscal consolidation in the last few years, the debt-to-GDP ratio of the general government in India remained elevated at 82.3 per cent at end-March 2024 [3]. However, a reduction in the debt-to-GDP ratio to the mandated Fiscal Responsibility and Budget Management (FRBM) targets will require a significant turnaround in the primary balance from (-)3.4 per cent of GDP in 2023–2024 to 1.6 per cent by 2029–2030 for the general government, and from (-)2.3 per cent to 0.6 per cent for the central government. Thus, there is little fiscal space, and it is expected to be constrained for some years to come. This suggests that the bulk of the resources for climate action may have to be financed by the domestic private sector.

Policy Recommendations:

Sector-Specific

• Steel and Cement Sectors
  • Since steel and cement plants in India are predominantly privately owned, investment for decarbonising these sectors would have to come largely from the private sector. In view of the positive externalities of mitigating emissions effectively, private investment in these sectors should be incentivised.
  • The carbon capture and storage (CCS) technology required for decarbonising the steel and cement sectors would need international cooperation and technology transfers.
  • Since the growth in steel and cement will be more substantial in emerging markets and developing economies (EMDEs), particularly China and India, there is a need to launch a minimum of research and development (R&D) aimed at reducing CCS costs or developing affordable alternative technologies such as green hydrogen.
• Road Transport
  • While the road transport sector is largely in the private sector, the government may have to step in to develop the charging infrastructure for EVs and prescribe regulatory measures to enable the shift from ICEVs to EVs over time.
• Power Sector
  • Accelerate the transition to a cleaner power grid, as the capital cost of renewables is lower than that of fossil fuel-based sources of power.
  • Address the challenges of grid management, grid battery storage and hydro-pump storage for renewables by investing in R&D.

Policy Flexibility and Review Mechanisms:

• The fiscal consolidation process needs to continue to free up resources for the private sector, including measures to increase the revenue-to-GDP ratio.
• Encourage private sector savings to facilitate the financing of climate action.
• Periodically reassess climate finance estimates and strategies to account for evolving technologies and demand requirements.

The implementation of the above-mentioned recommendations would help India to navigate the dual challenge of advancing its development goals while addressing climate vulnerabilities. The significant investment need underscores the importance of a carefully calibrated economic strategy to ensure that India continues its rapid economic growth trajectory in a manner that is also consistent with its climate change ambitions.

The post India’s Climate Finance Requirements: An Assessment first appeared on CSEP.

DOWNLOADS

• Download Working Paper

Executive Summary

Infrastructure development is critical to economic growth, serving as the backbone of trade, industry, and overall societal progress. In India, the financing of infrastructure projects has been a joint effort between the government, the private sector, and banks. The introduction of public-private partnerships (PPPs) in the late 1990s was intended to enhance private sector participation and efficiency in infrastructure development. However, the financial viability of some of these projects has been questioned due to the rising levels of non-performing assets (NPAs) in the banking sector. This study empirically analyses the impact of bank infrastructure financing on NPAs, investigating whether public sector banks (PSBs) are involved in poor lending decisions and exploring the structural risks inherent in infrastructure projects.

Following independence, India’s infrastructure was largely underdeveloped, requiring significant public investment. The push for Development Finance Institutions (DFIs), such as Industrial Development Bank of India (IDBI) and Industrial Credit and Investment Corporation of India (ICICI), facilitated industrial growth. However, after the financial sector reforms in the 1990s, DFIs were phased out, leaving commercial banks as the primary lenders for infrastructure projects. With a sevenfold increase in infrastructure investment requirements projected by the India Infrastructure Report (1996), the government turned to PPPs to share financial burdens. Over time, private investment in infrastructure surged, particularly between 2007 and 2014. However, the subsequent financial stress in these projects contributed to a sharp rise in bank NPAs.

Subsequently, Indian banks have been the dominant providers of corporate credit, with infrastructure absorbing a significant share of non-food credit. Unlike developed economies where bond markets play a role in infrastructure financing, India’s underdeveloped corporate bond market has constrained alternative sources of funding. Banks, especially PSBs, have remained the primary lenders, leading to significant asset-liability mismatches due to the long gestation periods of infrastructure projects.

The early 2010s witnessed a twin balance sheet crisis as gross NPAs (GNPAs) in scheduled commercial banks rose from 2.5% in 2010–2011 to 11.2% in 2017–2018. PSBs were particularly affected, with NPAs rising to 14.6%, compared to 4.7% for private banks. Four major factors contributed to this crisis: the fall in commodity prices, which led to significant financial distress in sectors reliant on commodities like metals; prolonged regulatory forbearance, which allowed unsustainable credit exposure; corporate governance failures in both banks and borrowing firms; and failures in PPP infrastructure projects, particularly in power and roads, which experienced severe financial stress.

Analysis of data from the Insolvency and Bankruptcy Board of India (IBBI) indicates that 50% of corporate debt defaults under insolvency resolution stem from the infrastructure sector, highlighting the sector’s significant contribution to the overall NPA problem in Indian banking.

PSBs have disproportionately lent to the infrastructure sector compared to private banks. A sectoral credit analysis reveals that power and roads received the highest bank exposure, aligning with the sectors that later exhibited significant financial stress. Despite the high-risk nature of infrastructure lending, PSBs continued financing these projects due to policy mandates and a lack of alternative infrastructure financing institutions. Using proprietary project-level data, a comparative analysis of firms with PSBs as lead bankers versus private banks showed that before lending, firms selected by PSBs had healthier financial conditions than those chosen by private banks. However, post-lending, the financial health of PSB-backed firms deteriorated significantly, suggesting weak monitoring rather than poor initial screening.

Several structural challenges make infrastructure projects inherently risky. In the power sector, overcapacity emerged due to the overestimation of demand, while fuel supply disruptions and coal shortages further exacerbated financial stress. The lack of long-term power purchase agreements (PPAs) with State utilities created revenue uncertainty, and the financial distress of power distribution companies (DisComs) led to a cascading effect on the power sector. In the roads, highways, and bridges sector, land acquisition delays, slow environmental clearance processes, over-leveraging, and poor financial health of private developers led to frequent defaults. Furthermore, while PPP projects promised efficiency, they often faced cost overruns and maintenance issues.

The failure of large infrastructure projects and rising NPAs have led to successive rounds of bank re-capitalisation by the government. Between 2008–2009 and 2021–2022, PSBs received capital infusions totalling Rs 4.03 trillion. Under the Indradhanush plan (2015), the government estimated that PSBs would require Rs 1.8 trillion in capital support. A more aggressive recapitalisation effort followed in 2017, with Rs 2.11 trillion earmarked for stressed banks, primarily financed through recapitalisation bonds. However, the necessity of recapitalising banks undermines one of the primary objectives of PPPs, which is to reduce fiscal pressure on the government. Instead, much of the financial burden has shifted back to the public sector, raising questions about the effectiveness of infrastructure financing strategies.

To prevent future banking crises and ensure sustainable infrastructure financing, several policy recommendations emerge. Strengthening alternative infrastructure financing mechanisms is crucial, including the development of a deeper corporate bond market to reduce dependency on bank lending and encouraging institutional investors such as insurance companies and pension funds to participate in infrastructure financing. Project appraisal and monitoring need improvement, with enhanced due diligence in infrastructure lending by banks and stricter monitoring mechanisms post-lending to ensure financial discipline. The PPP model must be reformed to reduce dependence on government guarantees, establish more effective risk-sharing mechanisms, and introduce dynamic contract structuring to adjust for unforeseen project risks. Bank governance and incentives must also be revamped, improving governance frameworks within PSBs to enhance lending decisions and aligning lending incentives with project performance rather than loan disbursement targets. Finally, strengthening specialised financial institutions like the National Bank for Financing Infrastructure and Development (NaBFID) and India Infrastructure Finance Company Ltd. (IIFCL) will help to better assess long-term infrastructure risks and promote credit enhancement schemes to attract private investment in infrastructure projects.

The Indian twin balance sheet crisis of the 2010s underscores the critical role of infrastructure financing in determining financial stability. While private sector participation in infrastructure development remains crucial, it must be accompanied by stronger financial oversight, institutional reforms, and improved risk management strategies. Addressing the structural issues in infrastructure financing will not only reduce NPAs in banks but also ensure sustainable long-term economic growth.

The post Non-Performing Assets in Indian Banking in the 2010s: The Role of Infrastructure and Public-Private Partnerships first appeared on CSEP.

DOWNLOADS

• Download Working Paper

Executive Summary

The European Union’s Carbon Border Adjustment Mechanism (EU-CBAM) is a climate policy tool aimed at reducing carbon leakage by imposing carbon tariffs on imports from non-EU countries with lower environmental regulations. The policy is particularly imposed on the emissions-intensive-trade-exposed (EITE) sectors such as iron and steel, cement, aluminium, and fertilisers. This study uses a Computable General Equilibrium (CGE) model to evaluate the macroeconomic and fiscal effects of the CBAM on India, with a focus on Gross Domestic Product (GDP) impact, sectoral competitiveness, exports, fiscal revenue, and household welfare. Three policy scenarios are simulated to understand the possible outcomes of CBAM implementation: (i) PCARBON: a domestic carbon tax with revenue retained by India; (ii) CBAM: a carbon tax on EU exports where revenue accrues to the EU; and (iii) PCARBON + CBAM: a hybrid taxation model where carbon tax rates are halved and revenue is split between India and the EU.

India’s Exposure to the CBAM

Although India’s CBAM-exposed exports to the EU account for only 0.2% of its GDP, the iron and steel sector constitutes 90% of these exports, making it particularly vulnerable. Thus, there is concern that imposing carbon tariffs could erode India’s export competitiveness and increase production costs in key industries. Retaining carbon tax revenue within India is crucial to mitigating these negative effects.

Literature on the Effects of the CBAM

The Indian economy is expected to experience mixed effects. Some projections indicate a significant decline in iron and steel exports, whereas others suggest a minimal impact across key industries such as fertiliser, cement, aluminium, and steel. Policy recommendations highlight the need for domestic carbon pricing mechanisms, energy efficiency improvements, and fuel switching technologies to mitigate negative effects. Additionally, revenue recycling strategies could help offset distortions from carbon taxation and support a more sustainable transition for affected industries.

Dataset: CSEP-ESAM-2019–2020: The primary data source for CGE models is the Social Accounting Matrix (SAM), which details the economic interlinkages between producers, households, governments, and other institutions. This study uses the CSEP SAM 2019–2020 for India, which depicts interrelationships between production sectors, factors of production, households, institutions, and environmental factors such as emissions. The SAM comprises 45 production sectors, 318 labour and capital categories, and 80 household groups.

For this analysis, the SAM has been condensed into 21 production sectors (including three fossil fuel sectors—coal, oil, and natural gas—and 18 non-fossil fuel sectors), two factors of production (labour and capital), and 10 household categories divided equally between rural and urban regions. This level of aggregation allows for distinguishing carbon-intensive sectors, such as coal, oil, and gas, from less carbon-intensive sectors, facilitating a detailed analysis of carbon pricing policies on emissionsintensive sectors like iron and steel, aluminium, cement, and fertiliser.

The Net Indirect Taxes (NIT) and Rest of the World (ROW) accounts are disaggregated into EU and non-EU regions, bridging critical gaps in the existing literature on single-country CGE models that have examined policies like the CBAM. This enables a comprehensive assessment of the CBAM’s impact on EU and non-EU trade and government revenue. The impacts have been simulated from 2026 to 2030 because the CBAM will come into effect in 2026.

Macroeconomic Impact of the CBAM

1. Impact on GDP

• In the CBAM scenario, GDP declines by between 0.02% and 0.03% due to carbon tax revenue outflows to the EU.
• The PCARBON + CBAM scenario leads to a 0.01% GDP gain in the later years, as part of the tax revenue is retained domestically, cushioning the adverse effects.
• A higher domestic carbon tax rate (PCARBON) results in greater economic distortions unless revenue is effectively recycled.

2. Sectoral Output Effects

• CBAM-exposed industries such as iron and steel, cement, aluminium, and fertilisers experience a decline in output due to higher costs.
• The fertiliser sector benefits in the PCARBON scenario due to lower relative carbon intensity and substitution effects.
• Renewable energy sectors see increased demand and expansion, offsetting some losses in fossil-fuel-intensive industries.

3. Impact on Trade and Exports

• In all scenarios, exports to the EU decline, with the most significant impact on the cement and steel sectors.
• Fertiliser exports increase in the PCARBON scenario, benefiting from improved domestic competitiveness.

4. Impact on Fiscal Revenue

• In the PCARBON scenario, India gains significant carbon tax revenue, estimated at 1% of GDP by 2030.
• In the PCARBON + CBAM scenario, the retained revenue is 0.5% of GDP, balancing economic concerns with EU trade compliance.
• The CBAM scenario results in revenue loss as the tax accrues entirely to the EU, causing negative economic spillovers.

Distributional Impact on Households

CBAM-induced price increases lead to a decline in household consumption, with urban households experiencing a higher burden due to their greater reliance on carbon-intensive industries. The PCARBON scenario provides some relief through domestic tax revenue recycling, mitigating the negative effects on purchasing power.

Policy Recommendations

1. Adopting a Domestic Carbon Pricing Mechanism

• Implement a moderate carbon tax to retain revenue domestically and alleviate CBAM compliance costs, along with the CBAM to be imposed by the EU from 2026.
• Use carbon revenue for green subsidies, industry support, and household compensation programmes.

2. Strengthening Trade and Export Strategies

• Diversify exports to non-EU markets to reduce dependence on EU trade.
• Negotiate better trade terms with the EU to ensure fair CBAM pricing mechanisms.
• Enhance energy efficiency and carbon reduction measures to maintain export competitiveness.

3. Accelerating the Renewable Energy Transition

• Promote renewable energy investments, as the CBAM incentivises cleaner production.
• Provide policy incentives for industrial decarbonisation and technological upgrades.

The CBAM and India’s Net Zero Goals

The study underscores how the CBAM can catalyse India’s net-zero transition by encouraging lower-carbon production and renewable energy adoption. Implementing domestic carbon pricing ensures that India captures tax revenue while promoting sustainable industrial growth. The findings support the view that well-designed policies can turn CBAM compliance into an opportunity for green transformation rather than an economic burden.

Conclusion

The optimal response to the CBAM would be to impose a domestic carbon tax, starting with a lower tax rate, consistent with India’s developing country status. The proposed Carbon Credit Trading Scheme (CCTS) is a step in this direction. The government could auction allowances, which could be used to reduce the adverse effects on society or to further the energy transition. In conclusion, the impact of the EU-CBAM on the Indian economy could depend on several factors, such as the carbon price level and the distribution of carbon tax revenue between India and the EU. It is important to consider these aspects while designing appropriate policy responses.

The post Assessing the Distributional Implications of the EU’s CBAM on India: A CGE Analysis first appeared on CSEP.

DOWNLOADS

• Download Working Paper

Executive Summary

The manufacturing sector is crucial for the economic development of developing countries. Its significance for growth and development is also evident in employment generation, both directly and indirectly through linkage effects. However, according to data from India’s National Statistical Office (NSO), the share of manufacturing value added in India’s gross value added (GVA) declined from 17.4% in 2011–2012 to 14.7% in 2022–2023 (including construction, the corresponding shares are 27.0% and 22.9%, respectively). This decline places India among the countries experiencing premature deindustrialisation, defined as a fall in manufacturing share in employment and value added at constant prices at lower levels of per capita income compared with high-income early industrialisers. This slowdown in manufacturing has also adversely affected the sector’s potential for job creation.

Several reasons have been proposed to explain the lack of manufacturing jobs in India. These include the role of the unorganised or informal sector, the proliferation of small and old firms, and the misalignment between public policies and incentives and the employment intensity of sectors within manufacturing. However, the role of the services sector, and the complementarities between goods and services, has been absent from the narrative on jobless manufacturing growth in India, despite the well-established phenomenon of the “servicification” of economic activity in the country.

Servicification, defined as the use of services as intermediate inputs and add-ons to enhance the competitive advantage of manufactured products, is increasing across countries and over time. While existing research has examined the impact of servicification on exports, productivity and participation in global value chains (GVCs) in the Indian context, its potential impact on employment in the country’s manufacturing sector has not been considered.

This paper addresses this gap in research and policy in the context of India. The manufacturing sector benefits from servicification in various ways. As GVC enablers, services are used to participate in, connect with and benefit from the global economy. For example, overseas manufacturing firms embedded in GVCs benefit from low-cost services provided by call centres in India and the Philippines. Network services—such as information and communication technology (ICT), transportation and logistics—facilitate the global production of manufacturing products. Servicification also enables manufacturing firms to upgrade from low-end fabrication tasks to high-end service jobs, thereby enhancing their positions in GVCs and strengthening the competitiveness of manufacturing products with tailored services. It has also been found to improve the performance of manufacturing firms through higher productivity, more diversified export varieties, better access to foreign markets and GVC upgrading. However, existing research has not explored the impact of servicification on employment in the manufacturing sector, which is where this paper adds value.

According to Organisation for Economic Co-operation and Development (OECD) Trade in Value Added (TiVA) data, the share of domestic services value added in manufacturing exports—a measure of servicification—was 17.7% on average for the manufacturing sector as a whole in 2020. In several individual sectors, however, this share exceeded the manufacturing average. These sectors include computers and electronics (25.2%), metals (24.0%), textiles and footwear (21.8%), electrical equipment (21.1%), machinery and equipment (20.5%), rubber and plastics (19.9%), fabricated metals (19.9%), food, beverage and tobacco (19.8%), paper products (19.1%), motor vehicles and trailers (18.3%) and other non-metallic mineral products (18.3%). These are the sectors where potential servicification–employment linkages are expected to be strongest.

To decompose servicification measures across individual services sectors, the paper constructs backward and forward GVC-participation measures based on multi-region input–output databases. Backward participation, which denotes a country’s reliance on imported intermediate inputs, is computed as the share of foreign and domestic value in imported inputs that is re-exported in gross exports. Forward participation, which measures the extent to which a country’s exports serve as inputs in production in its partner country, is computed as the share of the value of domestic production re-exported by bilateral partners in gross exports. These measures show that India’s forward participation is highest in financial intermediation and business services; maintenance and repair; post and telecoms; and distribution services (both retail and wholesale trade). Among services sectors, backward participation is relatively high in construction and transport services. These are the individual services sectors likely to provide the strongest servicification–employment linkages in the Indian context.

To assess the domestic employment potential of complementary services, the paper identifies services sectors contributing to high domestic value added (DVA) using data from the Asian Development Bank’s (ADB) national input–output table for India in 2022. These data show that services as a whole contribute more than 20% of DVA in most manufacturing sectors except metals; coke and petroleum; and food, beverage and tobacco. Moreover, several low-skill services sectors contribute significantly to DVA in Indian manufacturing, including retail trade, construction and wholesale trade. In 2022, the combined share of low-skill services in India’s manufacturing output was 15% or more in the following sectors: textiles, rubber and plastics, paper, leather, electrical equipment, wood and machinery. Thus, the servicification and employment narrative is not just about export-led sectors (though that is the focus of the analysis in the paper) but also about domestic-demand-driven sectors. Moreover, this narrative includes not only skill-intensive sectors but also low-skill services activities where it is easier to absorb surplus labour from the agricultural sector.

Finally, the paper undertakes empirical analysis to show a positive association between servicification and manufacturing employment in India, including in less-skill-intensive activities, via backward GVC linkages (the extent to which production in an industry relies on imported intermediate inputs) and upstreamness (a measure of position in GVCs, i.e. whether a sector or country is selling to the final consumer or supplying intermediate inputs).

Stylised facts indicate that backward GVC linkages are most pronounced in construction, transport and accommodation services, while courier and distribution services are among the most upstream sectors in India. However, OECD data suggest that India has a more restrictive services trade regime than the average OECD and non-OECD economy in several sectors, including rail freight transport, storage and warehousing, courier and distribution services. From a policy perspective, removing unnecessary regulatory restrictions in these sectors will not only promote manufacturing activity and exports but also create more jobs, including for low-skilled workers transitioning from the country’s agricultural sector.

The analysis undertaken also supports the case for the joint liberalisation of goods and services—whether unilateral or within the framework of preferential trade agreements. This necessitates that policymakers consider the complementarities between goods and services and examine the joint restrictiveness in goods and services sectors when negotiating trade agreements.

The post Servicification of Manufacturing: India’s Potential and Policy Priorities first appeared on CSEP.

DOWNLOADS

• Download Working Paper

Executive Summary 

India’s energy and decarbonisation goals are closely linked to solar power—both grid-scale and rooftop. Rooftop solar (RTS) has gained global traction as a form of distributed renewable energy (DRE), offering households the potential for lower electricity bills and greater energy independence. With more than 300 sunny days a year, India is well positioned to harness solar energy. However, despite extensive government initiatives, RTS deployment has fallen short of targets. As of February 2025, only about 16.67 GW of the original 2022 target of 40 GW RTS has been achieved.

The Pradhan Mantri Surya Ghar Muft Bijli Yojana (PM Yojana), launched in February 2024, targets one crore households with RTS systems. The scheme provides capital subsidies of up to Rs 78,000 for grid-connected RTS installations and streamlines the process through a unified portal integrating vendors, distribution companies (Discoms), and consumers. While the programme is positioned as a tool for empowering lower-income households through reduced electricity bills (“Muft Bijli”),[1] its real-world impact hinges on household economics and utility finances: households must generate enough electricity to offset bills, and Discoms must withstand the revenue loss from widespread adoption. This tension is magnified by India’s progressive, slab-based residential tariff structure, where higher-usage households shoulder much of the system’s cross-subsidy.

When these high-consumption households adopt RTS, their electricity purchases from the Discom decline sharply, eliminating the cross-subsidy that keeps tariffs low for smaller users. Because Discoms recover most fixed costs[2] through per-unit energy charges (ECs)[3] (Tyagi, Rao, & Tongia, 2024), yet another distortion—the lost sales create a sizeable revenue shortfall. Net-metering deepens the gap: daytime solar exports from households are credited at the same rate as evening imports, despite higher costs to the Discom, effectively turning the grid into a nearly free “virtual battery.”[4] Being an average-cost regulated system,[5] some of the shortfall is then redistributed across the remaining fully grid-reliant customers—mostly lower-consumption, lower-income households. Against this backdrop, the study addresses two research questions:

1. How do current net metering rules influence system sizing, payback periods, and adoption likelihood across consumer categories?
2. What are the resulting financial impacts on Discoms?

To address these questions, we develop a bottom-up analytical model to assess the impact of RTS adoption across four states: Delhi, Gujarat, Karnataka, and Madhya Pradesh—each representing different tariff structures and policy environments. The model incorporates key parameters, including household sanctioned load, annual electricity consumption, average power procurement cost (APPC), residential energy charges, and feed-in tariffs (FiTs), among others.

i. Right-Sizing RTS Benefits Consumers but Hurts Discoms

The results indicate that consumers benefit most when the RTS system size closely matches their monthly electricity consumption. However, oversizing the RTS does not yield additional gains, except in Delhi, where a high FiT makes excess generation more profitable. While net metering allows for energy offsets, any surplus beyond a household’s monthly consumption is compensated at a lower FiT, limiting consumer gain.

From the Discoms’ perspective, a right-sized RTS system is the least favourable outcome. An undersized RTS still retains revenue from grid consumption, albeit at lower tariff slabs, while an oversized RTS allows Discoms to procure power at a lower FiT. However, when consumers right-size their systems, Discoms experience the greatest revenue loss, as these households maximise self-consumption while minimising their dependence on the grid.

ii. Higher-Income Households are More Likely to Adopt RTS

Net-metering policies in India create disparities in the value of electricity depending on who generates it and when. Our model indicates that lower-consumption consumers—often a proxy for lower-income households—experience longer payback periods than wealthier consumers who have optimally sized their RTS installations. This is primarily because lower-income households typically fall under lower tariff slabs, resulting in less financial benefit from solar generation. In some instances, state electricity subsidies further diminish the value of the energy they produce, sometimes even reducing it to zero. Conversely, high-consumption households derive the greatest benefits, as they can offset their higher electricity costs with self-generated solar power. This raises critical concerns about the efficacy of subsidies: are capital subsidies and net-metering benefits disproportionately favouring those who can already afford RTS, rather than those who need it most?[6]

iii. Rooftop Solar with Net Metering is a Zero-Sum Game

Higher-consumption households maximise their savings through net metering by offsetting grid purchases with self-generated power, often reducing their electricity bills to zero or moving into lower tariff slabs. Crucially, they can achieve these savings without altering their consumption patterns. Given that most states have telescopic tariff structures, wealthier households—who typically have high[7] electricity consumption, higher tariff rates, and reliable roof access—are more likely to adopt RTS. This creates a revenue challenge for Discoms, as high-paying consumers shift away from the grid, leaving a larger financial burden on lower-paying consumers.

For Discoms, RTS adoption presents both benefits and challenges. While it can reduce daytime demand, transmission losses, and overall power procurement costs—particularly during supply shortages—it also disrupts revenue models. This challenge is most pronounced during non-solar hours, when high-consumption RTS users rely on the grid. Discoms must procure electricity at higher costs without adequate compensation during these periods, exacerbating their financial losses. Additionally, net metering does not differentiate between peak and off-peak hours, valuing electricity uniformly throughout the day. This further distorts financial outcomes for Discoms. The current net metering framework, therefore, does not create a mutually beneficial arrangement—consumer gains come at the expense of Discoms, reinforcing the importance of understanding which consumers are shifting to RTS.

iv. Time-of-Day Tariffs Matter-Policy Should Encourage Solar-Aligned Demand

Comparing consumer tariffs and FiTs with the APPC overlooks a critical factor: the time-of-day (ToD) variation in Discoms’ procurement costs. Midday energy prices are generally lower because of cheaper utility-scale solar, whereas evening and night-time prices are higher. Households with higher solar-aligned consumption reduce their reliance on the grid during expensive, non-solar hours, thereby mitigating revenue losses for Discoms.

Although limited in residential settings, ToD tariffs offer a potential mechanism to reduce those losses. For consumers with smart meters, existing regulations recommend a 20% discount for solar-hour consumption and a 20% surcharge for non-solar hours, lowering losses compared with a non-ToD scenario. Figure 1 examines the impact of ToD pricing for consumer profiles across three RTS sizes. A more dynamic ToD design, better aligned with real-time supply conditions, could enhance Discoms’ financial sustainability while facilitating RTS integration.

However, as Figure 1 shows, a 5 kWp RTS system, optimally sized at approximately 5,500 kWh, results in the lowest net present value (NPV) for Discoms—even when the household has a high solar-aligned consumption rate of 90%. That said, a well-designed ToD tariff can help mitigate the losses associated with right-sized RTS users, as seen in a right-sized 10 kWp RTS system with around 9,000 kWh consumption. While ToD tariffs can reduce losses from right-sized consumers, they may also diminish gains from oversized or undersized consumers, such as a 1 kWp RTS system with 9,000 kWh consumption. However, such extreme cases are uncommon, as most consumers install RTS systems based on a mix of economic and technical considerations rather than on extreme oversizing or undersizing. This also highlights that ToD tariffs alone cannot address the fundamental challenges of net metering, telescopic tariffs, and solar-aligned consumption.

Towards Equitable Net-Metering Reforms

Although net metering has been an essential policy tool for incentivising RTS, it may not be the most efficient approach. While gross metering eliminates offsets, it still does not dynamically reflect the value of electricity based on time-of-day (ToD) considerations. To ensure the financial stability of Discoms while safeguarding consumer interests, this paper proposes the following policy recommendations:

1. Align Fixed Costs to Ensure Discom Recovery: Net metering allows large consumers (greater than 5 kW) to derive greater value from RTS, significantly reducing their grid consumption. Since Discoms recover most fixed costs through energy charges, this shift places a disproportionate financial burden on non-RTS commercial and industrial consumers and smaller, lower-paying households. Without proportional fixed cost adjustments, this imbalance will intensify as more high-paying consumers adopt RTS.
2. Promote RTS with Storage: For appropriately sized large consumers (greater than 5 kW), RTS payback periods range from 5–10 years without central subsidies and improve only slightly to 4–9 years with subsidies, offering limited financial advantage. To enhance grid stability and financial sustainability, subsidies for larger RTS systems should be contingent on storage integration. This would help Discoms by reducing procurement costs during evening peak hours and mitigating the financial strain of net metering offsets.
3. Transition to a Modified Net Metering Framework for Fair RTS Valuation: A differentiated approach is needed to ensure fair valuation of RTS electricity while maintaining consumer adoption and Discom sustainability. A modified framework could allow self-consumption, export valuation at wholesale rates or State Electricity Regulatory Commission-determined prices, and import charges at applicable tariffs to create a more balanced, equitable, and sustainable RTS integration.
4. Implement ToD Tariffs with Real-Time Price Signals: ToD tariffs can help reduce Discom losses by aligning consumer demand with solar generation patterns. However, for long-term sustainability, ToD tariffs should reflect real-time supply conditions and market price signals rather than fixed solar and non-solar hour distinctions. Implementing real-time pricing can improve cost recovery and enhance electricity market efficiency.
5. Balance RTS Growth with Discom Financial Sustainability: A hybrid approach is essential to scale RTS adoption while ensuring Discom financial health. This includes fixed cost recovery through appropriate charges, a differentiated metering mechanism to balance consumer and Discom interests, a flat tariff structure to minimise slab distortions, and ToD tariffs with real-time pricing for accurate market signals.

The PM Surya Ghar Muft Bijli Yojana represents a significant advancement in accelerating the adoption of RTS and enhancing consumer benefits across India. By implementing these recommendations, policymakers can achieve a balance that supports RTS growth while maintaining the financial viability of Discoms, thereby fostering a sustainable and equitable energy ecosystem. As the initiative progresses, it offers an opportunity to clearly define its overarching priorities, whether to focus on energy affordability, consumer equity, environmental sustainability, or the financial stability of Discoms. A well-structured policy framework can align these objectives, ensuring the long-term success of the PM Surya Ghar Muft Bijli Yojana and India’s clean energy transition.

The post Rooftop Solar: A Trade-off Between Consumer Benefit and Discom Finances first appeared on CSEP.

Executive Summary

This paper is the next part in a series examining fiscal transparency and reporting challenges within India’s Public Financial Management (PFM) ecosystem. Building on our previous analyses of off-budget borrowing and subsidy spending, it extends the methodologies developed in earlier papers to critically examine capital expenditure (capex) reporting practices in India. While reported capex has risen significantly in recent years, a deeper examination reveals inconsistencies, data gaps, and misclassifications that diminish the accuracy, accountability and effectiveness of these estimates. This paper examines key issues surrounding capex in India, focusing on central- and state-level practices, transparency and reporting challenges, alignment with international standards, adjusted capex estimates and actionable policy recommendations.

Capex plays a pivotal role in economic development and fiscal policy, involving investments in durable assets that enhance productivity, generate employment and foster private-sector participation. However, India’s current reporting practices often obscure the true nature and impact of these investments.

India’s Capex Landscape

• Trends in capex: The paper analyses capex trends at both the Centre and state levels. The Centre prioritises national infrastructure, such as highways, railways and defence, while the states focus on public services like irrigation, health and education. Since 2000, reported capex has risen from approximately 2% to nearly 8% of GDP. However, as this paper explains, this figure is overstated.
• Central government initiatives: Since 2014, the Centre has emphasised public investment in transport, energy and urban infrastructure. However, key trends include a rise in loans and advances to State governments, driven by schemes such as the Scheme for Special Assistance to States for Capital Investment.
• State-level capex: In FY 2024, states collectively budgeted Rs 14 lakh crore for capex, but only slightly more than half was directed towards tangible asset creation. The remaining 42% was allocated to debt repayment, highlighting a misalignment between reported spending and actual capital outlays.
• Financial and non-financial asset creation: A significant portion of reported capex comprises loans, advances and debt repayment, none of which is directly linked to asset creation. For instance, 48% of states’ and 68% of the Union’s reported capex in FY 2024 represented support to other entities, such as public sector enterprises (PSEs) or other governments. This complicates the straightforward aggregation of reported capex by the Centre, states, and PSEs when estimating public capital spending.

These practices are inconsistent with both India’s official definitions of capex and international standards, underscoring the need for improved transparency and alignment.

International Reporting Standards

International frameworks, such as the International Monetary Fund’s (IMF) Government Finance Statistics Manual (GFSM) 2014 and the Fiscal Transparency Code 2019, provide benchmarks for reporting public finance data, including capex. These standards emphasise accrual-based accounting, granular and timely reporting, transparency in debt-financed spending and outcome-based evaluations to ensure consistency and transparency across countries.

India’s current fiscal reporting practices diverge significantly from these international standards owing to several factors:

• Cash-Based Accounting: India’s reliance on cash-based accounting, as opposed to accrual-based systems, limits the accuracy and comprehensiveness of fiscal reporting.
• Exclusion of Off-Budget Finances: Off-budget expenditures and public–private partnerships (PPPs) are often excluded from official reports, creating hidden fiscal risks.
• Inadequate Disclosure: Insufficient transparency around debt financing, contingent liabilities and PPPs further complicates the assessment of public investments.
• Misclassification of Expenditure: Financial assets (e.g., loans and equity infusions) are included in capex, while revenue expenditures are often misclassified as capital spending, particularly at the sub-national level.

As a result, India lags behind most G20 economies, including China, Brazil, South Africa and Canada, in fiscal transparency and reporting. These countries have made significant strides in aligning with GFSM standards, offering valuable lessons for India.

Adjusted Capital Spending

To align with international standards, capex should be limited to the acquisition of non-financial assets. Consequently, this paper adjusts central and state capex to align with the Government Finance Statistics Manual (GFSM) 2014 definition of “net acquisition of non-financial assets” and disaggregates public sector capital spending into government and PSE expenditures. Key findings include the following:

• Central Government: Adjusted capex as a percentage of gross domestic product (GDP) has declined in recent years, contrary to the trend in reported spending. Central PSEs’ capital spending has also decreased, leading to an overall reduction in public sector capital investment since its peak in FY 2018.
• State Governments: Adjusted capex diverges significantly from reported capex, falling by as much as five percentage points as a percentage of Gross State Domestic Product (GSDP) in some cases. These discrepancies highlight the need to exclude loans and capital infusions to PSEs from capex calculations, and to address systemic data gaps.

Data Gaps

Capex reporting in India is beset by several data gaps that impede public accessibility, oversight and accountability of public funds. Key issues include:

• Inconsistencies in Reporting: Maintenance costs, grants, subsidies and other operational expenses are often misclassified as capex, inflating reported figures without corresponding increases in tangible assets.
• Incompleteness of Data: Not all capital expenditures are captured in official reports, particularly those related to off-budget financing and public–private partnerships, which are frequently excluded. This obscures the true extent of public investment and creates hidden fiscal risks.
• Fragmented and Untimely Reporting: Delays in reporting and the lack of integrated databases hinder timely analysis and monitoring of capex projects.
• Lack of Granularity: Insufficient detail on the nature, location and progress of capex projects limits the ability to assess their impact and effectiveness. Contingent liabilities and debt-financing costs are also not adequately disclosed.
• Underutilisation of Funds: Allocated capex is often underutilised owing to bureaucratic delays, procurement challenges and poor coordination.
• Mismanagement: Delayed approvals, inefficient procurement and poor project implementation further erode the value of capex investments.

Looking Ahead: Agenda for Transparency Reforms

To enhance transparency and accountability in capex reporting, India must undertake comprehensive reforms, including:

• Harmonising Definitions: Establish a uniform classification of capex across the Centre and state governments to ensure consistent treatment of financial and non-financial assets;
• Enhancing Granularity: Provide detailed, sectoral and project-specific breakdowns of capex to facilitate transparency, accountability and outcomes evaluation;
• Integrating Off-Budget Spending: Consolidate expenditures by special purpose vehicles (SPVs) and PSEs into fiscal accounts to provide a comprehensive view of public investment;
• Consolidating General Government Data: Report financial data at the general government level to eliminate inter-governmental transfers and reveal net investment in non-financial capital assets; and
• Strengthening Auditing: Expand the role of the Comptroller and Auditor General of India (CAG) in auditing capex to ensure proper classification, verification of assets, and accountability for delays and cost overruns.

Conclusion

India’s journey towards a transparent, efficient and outcome-driven capex framework presents both challenges and opportunities. While progress has been made in increasing budgetary allocations and implementing major infrastructure projects, significant gaps in reporting, transparency and fund utilisation remain. Addressing these challenges requires comprehensive reforms to align with global best practices, bridge data gaps and leverage technology. By doing so, India can transition to a more accountable and effective capex framework, ensuring that public funds are utilised optimally for long-term development goals.

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

Executive Summary

India possesses the world’s largest number of medical colleges, yet it continues to face a significant shortage of healthcare professionals. As the country’s population has surged, becoming the most populous nation, the number and distribution of trained MBBS and specialist doctors have lagged behind. Despite India’s rapid expansion of medical seat capacity, a significant gap persists between the need for qualified doctors and their supply. This inability of supply to respond to the need for qualified doctors has implications for the affordability of medical education, as well as the choice of practice, location, and eventually, the types of values—such as the delivery of public good versus the provision of services as an economic transaction— embedded within health service provision.

In recent years, the government has expanded the number of medical colleges, particularly in remote and rural areas, by augmenting existing district medical hospitals into medical colleges under its “One District, One Medical College” policy. However, private sector participation in the expansion of medical education has been relatively muted and narrowly concentrated geographically, despite relaxations in regulatory requirements and viability gap schemes to incentivise Public-Private Partnership (PPP) projects in setting up medical colleges. Using financial data from public and private medical colleges, we analyse whether this current policy pathway of establishing new medical colleges in underserved areas is likely to be effective in addressing the gaps in the availability of medical seats and arrive at the following findings:

1. The expenditure incurred for medical education is substantial and increasing. Moreover, ensuring high-quality medical education is not a one-time investment; it necessitates ongoing expenditure, as evidenced by our finding that older government colleges in Maharashtra had higher budgetary expenditures than newer ones.
2. The fiscal strain of establishing and operating new Government Medical Colleges (GMCs) remains significant over time, given the high levels of subsidisation of medical fees in government colleges.
3. Leading private hospitals in the country have been reluctant to invest in medical education, partly because the revenue generated from medical education constitutes a very small proportion of their total revenue.
4. Current regulatory and market incentives result in a low-level equilibrium trap driven by the self-selection of smaller private sector players who lack the capacity necessary to consistently deliver high-quality medical education over the long term.

Based on these findings, we explore alternative policy approaches to the expansion of quality medical education through the scaling-up of existing medical educational institutions. Drawing from international experience, where educational institutions tend to be much larger than Indian ones, we use bed-to-seat ratios as a proxy indicator to test whether current medical colleges in India have room to scale. We find that as many as 50% of the medical colleges in the country already have sufficient beds to further expand their seat capacity. This is true for both public and private sector hospitals that are currently operational. However, current regulatory structures disincentivise scaling by ensuring that there are no increasing economies of scale for the expansion of medical colleges.

We posit that public investment is better spent on strengthening the capacity of existing large medical institutions to produce more and better-trained medical graduates than on developing new educational infrastructure in underdeveloped or remote areas. This can be achieved while also addressing any quality concerns by undertaking the following:

1. Increasing investment in existing large hospitals, both government and private sector, including through Viability Gap Funding (VGF) where there is potential for scale, rather than in remote locations with limited scale potential, is recommended. The government should invest in enhancing the capacity of existing colleges to support their growth in both size and quality. Large, established medical colleges, where significant resources have already been invested, including government subsidies, should maximise economies of scale and improve productivity.
2. Increasing investment in medical research across all medical colleges, both government and private, is crucial to attract teachers and students. Substantially increasing investment in high-quality medical research can potentially serve three important purposes. Firstly, it generates incentives for the private sector to invest in establishing medical education institutions to attract research funding and the associated reputational benefits. This will also improve the quality of medical education and, consequently, the quality of care provided by these institutions. World-class faculty are more likely to be attracted to medical institutions that offer protected time and space for medical research. Finally, investing in medical research is a way to anticipate future healthcare needs and provide Indian institutions with a competitive edge, especially during this time of accelerated biomedical discovery and innovation.
3. Reorienting regulation to be outcome-based and focused on quality, making it less cumbersome for existing large medical colleges to scale, is essential. Current regulatory norms for setting up or scaling-up medical colleges continue to focus on inputs, particularly infrastructural inputs. An outcomes-based regulation focuses on demonstrating the competencies of medical graduates with an assessment of the performance of education programmes and institutions. Such an approach is more likely to foster innovation and quality improvement by providing flexibility to medical institutions.
4. Amplifying focus on quality through a stronger accreditation system and technology, rather than fixed input norms, is necessary. Increasing the number of medical graduates without simultaneously ensuring quality will not address the workforce challenges of the country. Adequate policy attention and budgetary allocation must also go towards building up the regulatory capacity and oversight mechanisms for ensuring the quality of medical education. This implies measuring the quality of medical graduates as well as the quality of medical educational institutions.
5. Directing government subsidies to be means- and merit-based, instead of supply-side subsidies which are not targeted, is advisable. Given the high cost of medical education and the proportional investment required, governments in India may consider merit- and need-based subsidies to rationalise their fiscal burden over time. Scholarships, vouchers, or other forms of financial support can be considered across public and private medical colleges to support diversity among medical students.

Once the supply of trained doctors surpasses local demand, market forces are likely to incentivise doctors to practise in underserved areas, addressing distributional concerns over the long term. Since medical professionals are known to migrate both within the country and abroad, policy incentives to encourage graduates to prefer rural practice, such as increased living or travel allowances, may be additionally deployed to address geographical disparities.

The post Beyond Expansion: Rethinking Policy and Scale in India’s Medical Education System first appeared on CSEP.

Executive Summary

Many studies have highlighted the multitude of factors that hinder the competitiveness and exports of Indian manufacturing. These constraining factors include India’s onerous regulatory framework, high costs of essentials such as land, energy, quality-adjusted labour inputs, and infrastructure constraints. While there is some merit in these arguments, it is also true that there have been significant improvements in easing the regulatory burden, as reflected in India’s Ease of Doing Business ratings, massive enhancements in transport and logistics infrastructure, tax reforms, and a more responsive bureaucracy. Yet, India’s manufacturing competitiveness does not seem to improve.

Another set of studies has identified constraints on external economic interactions, including an overvalued exchange rate and rising domestic protection levels, which reduce export competitiveness, alongside increasing global protectionist tendencies that limit trade opportunities. How India can balance its priorities within this larger setting remains an open question. However, it is evident that studies have tended to identify numerous factors working simultaneously to create what appear to be insurmountable hurdles to the global competitiveness of Indian manufacturing.

Perhaps as a consequence, the latest government efforts are not only aimed at easing these hurdles but also at providing active support to industry. One underlying argument behind the Production-Linked Incentive (PLI) scheme, for instance, is that given the higher costs and greater difficulties of doing business in India, some government support is necessary to help industry achieve sufficient scale, where economies of scale can mitigate other hurdles.

India’s high tariffs and allied policies protection have come into increasing focus following US President Donald Trump’s tariff policies in his second term. This presents India with challenges, but also opportunities to expand its export market share—provided its competitiveness parameters are robust.

This paper examines the core issues that have prevented India from achieving manufacturing competitiveness and suggests policy priorities to overcome these challenges. We do so in a novel fashion by modifying the well-known Porter’s Diamond Model (PDM). Using this modified PDM, we compare multiple countries from Asia with India by constructing a Competitiveness Index (CI) for each country across a range of components aggregated within six pillars. The insights derived from this comparative analysis form the basis of in-depth qualitative discussions with industry stakeholders, providing us with a unique combination of a bird’s-eye view and an on-the-ground perspective, both quantitatively and qualitatively. The four distinct methodological contributions of this paper are listed here:

1. Modification of the PDM Framework: The PDM framework comprises six pillars that contribute to competitiveness at the country level: factor conditions, demand conditions, related and supporting industries, firm strategy, structure, and rivalry, government (regulatory quality), and chance. We replace the chance pillar with the global trade policy pillar. This pillar encompasses external policies such as import tariffs and membership in large multilateral Free Trade Agreements (FTAs) that influence how a country integrates into the global trading system.
2.  Use of PDM to Calculate the CI: By applying the PDM framework, the paper proposes a method to calculate the CI based solely on input factors, rather than combining both input and output factors as seen in other global competitiveness indices, such as the World Economic Forum’s Global Competitiveness Index (GCI). This approach offers predictive insights into a country’s future competitiveness.
3. Focus on Asian Competitors: Given that Asia contributes a significant share of global Gross Domestic Product (GDP) and hosts many Global Value Chains (GVCs), the paper selects specific Asian competitors for India as potential alternatives to China in its trade and manufacturing strategies. The comparator countries include Indonesia, Malaysia, Thailand, Vietnam, and India.
4. Industry Consultation to Align with CI Findings: The paper also compares the CI results with insights from industry consultations. The intention is to provide a clearer understanding of the main factors impacting competitiveness, ensuring the insights are more grounded in real-world industry perspectives.

Results

Our CI analysis finds that, among the countries studied, India and Indonesia are the two least competitive countries. The top three spots are occupied by Malaysia, Vietnam, and Thailand.

• Of the six pillars studied, India ranks poorly in two: firm strategy, structure, and rivalry; and global trade policy. India is among the lowest in three other pillars: “factor conditions”, “related and supporting industries” and “regulatory quality.”
• The only pillar where India is not among the lowest rankers among the five countries studied is “demand conditions.”
• In the factor conditions pillar, India performs poorly overall, with gaps evident in Research & Development (R&D), access to finance, and land.
• India’s better performance in the demand conditions pillar is largely due to its large domestic market, which is a crucial subcomponent of this pillar.
• In the related and supporting industries pillar, India’s low rank is attributable to high import tariffs on intermediate goods.
• India’s low rank in the firm strategy, structure, and rivalry pillar is primarily driven by a high degree of firm concentration in Indian industry.
• For the regulatory quality pillar, India’s low rank is due to issues with customs and trade regulations, and tax administration.
• India’s lowest rank in global trade policy is primarily due to its high Most Favoured Nation (MFN) tariffs and its absence from major trade agreements.

Industry Discussions

The findings from the above analysis were validated through discussions with stakeholders from four key sectors: apparel, pharmaceuticals, auto-components, and electronics. These sectors were selected based on their varying export performance. Pharmaceuticals constitute a strong export sector, electronics and auto-components are emerging sectors, and apparel is a sector where India lags substantially despite significant potential. The insights from discussion are analysed within the PDM framework.

Factor Conditions

We find that, while concerns have been raised about the availability of skilled labour, India’s overall supply of graduates and engineers suggests that labour, including skilled labour, is unlikely to be a constraint at the national level, at least in the near future. At the subnational level, high-growth regions require both skilled and unskilled labour from slower-growing regions. Thus, the south of the country attracts migrant labour from other states. However, there are underlying challenges in labour mobility, with high housing costs discouraging workers, particularly women, from migrating for better job opportunities. Addressing this issue could improve labour mobility, especially for women, and reduce perceived labour shortages.

There is general agreement on the need for greater investment in R&D and technology development. We argue that, although government support can offer short-term benefits, the private sector must ultimately take responsibility for investing in technological change. Government policies, for their part, should focus on facilitating foreign technology flows to promote innovation within the country.

Priority Areas: R&D investments; facilitating labour mobility across regions through better urbanisation policies.

Demand Conditions

Indian industry predominantly relies on domestic demand for growth, with exceptions such as pharmaceuticals and mobile phones in the electronics segment. The apparel sector exports a significant portion of its output; however, there is a mismatch between the evolving pattern of global demand for apparel products and Indian production. This suggests that Indian apparel exports could be much higher with better alignment with global demand.

Priority Areas: Address the factors that have prevented Indian firms from better aligning with global patterns, as discussed in the priority areas under other PDM pillars.

Related and Supporting Industries

Stakeholders across all sectors, except the pharmaceutical industry, emphasised the need to liberalise the import of key inputs to make finished goods more competitive. High tariffs on intermediate goods increase costs, rendering these goods less competitive in global markets. Additionally, stakeholders highlighted the importance of integrated industrial parks to streamline supply chains and improve cost efficiency. As many industrial parks do not function effectively and fail to provide basic facilities and services, it is necessary to examine the policies and institutions governing industrial parks in India.

Priority areas: Liberalise imports of intermediate goods; implement facilitative policies to ensure the clustering of various stages of the supply chain within a single location.

Firm Strategy, Structure, and Rivalry

While not directly discussed by sector players, the Micro, Small, and Medium Enterprises (MSME) sector expressed concerns about the lack of fair domestic competition, which could adversely affect pricing and competitiveness. Discussions revealed that pricing for key downstream products is largely controlled by one or two dominant firms. This has a cascading impact on the entire supply chain, significantly reducing the competitiveness of the Indian industry.

Priority areas: Encourage domestic competition by reducing bureaucratic barriers to the entry of new firms; foster foreign competition in key raw materials by reducing import tariffs.

Regulatory Quality

Industry stakeholders highlighted regulatory hurdles such as obtaining permits, securing land for manufacturing units, and navigating labour laws as key barriers to scaling up. MSME representatives emphasised that current labour laws create incentives for firms to remain small, thereby preventing the scaling of manufacturing operations. Other regulatory hurdles include those associated with the environment, effluent management, and various types of permits. Many of these issues can be addressed at the level of industrial parks through a cluster approach to industry.

Priority areas: Changes in firm size thresholds within labour laws and the development of a cluster-oriented policy where various forms of assistance are available to meet regulatory compliance requirements.

Global Trade Policy

As has been the policy direction in recent years, the Indian industry is generally open to FTAs. However, it favours selective engagement, particularly focusing on countries that supply essential intermediate goods. Within this context, India’s limited participation in major FTAs has hindered its competitiveness relative to countries like Vietnam.

Priority areas: Increase the number of FTAs and deepen engagements with major trade partners.

Conclusion

India must adopt a comprehensive strategy to enhance its manufacturing competitiveness. By dismantling protectionist policies, embracing deeper FTAs with key partners, enhancing internal labour mobility, investing in clusters and industrial parks, improving regulatory frameworks, and prioritising technological innovation, India can better compete in the global marketplace and leverage emerging opportunities. This is not the time to regress but to advance.

The post Why is India Struggling With Manufacturing Competitiveness? first appeared on CSEP.

DOWNLOADS

• Download Working Paper

Executive Summary

This study examines the drivers of state-level initiatives in primary healthcare and elementary education in Karnataka, focusing on urban areas over the decade from 2014 to 2024.

Karnataka is often praised in nationally prominent indices as a progressive state with strong fiscal, health, and education indicators. However, our analysis questions this categorisation, suggesting that Karnataka’s good performance is limited to certain indicators, where it is only marginally better than the national average. In many other health and education indicators, such as out-of-pocket expenditure and learning levels, Karnataka’s performance is sluggish. The state exhibits stark intra-state disparities, and the uptake of public health and education facilities compared to private ones is poor. Despite historically undertaking prominent initiatives, Karnataka is not a national leader in health and education. It possesses a strong financial resource base, with one of the highest Per Capita Income (PCIs) in India, and an active, skilled civil society. We analyse the drivers of state-level initiatives to understand why Karnataka has not become a national leader with high uptake and quality of primary health and elementary education in urban areas. Our focus is on initiatives funded or ideated by the state during 2014–2024, specifically those addressing elementary education and primary care as a whole.

Our study addresses the following questions: (a) What have been the key initiatives in primary health and elementary education? (b) What policy challenges do they focus on, and how do these challenges relate to the everyday functioning of elementary schools and Primary Health Centres (PHCs)? (c) What drivers led to these initiatives? Understanding the current policy initiatives and their drivers will highlight the nature of the government’s focus on health and education and the types of challenges that have been prioritised.

We also argue that, while the policy focus on strengthening both elementary education and primary healthcare systems in Karnataka has been weak, primary health has comparatively received less attention. Our study found that new initiatives in elementary education include the Karnataka Public School (KPS) and the State Education Policy Commission (SEPC), both of which are either funded and/or ideated by the state. In primary health, the initiatives are Namma clinics and Ayushmati clinics, funded by central funds from the 15th Finance Commission.

These initiatives focus on the challenge of declining uptake of facilities in health and education. We describe these as the “big” challenges, as they define the rationale of state-level policy initiatives. Another set of challenges, such as infrastructural weaknesses and unequal distribution of staff, which are critical for enhancing the uptake of facilities, are also present. We refer to these as “small” challenges, as they are not the focus of state-level initiatives.

We argue that there is a mismatch between (a) the types of problems on which the initiatives focus and those that are central to the issue of low uptake, and (b) the solutions proposed to address the challenges and those that will be effective.

State-level initiatives in both primary health and elementary education are led by state-level bureaucracy and political leadership. These initiatives result from a policy push from the central government and the Local Policy Context. We find that all new state-level policy initiatives respond to a “Local Policy Context.” This differs from the local context, which is defined by caste, community, political affiliation, economic, and epidemiological factors. The Local Policy Context refers to those attributes that must be considered for new initiatives to emerge. For example, one of the local contexts of Belgaum city in Karnataka is its high migrant population in urban areas due to a strong presence of local industries. However, this alone is insufficient to drive state-level policy initiatives. The policy initiatives are driven by the conditions present in the Local Policy Context. We identified four such conditions, and all the initiatives we investigated and discuss in this report meet these conditions. We also argue that new initiatives must fulfil the conditions of the Local Policy Context.

State initiatives primarily address challenges that are widely recognised by stakeholders within the school system, although these may not be the most critical issues affecting low uptake. Stakeholders include school users, administrators, and engaged citizens. An example of such a challenge is the absence of English as the medium of instruction in government schools, as opposed to focusing on teacher training. Secondly, initiatives must offer solutions that are visible and comprehensible to ordinary residents. For instance, initiatives that establish new neighbourhood clinics are more likely to materialise than those involving the mapping of vulnerable populations to better locate new health facilities. Thirdly, new initiatives should be beneficial to local politicians. Lastly, these initiatives should not entail additional financial implications. Other pathways and stakeholders in Karnataka have been less prominent in driving state-level initiatives over the past decade. These include internal bureaucratic processes, advocacy by civil society and professional bodies, expert bodies, commissions, legal rulings, and social movements.

We argue that Karnataka requires new types of state-level initiatives. To this end, we propose three recommendations to transform the local policy context and one for introducing additional pathways from which new initiatives can emerge.

Firstly, PHCs and schools must be valuable to the tax-paying middle classes, who can demand better services, not just the poor. We suggest that the state government should create a “diversity index.” This index would measure the uptake of PHCs and schools among both the poorest and the well-to-do within the facility’s catchment area. To enhance uptake among the middle classes, the administration will need to implement quality improvement measures in health and education facilities. Diversity rankings would be utilised by civil society bodies and engaged citizens to demand better public services.

Second, another aspect of the local policy context that requires transformation is the inability to increase funding for health and education. This necessitates strengthening the economic rationale for increased public investment. In the current policy context, the role of health and education acknowledged in the growth narrative is limited to enhancing productivity through a skilled and healthy population. However, this does not convincingly argue why public facilities should undertake this role. To address this, a government-commissioned study should quantify the cost implications when households privately fund health and education and demonstrate how reduced income for consumption and savings, along with increased inequality, impedes the creation of a high-growth state. The study must be commissioned by a high-level government body to lend it greater legitimacy and enhance its value for public mobilisation. The findings should be actively disseminated through national and local media, as well as through the activities of engaged civil society organisations.

Third, the local policy context should ensure political ownership of the quality of health and education facilities. This requires the emergence of constituencies that demand quality health and education, which can, in turn, benefit political leaders during and outside elections. One approach is for state departments to create constituency-wise profiles of the state of health and education facilities, along with detailed plans for improving performance. Civil society organisations, academic institutions, writers, and local party workers can assist the state government in developing this index and in fostering political mobilisation around the constituencies.

Lastly, policy initiatives need to strengthen non-bureaucratic channels for developing new initiatives. We make two recommendations. First, instead of ad hoc committees and expert commissions, we recommend the establishment of state-level advisory bodies in education and health, which have the authority to conduct independent examinations and prioritise issues affecting primary health and education, proposing new initiatives. Second, recommendations for strengthening health and education made by various expert bodies, consultations, and commissions in Karnataka need to be publicly endorsed by political leaders. It is important that political campaigns acknowledge and respond to these recommendations, even if they disagree. Doing so would create support groups around solutions to key primary health and education problems and ensure that political leadership takes ownership of them.

We employed qualitative methods in this study, conducting key informant interviews and reviewing government reports (Economic Survey, PAB minutes, National Health Mission [NHM] ROP) and policy documents (state-level task force reports, Comptroller and Auditor General (CAG) Reports, Finance Commission Reports). Our analysis was conducted at three levels: state, selected districts, and sub-district, i.e., taluka and school/PHC. The study districts included one district in North Karnataka and another in South Karnataka, each with a prominent urban centre under a municipal corporation. Key informants included state, district, and frontline-level health and education bureaucrats, civil society leaders, academics, policy researchers, journalists, engaged citizens, and ordinary users of health and education facilities.

This report is divided into four sections. In Section 1, we discuss Karnataka’s social and economic indicators and its underperformance in health and education. In Section 2, we outline the questions this study addresses and argue for a focus on primary health and elementary education in urban areas. Section 3, “The Methods,” details the key methods used in this study, the study sites, and the analytical framework. In Section 4, “The Insights,” we present the main findings of this study. In the last Section, “The Implications,” we synthesise the arguments and discuss their implications for policymaking in health and education in Karnataka, offering policy recommendations.

The post Drivers of Primary Healthcare and Elementary Education Initiatives in Karnataka (2014–2024) first appeared on CSEP.

Executive Summary

Can India Balance Growth in Electricity Demand Purely from Renewable Energy (RE)?

India aims to achieve 500 gigawatts (GW) of installed electricity generation capacity from non-fossil sources by 2030, necessitating more than a doubling of the non-fossil capacity installed as of late 2024. Most of this growth is planned from renewable energy (RE), specifically solar and wind. This non-fossil capacity target surpasses India’s commitment for 50% of its electric power installed capacity to derive from non-fossil fuel-based energy, as part of its Nationally Determined Contribution (NDC) to the United Nations Framework Convention on Climate Change (UNFCCC). This NDC target is based on capacity, and an important question is: what does it mean in energy terms? In this paper, we translate energy and capacity and incorporate demand projections through 2030 and 2036 to examine the sufficiency of RE to meet demand growth. We not only study the energy balance but also consider the time-of-day (ToD) matching between incremental demand and incremental RE output, which will be critical for grid stability and energy security. If RE growth is insufficient to match demand growth, alternative sources will be required, with coal remaining the backstop for India, even after accounting for modest growth in nuclear power and hydro.

This study examines the (mis)match between any new intermittent, also known as variable renewable energy (VRE), generation and demand growth profiles, scrutinising annual, seasonal, daily, and hourly surpluses and deficits. We use 2023 as a base year for annual energy requirements and historical data for RE supply and demand patterns.

There are two dimensions to both supply and demand that we focus on (Figure ES-1). First, there is the aggregate quantum of energy, measured in units of electricity or kilowatt-hours (kWh) Second, there are profiles that vary over times of day and seasonally, which are required for balancing the grid (balancing supply and demand) at all time periods. This imposes stricter requirements (see the right side of Figure ES-1) than simply having “enough energy” measured by the annual average kWh.

Another contribution of this study is the identification of issues of uncertainty and their relative importance. ToD and variability are key issues on both the demand and supply sides. Our study finds that the assumption of demand profiles (load shapes) and their evolution through 2030 and 2036 is a key variable. We model demand growth across a range from pro-rata growth of demand (matching 2022’s shape) to the load profile (ToD shape) shift observed between 2019 and 2022, where more growth was relatively solar-aligned, with higher midday growth than average. Other key variables include (1) the ratio of installed capacity of wind and solar; (2) RE output, measured by the PLF or capacity utilisation factor (CUF); and (3) the shape of RE output for a given capacity. Although this is a national analysis, we also utilise forward-looking VRE output profiles that anticipate technological improvements, such as higher hub heights for wind and more Direct Current to Alternating Current (DC-AC) oversizing for solar, rather than relying solely on historical RE generation data. All these variables lead to different scenarios that we model.

Matching Demand Growth Requires High RE Deployment—India’s RE Targets are Insufficient

We begin with an annual energy-basis adequacy assessment: can the expected growth in electricity demand be met by the planned growth of wind and solar, or a different mix of wind and solar? Stated another way, how much wind and solar capacity is required to meet incremental demand through 2030 and through 2036 (purely on an annual energy basis)? To answer this question, we must assume power demand growth, treated as an exogenous variable, where we take 6.16% and 5.52% as the demand growth rates for 2023–2030 and 2030–2036, respectively, as the compound annual growth rate (CAGR) for the two time periods. This aggregate energy-basis balancing is distinct from the hourly or ToD basis balancing considered subsequently, where both supply and demand shapes are varied under different scenarios.

Figure ES-2 shows the required new RE capacities (solar and wind) to meet new demand in 2030, presented in a waterfall diagram. The base scenario uses demand projections from the 20th Electric Power Survey (EPS) by the Central Electricity Authority (CEA) and RE output based on historical data for 2023, with RE growth at a 2:1 capacity ratio for solar to wind. We then vary a range of supply and demand variables, some of which increase the required RE addition, while others decrease it. The top of the graph in Figure ES-2 shows a line indicating the corresponding total non-fossil capacity, including hydro, nuclear, and other RE sources like biomass power. For the base scenario, we use existing capacities as of
December 31, 2023.

If future CUFs remain the same as historical levels, and no additional capacities beyond wind and solar are added, then, working backwards, 436 GW of solar + wind (“new RE”) would be required to meet demand growth as per EPS, corresponding to 624 GW of non-fossil capacity by 2030. Among the variables that can change, high CUF RE helps lower capacity requirements the most. However, EPS’s demand projections for 2030 appear low, and more realistic growth rates based on the actual 2023 demand as a baseline increase the RE requirements. The growth of rooftop solar (RTS), expected to accelerate under the PM Surya Ghar Yojana, raises the required RE capacity since RTS has a much lower CUF than historical solar, which has predominantly consisted of large solar farms.

Assuming the changes along the waterfall, even with all nuclear and hydro additions under construction being completed by 2030, 348 GW of solar and wind would need to be added, resulting in a total of 559 GW of non-fossil capacity. This indicates that the total non-fossil capacity falls short by about 11.8%, or the growth target for RE (specifically, wind and solar) falls short by approximately 17%.

Since India’s RE targets (the dominant fraction of the 500 GW non-fossil target) fall short, this implies a greater burden on the existing stock of fossil fuel capacity, or even the need for alternative capacity additions. Additionally, if 25.44 GW of under-construction coal plants become operational by 2030, this reduces the remaining demand growth to be met via new RE, resulting in a total non-fossil capacity of 499 GW for 2030 (considering this growth of coal capacity as a locked-in or sunk cost). On paper, this aligns with targets but (a) still implies more coal capacity; (b) assumes everything proceeds as planned (especially higher CUFs for new RE than historical); and (c) overlooks the challenges of ToD matching.

Converting the total 2030 RE growth requirement into annual capacity addition requirements means over 48 GW of annual RE additions would be needed through 2030, which is more than double the historical achievement thus far. Even this is after accounting for under-construction new coal capacity, as shown. Historical shortfalls in RE additions have led to strains on the coal generation system and the need for more coal power plant capacity as a backstop.

Time-of-Day Balancing is Far More Complex and Challenging

Even if sufficient RE capacity exists to meet demand on an annual energy basis, this remains true only “on average.” It does not account for the variability of RE, which is critical for grid planning—the intermittency of both wind and solar is partly predictable but partly stochastic (random). Spreading RE generation across wide geographic areas helps, but as state-level analysis indicates (in a separate forthcoming study), this is true only up to a point due to inherent correlations in RE output. For solar, the reasons are more apparent, but for wind, many parts of India share the same underlying driver (the monsoon).

Using wind and solar output data available at state levels and for new high CUF RE sites, we compare the RE output with demand on an hourly or 15-minute time-block basis. Given uncertainty in the demand shape (also known as the load profile) over time, we examine multiple scenarios that span a proportional or pro rata demand growth shape based on our base year, as well as different shapes according to different years of growth. Inherently, a VRE-only system will, by definition, experience periods of both deficit and surplus supply. An energy-basis sizing of RE capacity begins with the total annual deficit equalling the total annual surplus. However, our findings indicate that the levels of the surplus and deficit vary according to the solar-to-wind ratio and the evolution of the load curve. We also find there is a sweet spot of higher wind than current plans (which are the national renewable purchase obligation, or RPO) that lowers the total surplus and deficit across different time blocks.

A simplistic worldview would suggest that if the surplus and deficit are equal in different time blocks, all we need is a technology like storage to time-shift such energy. We analysed the feasibility of this independent of the costs of doing so. The first implication of storage is the need for more RE to overcome storage efficiency losses. Any storage system has round-trip efficiency losses varying from about 10% for a battery to about 25% for hydro pumped storage projects (PSPs). Even assuming RE supply is sufficient to overcome this efficiency penalty, we find that seasonality is a strong limitation for relying on storage.

Given that most upcoming battery systems and PSPs are designed for only a few hours of utilisation each day, and surpluses typically occur in the middle of the day when solar generation is high, we examined the daily surplus and deficit to assess the feasibility of common storage systems. These systems generally have economics and planning based on almost full daily utilisation. Unfortunately, we observe a significant mismatch between days with many hours of deficit and days with many hours of surplus (Figure ES-3). The seasonality is evident on the left, and this becomes even more pronounced when we reorder (stack) the deficit along a load duration curve (LDC), alongside the corresponding surpluses (right graph).

This daily mismatch is only partially mitigated through an optimal wind–solar ratio or a favourable demand shape. There are still many dozens of days where an “average”-sized battery is insufficient. This finding has significant implications for upcoming storage bids in India, many of which are solely for capacity (hardware), leaving the responsibility of charging the battery to the State or distribution company (discom). “Surplus RE” cannot charge the battery on all days and will necessitate either additional RE—which will be costly as it is not required in full every day—or the use of more fossil fuel overnight to charge the battery. However, even if one were willing to accept higher, albeit hopefully occasional, fossil fuel use to charge a battery, on the most critical days, there will be no surplus generation capacity from fossil fuels either. This does not imply that storage has no value in the grid; rather, it will be inadequate for grid balancing at the volumes currently being planned (several hours of storage for the battery sizing). Another separate study we are conducting (forthcoming) focuses on the possibilities and limits of oversizing RE to reduce periods of deficit supply. We know this has value because, while it increases costs, the higher cost is only due to any surplus generation that would need to be curtailed (discarded) in some time blocks, which might be in the order of Rs 3/kWh. In contrast, the value of avoiding a deficit time block is much higher (we are avoiding expensive diesel or a blackout, ostensibly Rs 20+/kWh, or storage, which is also costly).

Policy Implications and Recommendations—More RE but Focus on ToD

First and foremost, India must aggressively increase its deployment of wind and solar energy. It is behind not only its 2030 RE targets but also the RE levels of deployment that can be integrated into the grid even without requiring any storage or reaching the full limits of flexible (part-load) coal operations during the middle of the day when solar generation is high. It also cannot lose sight of the need for planned and even higher growth of nuclear power and reservoir hydropower. The latter is especially important in a high-RE future because of its inherent storage capacity and flexibility.

In the short to medium term, before India considers winding down existing fossil fuel generation, even to plateau fossil fuel growth, it will need more RE capacity than a simple annual energy balancing target would suggest. This is not only to create a buffer or oversize capacity to reduce periods of deficit but also because any use of storage technologies inherently results in significant losses, as does long-distance transmission. This is also before accounting for any RE required for green hydrogen, which could demand over a third of the planned growth in RE capacity for the grid. Not all the energy for green hydrogen would be additional captive supply by the developer.

This analysis demonstrates that India’s 2030 RE targets, even if achieved, will likely fall short of meeting projected electricity demand growth, particularly when considering the critical challenges of ToD balancing and storage limitations. A more nuanced but aggressive approach to RE deployment and grid management is essential.

There are also other nuances that require explicit planning, including those related to location, transmission, solar-to-wind ratio, and the rise of RTS (with its lower output). Most importantly, supply must meet demand in real time, and India needs to gain a better understanding of projected demand profiles in the future. Experts across civil society and academia can contribute, but they require high-resolution (temporal and spatial) data, which is difficult to obtain. For instance, we do not yet have a clear understanding of the true PLF of RTS across diverse locations on a monthly basis—ideally, we need 15-minute data.

There are many additional questions, such as how to plan for and manage behind-the-meter generation like RTS, captive power, open access, agricultural solar, cooling, Electric Vehicles (EVs), and green hydrogen. It is time for not just more modelling but better and more transparent modelling. These factors will also shift based on policies, which are evolving. As we begin to scale storage, we must explicitly plan for the question: “How will it get charged?” It is a myth that “surplus RE” can charge our batteries on all days. Another finding from our work highlights the need to plan for wider variability across years—some years are worse than others, approximately following a seven-year cycle (based on climatic patterns). Thus, many actions, such as two-hour storage, are merely a starting point.

The most important change in planning must be an emphasis on ToD considerations. We need to move away from the levelised cost of energy (LCOE) as a marker of the best supply options and instead factor in system-level costs. Pricing must shift from averaged or socialised costs towards more granular costs, including ToD pricing, for both wholesale procurement and consumer retail supply. These measures will incentivise not only storage but also demand response programmes and other demand-side measures.

The post India’s Renewables Target Falls Short of Growing Demand: Planning and Time-of-Day Balancing Gaps first appeared on CSEP.

DOWNLOADS

• Download Working Paper
• Download Press Release

Executive Summary

India in April 2025 is a transformed country, with businesses free to establish and expand, having almost unencumbered access to foreign investments, and operating in a largely competitive export/import environment compared to the early 1990s. This transformation is the result of economic reforms initiated in 1991 by the Government of India (GoI) and carried forward over time. Consequently, the real per capita Gross Domestic Product (GDP) has almost quadrupled from US$561 in 1994 to nearly US$1,944 by 2020. Prime Minister Modi has now set out an ambitious plan for the future—India becoming a developed country by 2047, when it celebrates 100 years of independence. In income terms, this translates into real per capita GDP growth of around 7.3 per cent from 2024 to 2047, significantly higher than the 4.9 per cent per capita growth achieved between 1994 and 2020.

The growth target is not only more aspirational but also set against a backdrop of a fragmented and increasingly complex global environment, coupled with the fact that the next phase of reforms required to meet the target will have to be led by India’s myriad states. The next generation of reforms will require a continuous build-out of human and physical infrastructure while adhering to fiscal discipline. Additionally, governments need to initiate the process of reforming factor markets such as land and labour earnestly. The finance minister, in her Financial Year (FY) 2025 Union Budget speech, emphasised, “The government will establish a comprehensive Economic Policy Framework to guide the nation’s development, focusing on increasing productivity and market efficiency. The framework will address all factors of production, including land, labour, capital, and entrepreneurship, with technology playing a critical role in improving total factor productivity and reducing inequality. (Ministry of Finance, Government of India, 2024). The majority of these factors of production fall under the responsibilities of the State governments in India. This notion was emphasised by Prime Minister Modi when he “urged State governments to establish clear policies to attract investors” in his Independence Day speech of 2024. He emphasised that State governments play a key role and that reforms cannot be implemented solely by the Central government since implementation is done at a State level (Modi, 2024).

States of India rival mid-to-large-sized nations, especially in terms of GDP and population and wield considerable autonomy under the Constitution. This autonomy has played a key role in their diverse evolution over time, resulting in heterogeneity in crucial socio-economic attributes such as per capita GDP, the share of manufacturing, educational attainment, and life expectancy. For example, India’s manufacturing share of GDP has remained between 15 and 17 per cent over the last couple of decades (MoSPI, 2024), whereas some states, such as Uttarakhand, Gujarat, and Himachal Pradesh (HP), already have more than 30 per cent of their GDP derived from manufacturing. This is higher than any major country globally, including China. Furthermore, the wealthier states, such as Gujarat and Haryana, have a per capita income of approximately US$4,000 as of 2023 and are on the verge of entering the upper middle-income band. In contrast, states like Bihar and Uttar Pradesh (UP), with a per capita income of around US$1,000, are at the lower end of the middle-income category. In addition to higher per capita income, these wealthier states have also generally managed to grow their per capita GDP by more than 5.5 per cent annually over the last couple of decades, almost 1.5- 2 times that of slower-growing states.

States are categorised as “Fast,” “Average,” and “Slow,” based on their per capita growth between 1994 and 2020. Eight States are classified as fast-growing, and six each as average- and slow growing States. Achieving developed country status by 2047 necessitates slower-growing states learning from faster-growing ones, and the latter from global peers, such as provinces in China. Two fundamental axes define state growth: (a) state-level growth attributes or determinants, including physical infrastructure—road density, transmission and distribution losses (T&D), Pradhan Mantri Gram Sadak Yojana (PMGSY) habitat coverage, and land affordability; social infrastructure—gross enrolment ratio in tertiary education and stunting ratio; and the quality of governance— violent crime rate, fiscal deficit to GDP ratio, and flexibility in labour markets; and (b) performance of key economic centres (KECs)—districts comprising million-plus urban agglomerations (UAs) and capital cities, plus districts that have increased their share in state GDP by more than five per cent.

Strong growth attributes enhance the business environment and productivity, thereby driving investment and growth. A state is said to perform better on a growth-inducing attribute if its long term average score is at or above state average levels. The correlation between the state per capita GDP growth rate (1994–2020) and the count of attributes on which a state performs better during this period is 0.69. While the relationship is robust, careful observation reveals some gaps. For instance, although both Gujarat and Tamil Nadu score similarly regarding these growth attributes, their long-term growth performance differs significantly. Gujarat’s real per capita GDP grew at 6.7 per cent per annum compared to 5.9 per cent for Tamil Nadu. Conversely, while both Maharashtra and Punjab have attributes similar to fast-growing states, their economic growth was insufficient to be classified as fast-growing. A significant explanation for this gap is the role of KECs in state growth. The fundamental difference between Gujarat and Tamil Nadu is the performance of their KECs, with the former growing at 10 per cent per annum compared to 7.7 per cent for the latter. Similarly, although Maharashtra and Punjab have attributes akin to fast-growing states, they did not grow fast enough because their KECs did not outperform sufficiently. The correlation between per capita state growth and KEC growth is 0.58. KECs are hubs of economic activity and typically grow faster than their respective states. One key reason for their outperformance is their specialisation in particular sectors (defined as a disproportionate share of any sector(s) in a KEC’s GDP, relative to the national share). This specialisation leads to an agglomeration effect, which boosts their growth and creates a virtuous cycle. The fastest-growing states, such as Gujarat, Uttarakhand, and Karnataka, have KECs that are growing significantly faster than the rest of the states. Across the 18 states for which we have district-level data, there are 58 KECs comprising 77 districts (in some cases, a UA comprises multiple districts). The GDP share of KECs in India’s GDP was about 29 per cent in 2000, which increased to 34 per cent by 2020, reflecting their faster growth trajectory compared to the overall state growth.

A few key messages emerge from the analysis of state growth along two fundamental axes.

There are no shortcuts to fast growth in the long term. Strong growth attributes and the performance of KECs are both critical for accelerated state growth. States that grow fast tend to be strong in both aspects, whereas slow-growing states are generally weak in these areas. We find no evidence of fast-growing states being strong only on a few growth attributes or “islands of growth” (KECs) transforming a state into the fast-growing category in an environment of weak attributes. Strong attributes help develop and deepen growth-enhancing KECs; the two usually complement each other. The group of states that meet both criteria—Gujarat, Andhra Pradesh (AP) (including Telangana), Uttarakhand, Karnataka, and HP—perform the best, with an average per capita GDP growth of around 6 per cent between 1994 and 2020. Conversely, states that are weak on both axes have typically grown significantly slower. When a state improves its performance of a growth attribute from below average to average or above average, its long-term per capita real GDP growth increases by 0.3 per cent, ceteris paribus. Additionally, for a 10 per cent increase in KEC GDP growth rate, the long-term per capita annual GDP CAGR increases by 0.2 per cent (based on ordinary least squares regression, the regression provides a directional estimate of the potential magnitude of growth if a state enhances its attributes and/or KECs).

States have a pivotal role in improving both growth axes, as most of the growth attributes and KECs fall squarely within the remit of state governments.

• Of the nine identified growth attributes, six are in the State List—crime, fiscal deficit, healthcare, Transmission and Distribution (T&D) losses, labour reforms, and land policies—and hence, states have complete control over them. The responsibility, thus, lies with state governments to improve these growth determinants. For example, stunting is 22 per cent in Kerala and 46 per cent in Madhya Pradesh (MP), and while the former spends 8 per cent of its budget on healthcare, the latter spends close to 6 per cent (National Health System Resource Centre, 2020). The same applies to housing affordability; Gujarat is more than twice as affordable as Maharashtra, as reflected in the land pooling practice of acquiring land in Gujarat (Mahadevia, Pai, & Mahendra, 2018), which has kept prices in check compared to Maharashtra, which has some of the costliest real estate in the world.
• KECs are large urban centres generally governed by Urban Local Bodies (ULBs). A better-managed urban centre enhances the productivity of its businesses, thereby fostering growth. Since ULBs are accountable to State governments, the latter assume primacy again. There has not been sufficient devolution of finances and functions from State governments to local governments as enshrined in the 73rd and 74th Constitutional Amendments, and this remains a significant reform agenda. Municipal revenue as a percentage of GDP has remained constant at 1 per cent since 2007–2008, much lower than other developing nations such as Brazil and South Africa, whose ratios stood at 7.4 per cent and 6 per cent, respectively (Ahluwalia et al., 2019). Furthermore, the average tenure of a municipal commissioner is 10 months, leaving them with no incentive or ability to make a meaningful difference to their functioning (Annual Survey of India’s City System (ASIC), 2017).

Specialisation is key for faster KEC growth and occurs for three primary reasons: the concentration of factors of production, incentive-driven investment, and natural endowments. One key reason KECs grow faster than their respective states is sector specialisation, which yields economies of agglomeration. The top 20 fastest-growing KECs account for 50 per cent of all instances of specialisation. Specialisation occurs when businesses within a particular sector find it optimal to invest in a specific location (KEC), transforming it into a significant hub for that economic activity. Bangalore emerged as a computer services hub due to Karnataka’s inherent strength in having a pool of trained labour. The auto hub in Uttarakhand and the pharmaceutical industry in HP developed as a result of the Special Package Scheme announced by the Central government in 2003, which aimed to industrialise these states by offering significant tax benefits to industries establishing operations there. KECs specialising in mining are, by definition, driven by natural endowments. It is noteworthy that natural endowments and Central government incentive packages fall outside the jurisdiction of State governments. In other words, specialisation in a KEC occurs, more often than not, organically because of the above-mentioned reasons, rather than being orchestrated. This is because all parts of the ecosystem must align in a way that companies find it optimal to agglomerate in a particular KEC, around a set of anchor industries. Achieving this through planning and design is extremely challenging, especially in a federal and democratic country like India, where there is constant competition among State governments to attract more private investment and free movement of people. State governments should focus on strong determinants and well-managed urban centres to help develop and deepen specialisation in their KECs.

There is a strong association between capital-intensive specialisation and growth, while there is a weaker association with labour-intensive specialisation. KECs specialising in capital-intensive manufacturing have typically experienced the fastest growth. In contrast, KECs with specialisation in labour-intensive manufacturing do not exhibit the same pace of economic growth. The most recognisable KECs specialising in labour-intensive industries, such as Ludhiana (textile) in Punjab, Coimbatore (textile) in Tamil Nadu, and Agra (leather) in UP, do not achieve double- digit growth. Conversely, capital-intensive centres such as Udham Singh Nagar and Haridwar (automobile) in Uttarakhand, Solan (chemicals and machinery) in HP, and Jamnagar (petroleum) in Gujarat all experienced double-digit growth between 2000 and 2020. These observations from KEC-level specialisation and growth are consistent with the well-known narrative that labour intensive industries have not performed well in India over the past few decades, as India is losing its comparative advantage in these products. The Revealed Comparative Advantage (RCA) of the textile industry declined from 4.62 to 2.79 between 2000 and 2018 (Ahmed, 2022). This is reflected in the textile industry’s share decreasing from 2.2 per cent to 1.9 per cent between 2000 and 2020, compared to an increase in the transport equipment industry’s share from 1.3 per cent to 1.7 per cent in India’s Gross Value Added (GVA) (Capital, Labour, Energy, Materials, and Services [KLEMS], 2020) during the same period. The lacklustre performance of labour-intensive manufacturing poses a constraint for States specialising in it to grow faster. This remains a big policy puzzle that needs resolution at the highest level.

KECs are relatively well distributed; pursuing a more distributed model may imply slower growth. Governments in India have consistently aimed to maximise growth while addressing regional inequity. The current government also seeks to achieve “balanced regional development across all districts” (Government of India, 2022). Since KECs are present in all states, compared to some other countries like China where its growth hubs are concentrated in the east, India is relatively better off. If we pursue the strategy of a significantly more distributed model, it may imply slower growth since it runs the risk of diluting the agglomeration benefits by spreading resources thin. Therefore, State governments should focus on continuously improving growth attributes and nurturing specialisation where it exists or begins to develop, rather than force-fitting niche products or services in a geographically disaggregated manner in the hope that these niches become the growth axis for those districts, leading to faster and more balanced growth. The government should prioritise improving existing Centres and nurturing them rather than creating new greenfield cities, as they can take a long time to yield results. For example, Gurgaon took 20 years to become the central business district of North India, despite having favourable conditions such as proximity to the airport, adjacency to Delhi, and availability of land. Resources such as capital and labour should migrate to areas that are, and emerge as, growth engines, driving faster growth. This fundamental trade-off needs to be internalised by everyone, from policymakers to the general public, to ensure informed decision-making.

States must determine their growth strategy based on their position on these two fundamental axes. Focusing only on state attributes may miss the binding constraint regarding KECs, while singularly focusing on KECs is not desirable since we find little evidence of isolated pockets of growth working strongly enough in an environment of weak fundamentals. There is, thus, no one size-fits-all strategy that will work for all states, given the heterogeneity in terms of growth attributes and the performance of KECs. State growth strategies should be a function of performance on growth attributes and KEC growth. In an ideal world, each state should focus on improving its attributes and KECs’ growth. However, since in reality there is a resource constraint, it is helpful to know which priority is likely to yield better outcomes. For example, if a state is lacking in both axes, it should first focus on improving growth attributes; it is the non-KEC parts that are dragging growth for such states. Improving them will enhance growth in general and also help KECs perform better. Alternatively, if a state is strong on both axes, it should focus on unlocking the growth potential of its KECs by making them globally competitive while continuing to improve its attributes. Such states have demonstrated that they can excel in both dimensions, and they should continue their good work. Even our best-performing KECs pale in comparison to their Chinese counterparts, whose growth centres like Shanghai and Beijing grew more than 10 per cent annually for four decades, compared to our best-performing KECs growing between 7 and 10 per cent for nearly 20 years. Consequently, Shanghai and Beijing today have a GDP exceeding US$500 billion compared to our biggest KEC, Mumbai, at around US$150 billion.

The post Decoding State Growth: Stronger Attributes, Specialised Cities first appeared on CSEP.

DOWNLOADS

• Download Working Paper

Executive Summary

Based on new evidence, this paper offers policy recommendations for an Indian critical minerals strategy in Africa. It aims to explain why, where, and how India can build strategic collaborations with mineral-rich countries in the region. In a geopolitically charged and rapidly evolving critical minerals landscape, it identifies African priorities, highlights Indian interests, and finds synergies, presented as nine policy pathways.

India’s ambitious plans to transition to a sustainable and resilient energy future rely on its access to critical minerals such as copper, lithium, nickel, and cobalt (Ministry of Mines [MoM], 2023). The country’s demand for critical minerals is projected to rise exponentially, almost fourfold by 2030. Although its domestic reserves, including 5.9 million tonnes of lithium ore, could help meet some of the demand, converting them into mineable resources will take time and will still fall short of achieving self-sufficiency (Press Information Bureau [PIB], 2023). This presents New Delhi with two paths to tread simultaneously: one, to adopt policy reforms in the mining sector to boost exploration and mining domestically; the other, to engage proactively with mineral-rich geographies overseas—including Australia and countries in Africa and Latin America—to create secure supply chains.

This paper focuses on the latter. The National Critical Minerals Mission (NCMM), announced in January 2025, underscores the importance of acquiring critical mineral assets abroad (MoM, 2025). The mission outlines the instruments it can utilize in this pursuit, the resources allocated towards this effort and emphasizes India’s comparative advantages. This includes deploying the Geological Survey of India for mapping services, extending inter-ministerial support to public and private companies through an empowered committee that provides subsidies for mining and the development of evacuation infrastructure, among other initiatives.

The NCMM also underscores the need to increase trade and investments with resource-rich countries, enter into Critical Mineral Partnership Agreements, or incorporate chapters on Critical Minerals in existing bilateral and Free Trade Agreements. However, the document stops short of explaining how this can be accomplished in specific geographies. This paper strives to provide a tailored strategy for Africa.

A historically familiar geography for Indian enterprise due to its proximity, untapped markets, and similar socio-economic contexts, African countries have seen Indian businesses expand their presence and strengthen commercial ties even during periods of political passivity. Today, New Delhi is among the five leading investors in the continent, with cumulative investments exceeding $75 billion (CII, 2024). India has deep commercial networks in the region, bolstered by a three million-strong diaspora. While bilateral trade amounts to almost $100 billion in 2022–23, India’s “Duty-Free Tariff Preference” scheme provides non-reciprocal duty-free market access to 27 African nations (PIB, 2023).

Indian government officials have reaffirmed support for the Ezulwini Consensus—an African Common Position on United Nations Security Council (UNSC) reform—at multiple global forums, enhanced diplomatic engagement through frequent high-level visits, and opened 16 new missions, raising the total to 46. As a result, the region is emerging as a foreign policy priority. What distinguishes India’s engagement is its multifaceted approach to partnering in the region’s development. New Delhi has completed 206 projects in 43 African countries, extended concessional loans of over $12.3 billion, and grant assistance of $700 million, with a focus on capacity building from as early as 1949 (Jaishankar, 2022; Jaishankar, 2024).

The rationale for critical mineral cooperation between India and countries in Africa is therefore a natural progression of an ongoing relationship and is grounded in two key factors. First, the continent’s mineral abundance and the centrality of the mining sector to its pursuit of development. Housing over 30% of the world’s known critical mineral reserves, mining accounts for about 10% of government revenue across the 15 most mineral-rich countries in Africa (Albertin et al., 2021).

Second, India’s energy partnerships with the region encompass collaboration across both non-renewable and renewable energy sectors. Since 2001, total trade in the mining and mineral sectors between India and Africa stands at $43 billion (Confederation of Indian Industry, 2023). While 15% of its oil demand is met by imports from the region (Confederation of Indian Industry, 2022), over 30 member states of the International Solar Alliance (ISA) are from Africa.

A recent announcement that the Indian government is looking to acquire critical mineral assets in Congo, Tanzania, Mozambique and has secured 9,000 square kilometres of greenfield land in Zambia for the exploration of copper and cobalt, brings in a new dimension to its resource diplomacy in the region (Walia, 2025).

This paper takes a novel approach and employs a comprehensive methodology—including in-depth interviews and closed-door consultations with policymakers and industry experts, observation of discussions between civil society representatives and mining-affected communities, as well as online and in-person workshops and symposiums with academics and researchers from around the world, alongside an extensive literature survey—to find alignments between African priorities and Indian interests.

These priorities have been articulated in the Draft Africa Green Minerals Strategy produced by the African Union (AU), in national mining vision statements, and in speeches by heads of state and senior policymakers across the region. Beyond multilateral organisations and governments, subnational and non-state actors—including civil society groups, think-tanks, and communities living near mining sites—have also identified context-specific priorities. These diverse insights were triangulated and placed within two dynamic realities: rapidly evolving governance frameworks across African countries and a geopolitically competitive landscape.

While acknowledging the need for further granular and country-specific case studies, this research identifies nine “African” priorities. While national considerations may differ, those listed below are relevant across much of the continent:

1. Increase downstream value addition.
2. Build capacity and upskill the mining workforce.
3. Mainstream responsible mining practices.
4. Address knowledge and information asymmetry.
5. Utilise technology solutions across the mining value chain.
6. Develop mining-adjacent infrastructure.
7. Create regional industrial networks.
8. Forge international collaborations.
9. Diversify energy partnerships.

The paper offers a framework to align these African priorities with Indian interests. It outlines nine policy pathways across two-time frames: short term and medium to long term. This temporal roadmap will help policymakers compare and execute policy options.

The recommendations emerging from this exercise are briefly outlined below. In the short term, the Government of India could consider the following steps:

• Establish a task force composed of the existing Inter-Ministerial Group on Critical Minerals, industry experts, and scholars to draft a white paper. This document can explore at what stage large-, medium- and small-sized Indian companies can enter the mining value chain in different African countries, how they can navigate competitive landscapes, and offer ideas to offset risks.
• Undertake a skills needs analysis and pivot current training programmes under the Indian Technical and Economic Cooperation (ITEC) to include operational and management courses in the mining sector, integrating theoretical training with practical hands-on experience and exposure to Indian Public Sector Undertakings (PSUs) and industry. Select and promote high-value skills—medical, legal, financial, technology, and management leadership—among persons from mining-affected areas by creating clauses that make service in home regions a part of the programme.
• Build sustainability and responsible mining guardrails into projects in African countries and continue to inform the host African governments of the genuine gains realised. This would entail supporting and incentivising Indian companies, maintaining strong regulatory scrutiny, and acting on any proven instances of malpractice. Laws for Indian companies acting abroad must be on par with national thresholds.
• Creating robust and credible India–Africa research frameworks can help identify gaps, opportunities, and necessary mitigation measures. Towards this effort, India can play a leading role in connecting research institutes and scholars, leveraging the knowledge networks it has built across partner nations, such as the ICT centres in Tanzania and Ghana.
• Deploy home-grown Indian start-ups and private technology companies that offer cost-effective, scalable options. Their expertise in niche areas of mining introduces new avenues for value addition that African governments would likely be keen to explore.

For the medium- to long-term, this paper recommends the following:

• Identify strategic projects with African partner countries, mobilise major construction companies, and ensure viable timelines to avoid delays. The arterial infrastructure priorities of African countries, even if they may not have a direct bearing on mining activities, need to be addressed. Small-scale projects for mining-affected communities—such as building houses, health clinics, or schools—when carried out effectively, can garner immense goodwill for Indian actors.
• Prioritise and mobilise the private sector to infuse capital into the Southern African Development Community (SADC) region, claim new exploration licences, enter joint venture agreements, or set up refineries. Consider launching a “Critical Minerals Compact” with a focus on the SADC countries at the next India–Africa Forum Summit.
• Amplify Indian strengths and be actively engaged in international cooperation frameworks. New Delhi’s role as one of the leading voices of the Global South and its unique position as a link between the developing and developed worlds enable it to imagine, craft, and lead global collaborations on responsible sourcing of critical minerals.
• Strengthen diasporic networks. As economic agents with valuable knowledge of local realities, they have been underutilised. These informal information channels offer an accurate overview of the host countries’ regulatory, political, and socio-economic environment for potential Indian investors.
• Harmonise commercial and strategic interests. Endow local embassies with specialised resources—such as posting experts from the MoM—and grant them autonomy to undertake local development in line with host governments’ priorities. Pitching projects that reflect ground realities and creating integrated action plans for mining area development with their inputs would help combine interventions across health, education, and infrastructure.

While the paper acknowledges India’s shortcomings, such as its limited capacity in critical mineral processing, it focuses on instruments that could foster mutual growth. Informed by insights from mining communities, it examines the sustainability paradox of critical minerals and calls for balancing strategic and economic interests with social and environmental considerations.

The paper cautions that the rationale for the Indian private sector to acquire defined mining assets is fraught with challenges. Therefore, the “India option” for African governments seeking to advance up the value chain involves a wide spectrum of stakeholders—such as research laboratories, academic networks, mid-sized refiners, recyclers, and small-scale energy companies—who can play a crucial role, both independently and collaboratively, in supporting Africa’s mineral-led growth trajectory.

In an era that could be dominated by the geopolitics of a green energy transition, this study emphasises how recognising African priorities and aligning interests, far from being altruistic, would in fact support New Delhi’s ambitions to diversify and strengthen its critical mineral supply chains. It underlines the need for more granular, thematic, country-specific analyses in the future that unpack the complexity of Africa’s diverse mineral ecosystems from a uniquely Indian point of view.

The post India, Africa and Critical Minerals: Towards a Green Energy Partnership first appeared on CSEP.

Executive Summary

This study explores the complexities of the European Union’s Carbon Border Adjustment Mechanism (CBAM) and its implications for India, particularly its steel and aluminium export sectors. It explores various policy options, including a domestic emissions trading system (ETS) or a carbon tax, to facilitate a smoother transition for Indian industries under the new CBAM regime. The findings highlight the need for a carbon pricing mechanism in India to meet sustainability goals and international commitments. Given uncertainties, repurposing existing energy and environmental taxes on exported goods (excluding those subsumed within GST)—especially taxes used to prepare data for the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme—emerges as a potentially reliable interim approach. The study recommends a multi-faceted approach: implementing a data-driven carbon tax system aligned with CBAM, followed by progress on the CCTS; promoting scrap availability and recycling; extensively increasing the use of renewable energy; exploring alternative fuels; and fostering research and development (R&D) for clean technologies.

Research Background

The backdrop of the research is the growing international discourse surrounding climate change mitigation and the responsibilities of various nations in curbing greenhouse gas (GHG) emissions, particularly carbon dioxide (CO2). The study highlights the contrasting views on emission responsibility —developed nations often point to current emission levels, while developing countries emphasise the historical contributions of industrialised nations to the existing atmospheric GHG concentrations.

This tension is central to the CBAM debate. The EU’s CBAM, part of its “Fit for 55” strategy, aims to reduce carbon leakage—where companies shift production to countries with less stringent environmental regulations to avoid carbon costs—and encourage global decarbonisation. However, CBAM has met with mixed reactions. While proponents see it as a crucial step towards global climate action, critics, particularly in developing countries like India, raise concerns about its potential to act as a trade barrier, harming their competitiveness and potentially hindering economic growth.

Research Questions

The study sets out to address several key questions:

1. How can India navigate the challenges posed by CBAM, and what policy options are available to the government and the affected industries?
2. What are the specific challenges and opportunities for Indian firms, including the impact on domestic production, trade, carbon emissions, and pricing?
3. Can India implement its own ETS, similar to the EU’s, or should it consider alternative policy measures like a domestic carbon tax?
4. What strategic initiatives are Indian companies undertaking to adapt to CBAM, and how can the government support them?

Methodology

The study adopts a mixed-methods approach, incorporating both qualitative and quantitative research methods. It draws upon secondary data on trade and carbon emissions from government databases and international datasets, as well as a review of existing research on CBAM, international trade, and CBAM Exposure Indices. It carries two case studies, one each for steel and aluminium producing and exporting firms. The study conducts surveys with various stakeholders in India, including policymakers, industry associations representing steel and aluminium producers, trade lawyers, specialists in green energy and green hydrogen, green startups, auditors, consultants, and representatives from Micro, Small and Medium Enterprises (MSMEs). This primary research offers valuable insights into the practical challenges and opportunities related to CBAM implementation.

Furthermore, in-depth case studies of two major Indian firms—JSW Steel (representing the steel sector) and Hindalco (representing aluminium)—provide a more granular understanding of how individual companies are responding to CBAM and adapting their sustainability strategies. Data for the case studies were drawn from company annual reports, sustainability commitments, and futureoriented plans, enriched by insights gathered through policy discussions.

Key Findings

1. Significant Export Exposure and Vulnerability: India’s steel and aluminium industries face significant exposure to CBAM due to their reliance on carbon-intensive production processes and their considerable exports to the EU. While larger firms like JSW Steel and Hindalco have initiated sustainability measures, MSMEs face significant challenges in adapting to the new regulations due to limited resources and awareness.
2. Carbon Pricing as a Necessary Step: The study argues that a carbon pricing mechanism—either an ETS or a carbon tax—is essential for India to meet its sustainability goals, address climate change, and fulfil its international commitments. Given the uncertainties surrounding the recommended Carbon Credit Trading Scheme (CCTS), the study suggests repurposing existing energy and environmental taxes on exported goods (excluding those subsumed within GST)—especially taxes used to prepare data for the RoDTEP scheme—emerge as a potentially reliable interim approach.
3. Strategic Responses of Indian Firms: Both JSW Steel and Hindalco have proactively embraced sustainability initiatives, including investments in renewable energy, improving energy efficiency, and exploring alternative fuels. However, challenges remain in fully transitioning to cleaner production processes due to technological and economic constraints.
4. Need for Policy Support: The study emphasises the need for policy support from the government to help Indian industries adapt to CBAM. This includes:

• Facilitating the development and adoption of renewable energy (RE) sources by strengthening regulations for mandatory RE obligations.
• Increasing the availability of scrap; a dedicated scrap recycling facility can be considered for a few countries, such as the EU, UK, Australia, the US, etc.
• Exploring and scaling alternative fuels like green hydrogen and biochar by developing an ecosystem with the help of technical institutions such as IITs.
• Providing financial and technical support to MSMEs.
• Promoting technology-sharing agreements to accelerate the development and adoption of clean technologies.

Conclusions and Policy Recommendations

The study concludes that CBAM presents both challenges and opportunities for India. While the short-term impacts may be adverse for some sectors, CBAM can act as a catalyst for India to accelerate its transition to a greener economy and enhance its competitiveness in the global market. The report emphasises a multi-faceted approach for India, including aligning a data-driven carbon tax system with CBAM, followed by focussed progress on the CCTS. Other crucial recommendations include increased scrap availability, aggressive recycling initiatives, extensive use of renewable energy, exploration of alternative fuels like green hydrogen and biochar, and fostering research and development (R&D) for clean technologies. Critically, the study emphasises supporting MSMEs and fostering international technology-sharing agreements. Rather than replicating the historical patterns of developed nations, it advocates a different approach that leverages technology to minimise the environmental impact of industrialisation from the outset.

Significance and Implications

The study is significant for several reasons:

1. Timely and Relevant: It addresses a critical and timely issue facing Indian industries, providing valuable insights for policymakers, businesses, and other stakeholders.
2. Comprehensive Approach: It adopts a comprehensive mixed-methods approach, combining secondary data analysis with primary research and case studies.
3. Policy Relevance: The study offers concrete policy recommendations for the government to consider in developing its response to CBAM.
4. Global Implications: The findings of the study have implications beyond India, contributing to the broader international discussion on climate change mitigation and trade policy.

The study concludes with a positive outlook and encourages a proactive approach. It highlights that technology is the key to tackling climate change in developing countries and emphasises the potential for developing domestic clean technologies, followed by trading them. This approach can promote sustainable growth, help India achieve its climate goals, and strengthen its position in the global economy.

The post India’s Carbon Border Adjustment Mechanism (CBAM) Challenge: Strategic Response and Policy Options first appeared on CSEP.

Executive Summary

This paper analyses the landscape of demand-side health financing in India, focusing on its progress, challenges, and potential pathways towards achieving Universal Health Coverage (UHC). Demand-side financing, which prioritises the population’s healthcare needs, plays a role in ensuring equitable access to quality healthcare and providing financial protection against out-of-pocket expenditures (OOPE) on health. India’s current landscape encompasses various government-financed and private insurance schemes. While there has been significant expansion in this regard in recent years, coverage gaps remain, in terms of population and services, slowing progress towards universal and equitable coverage.

Current Landscape of Health Insurance in India

Government of India’s strategy to address its citizen’s health rests on two main pillars: strengthening primary care through Health and Wellness Centres (HWCs) and expanding health insurance coverage through the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) for secondary and tertiary care. The Indian health insurance system is fragmented, with numerous schemes operating under different governance structures and offering varying benefits.

• Social Health Insurance (SHI) schemes cover occupation groups, managed by separate ministries (health, labour, railways, defence), with different networks of providers.
• Tax-funded schemes target the bottom 40 per cent of the population, primarily for inpatient services at secondary and tertiary levels, with lower benefits compared with SHI schemes. Implemented by individual States with varying coverage and benefit packages, often with deviations from the central PM-JAY model.
• Commercial health insurance caters to a small segment of the population who can afford premiums, characterised by high costs, market failures (like risk selection), and limited regulation.

This fragmentation leads to significant inequities in access to services and financial protection. While the combined coverage of various insurance schemes reaches a significant portion of the population, approximately 300 million people remain uncovered, largely comprising the informal workforce and the ‘missing middle’—those who are not poor enough for targeted schemes but cannot afford private insurance. Moreover, existing schemes often lack coverage for outpatient care and essential diagnostics, which contribute significantly to OOPE, especially for lower-income households.

Challenges and Gaps

This paper highlights some of the gaps that remain to be filled within the Indian health insurance landscape:

• Financial constraints: Insufficient funding for PM-JAY, underutilisation of allocated funds, and varying State capacity to bridge financing gaps pose significant challenges to achieving UHC goals. Low package rates and delayed reimbursements discourage private sector participation.
• Enrolment: Inconsistent enrolment processes across States, low awareness of available schemes among beneficiaries, and errors in beneficiary registrations lead to lower than optimal enrolment
  rates.
• Provider gaps: Low private sector engagement due to inadequate package rates and delayed reimbursements, low quality of services in both public and private facilities, and instances of malpractice among providers affect both access and quality of care.
• Institutional gaps: Weak institutional mechanisms for quality assurance, transparency, accountability, and grievance redressal in many states undermine the effectiveness of insurance schemes. Limited capacity of purchasers, high claim rejection rates, and weak capacity of SHAs and district-level implementation units further exacerbate these challenges.
• Outcomes: Low utilisation of services in some states, inadequate coverage for primary prevention, limited focus on outpatient care, and persistent OOPE despite increased insurance coverage point to gaps in achieving desired outcomes.

Insights from Global Experiences

This paper draws insights from the experiences of select countries (particularly Brazil, China, Indonesia, Mexico, Thailand, and Turkey) that have implemented health system reforms using demand-side financing and insurance models. Key insights include:

• Revenue: Increased government subsidies, often combined with voluntary contributions from the informal sector, have played a crucial role in expanding coverage. Countries comparable to India in terms of economic status have achieved greater progress towards UHC by allocating a larger share of government resources to health. Legislation mandating UHC has proved effective in ensuring budget allocation and consistent policy implementation.
• Pooling: Merging fragmented risk pools into larger, more inclusive pools has improved equity, efficiency, and risk management. This approach allows for cross-subsidisation across income groups and addresses the challenge of adverse selection. While a single pool is the ideal scenario, merging schemes with similar features can be a starting point.
• Purchasing: Strategic purchasing, involving the separation of purchasing and provisioning functions, has demonstrated its effectiveness in improving efficiency and ensuring accountability. Key elements of strategic purchasing include designing and costing benefit packages, empanelling providers based on quality criteria, and establishing performance-based payment mechanisms. Close collaboration with private sector stakeholders in package design and costing ensures their buy-in and participation.
• Institutional reforms: These proved crucial for supporting effective strategic purchasing. Creating independent purchasing agencies with clear mandates and responsibilities, strengthening regulatory frameworks for providers, and establishing robust quality assurance mechanisms are critical for success.

Potential Pathways for India

Based on the analysis of the current landscape in India and insights from global experiences, the paper proposes potential pathways for strengthening demand-side health financing in India:

• Increasing revenue: Raising government spending on health through increased tax allocation or earmarked taxes, mandating contributions from the informal non-poor population, or introducing voluntary co-payments under a basic benefit package are options to explore.
• Consolidating risk pools: Merging existing fragmented pools into a single pool or merging those with similar features would improve equity, efficiency, and governance. Introducing a tax-funded universal common benefit package as a subset of existing schemes or expanding existing schemes for the poor and informal sector with partial contributions and state subsidies are potential interim steps.
• Introducing strategic purchasing: Implementing a universal limited benefit package for high-cost care or primary care, offering a comprehensive package by merging existing schemes, and mandating health insurance for all, are potential options to consider. Tax-funded packages with differentiated costing rates adjusted to the local cost of living, with opportunities for voluntary co-payments by uninsured individuals proportionate to coverage tiers, can encourage participation and address equity concerns.
• Strengthening payment mechanisms: Moving towards output-based financing using blended payment methods such as DRG-based payments for secondary and tertiary care and capitation-based payments for primary care can improve efficiency and control costs. Integrating pay-for-performance incentives can enhance quality and accountability.

Organisational and Institutional Reforms

Consolidating purchasing functions under a single agency with a separate organisation (independent of both the purchaser and provider) for regulation, quality control, and policy research may further enhance governance and accountability.

Demand-side health financing offers a promising pathway to achieving UHC in India. However, realising this potential requires addressing the existing fragmentation, strengthening institutional capacities, and increasing the financial resources allocated to health. The PM-JAY serves as a foundation for many of these reforms but needs to be significantly strengthened and expanded in scope to achieve its full potential. Ultimately, the success of India’s journey towards UHC will depend on the will to prioritise healthcare, the ability to build consensus among stakeholders, and the effectiveness of implementation mechanisms.

The post Opportunities and Challenges in Health Financing in India first appeared on CSEP.

DOWNLOADS

• Download Working Paper
• Download Press Release

Executive Summary

The global push towards a net-zero future by 2050 hinges on a successful transition to clean energy technologies. This transition requires a significant increase in the production and deployment of solar photovoltaic (PV) systems, wind turbines, electric vehicles (EVs), and Battery Energy Storage Systems (BESS). All of these technologies rely heavily on a range of raw materials known as critical minerals.

India has set ambitious targets for installing renewable energy capacity and EV adoption, but currently faces significant import dependency for many requisite critical minerals. Ensuring a resilient and sustainable supply of critical minerals is a complex challenge with significant geopolitical and economic implications.

This paper aims to:

• Analyse the structure and dynamics of global critical mineral supply chains.
• Identify the key bottlenecks and challenges in these supply chains, particularly concerning extraction, processing, and manufacturing.
• Evaluate the specific challenges faced by India in accessing critical minerals.
• Recommend policy interventions and strategic options for India to secure its critical mineral needs for a successful clean energy transition.

Methodology

This paper employs a combination of approaches to address its research objectives. It draws on a comprehensive review of existing literature, reports, and data from international organisations (e.g., International Energy Agency, World Trade Organization), government agencies, and industry sources:

• Case Studies: The paper analyses specific examples of mining projects, off-take agreements, and government policies to illustrate key trends and challenges in critical mineral supply chains.
• Comparative Analysis: The research compares global trends in critical mineral supply chains with the specific context and challenges faced by India.
• Policy Analysis: The paper evaluates existing and potential policy interventions aimed at strengthening India’s critical mineral security.

Key Findings and Analysis

Global Mineral Supply Chain Dynamics:

• Growing Demand and Market Concentration: The demand for critical minerals has surged in recent years due to the growing demand for clean energy technologies. Global production and processing of key minerals are concentrated in a few countries, with China being the dominant player. This concentration creates significant supply risks for countries reliant on imports.
• Foreign Ownership and Control: Foreign companies, particularly those from China, have increased their ownership of mining assets in major mineral-producing jurisdictions. This trend has raised concerns about resource nationalism and the need for countries to regulate foreign investment to ensure equitable benefits from their mineral wealth.
• Off-take Agreements and Supply Security: Long-term off-take agreements between mining companies and manufacturers have become increasingly common. These agreements can offer financing for mining projects and ensure supply security for manufacturers. However, they can also limit the availability of minerals for other buyers and contribute to price volatility.
• Vertical Integration: Original Equipment Manufacturers (OEMs) in the EV and renewable energy sectors are increasingly pursuing vertical integration strategies, investing in mining and processing operations to secure long-term access to critical minerals. This trend can further concentrate control over supply chains and potentially create barriers to entry for new players.
• Sustainability Concerns: The growing demand for critical minerals raises important concerns about the environmental and social impacts of mining and processing. There is a growing need for responsible sourcing practices, improved Environmental, Social, and Governance (ESG) standards, and a circular economy approach to minimise the negative impacts of mineral extraction and use.

Critical Mineral Supply Chain Challenges in India:

• High Import Dependence: India is highly reliant on imports of several critical minerals essential for green technologies, including cobalt, lithium, nickel, neodymium, and processed silicon.
• Limited Domestic Extraction: While India possesses significant mineral resources, its domestic extraction capabilities are currently limited due to:
  • Inefficient allocation of mineral resources and weak regulatory frameworks, including the Mines and Minerals (Development and Regulation) Act (MMDR) of 1957.
  • A lack of private sector participation in mineral exploration and mining owing to insufficient incentives under the auction-based allocation system.
  • Limited technical expertise and financial resources for developing deep-seated mineral deposits.
• Inadequate Processing Capacity: India’s processing capacity for critical minerals is significantly underdeveloped, leading to a reliance on imports of refined minerals and components. Challenges include:
  • Limited scale of operations and a lack of investment in advanced processing technologies.
  • Difficulties in procuring raw materials, both domestically and internationally.
  • Low domestic demand for processed minerals, which can disincentivise investment in processing facilities.
• Government Incentives and their Limitations: While the Indian government has implemented incentive schemes like the Production-Linked Incentive (PLI) to promote domestic manufacturing of clean energy technologies, these schemes have limitations:
  • They primarily focus on end-product manufacturing and do not adequately address upstream mineral extraction and processing.
  • They have encouraged the assembly of imported components rather than genuine domestic value addition.
  • They may create a reliance on subsidies and protectionist measures that could hinder long-term competitiveness.

Policy Implications and Recommendations

India must ensure a sustainable and resilient supply of critical minerals as a vital prerequisite to achieving its clean energy transition goals. The challenges are significant, but with a strategic and proactive approach, India can leverage its domestic resources, global partnerships, and technological innovations to emerge as one of the key players in the global critical minerals landscape.

The paper proposes a multi-pronged strategy for India to address the identified challenges:

• Strengthening Domestic Critical Mineral Production:
  • Reforms to the MMDR Act: Amending the Act to streamline the process of granting Mining Leases (MLs), encouraging private sector participation in exploration, and creating a more investor-friendly environment.
  • Revision of the Auction System: Exploring alternative allocation mechanisms to attract more private investment, such as granting exploration companies the right to mine the minerals they discover.
  • Investing in Exploration and Technology: Increase public and private investment in geological surveys, exploration technologies, and research and development to identify and develop new mineral deposits.
• Developing Domestic Processing Capabilities:
  • Attracting Investment: Provide financial incentives, tax breaks, and other policy support to encourage private and public sector companies to invest in processing facilities.
  • Promoting Technological Innovation: Supporting research and development of advanced and sustainable processing technologies.
  • Facilitating Raw Material Procurement: Increasing access to raw materials for domestic processors, both domestically and internationally, through off-take agreements, strategic partnerships, and other mechanisms.
• Enhancing Manufacturing Competitiveness:
  • Focus on the Entire Value Chain: Extending incentive schemes like the PLI to encompass all stages of the critical mineral value chain, including mining, processing, and manufacturing of components.
  • Enhancing Vertical Integration: Encouraging domestic OEMs to pursue vertical integration strategies, potentially through joint ventures with mining and processing companies.
  • Support Circular Economy Initiatives: Promote recycling, reuse, and recovery of critical minerals from end-of-life products to reduce import dependence and environmental impact.
• Need for Global Cooperation:
  • Strategic Partnerships: Strengthening bilateral and multilateral partnerships with mineral-rich countries and other key stakeholders to secure access to critical mineral supplies.
  • Mineral Security Partnership (MSP): Actively engage in the MSP and other international initiatives to promote responsible sourcing, supply chain diversification, and technology collaboration.
  • Regional Cooperation: Explore opportunities for mineral cooperation with regional partners like the Quad and Association of Southeast Asian Nations (ASEAN).
• Develop a Comprehensive Critical Minerals Strategy (CMS):
  • Need for Regular Assessment: Conduct periodic detailed assessments of India’s critical mineral needs across various sectors, considering future demand projections and supply chain vulnerabilities.
  • Policy Framework: Develop a comprehensive national strategy for critical minerals, outlining clear policy objectives, targets, and implementation mechanisms.
  • Monitoring and Evaluation: The progress of policy interventions must be monitored and evaluated cautiously to identify challenges and make necessary mid-course adjustments.

The post Critical Mineral Supply Chains: Challenges for India first appeared on CSEP.

DOWNLOADS

• Download Working Paper

Executive Summary

This paper investigates the persistent slowdown in India’s private consumption expenditure, examining the underlying factors and exploring prospects for revival. The core question is whether the recent post-pandemic consumption rebound is sustainable, given the pre-existing downward trend and emerging challenges like rising debt, inflation, and subdued consumer sentiment.

The study analyses trends in private consumer expenditure and its composition to understand the breadth of the slowdown over the period leading up to the pandemic, the pandemic years, and the subsequent recovery period. The probable factors underlying the longstanding consumption decline are examined for deeper insights. The research extends this focus to more formal analysis that incorporates the role of consumer sentiments to exploit their informational value if any, and the overall impact upon actual consumer expenditures.

Summarily, the paper identifies the decline in private final consumption spending pre-dates the pandemic, has been broad-based, evolving in line with slower real per capita income growth after 2016–2017. The slowdown affects all consumption categories, with a particularly sharp contraction in durables expenditure before the pandemic. While the post-pandemic recovery has been robust in some areas, notably durables, overall consumption remains below the pre-pandemic trend.

The role of debt in boosting private consumption expenditure was substantial in the recovery in 2017–2018, but short-lived and followed by a growth collapse in 2019–2020. A similar pattern appears to be playing out in the post-pandemic resurgence of private consumption expenditure, with debt-fuelled consumption reinforced by a significant wealth effect driven by equity gains. Some of these drivers may be unsustainable. Additionally, resurgent inflation, particularly in food prices, coupled with rising interest rates, strains household budgets and dampens consumption.

Consumer confidence has been persistently low since 2019, reflecting pessimism about the economic situation and employment prospects. Consumer sentiments are found to play an important role in influencing consumption, accentuating the effects of standard determinants like real income and interest rates. The paper presents novel insights from a deeper analysis of consumer sentiment surveys, pointing to the importance of psychological influences upon spending behaviours. Consumer sentiment indices correlate with actual economic variables and appear to contain predictive information about future consumption expenditure, particularly in the pre-pandemic period. Econometric analysis suggests that consumer sentiment amplifies the impact of income and interest rate changes on consumption.

The paper concludes that restoring India’s consumption to its former strength requires a multi-pronged approach. Policy interventions should focus on:

• Supplementing public capital expenditure: Boosting public investment may help stimulate demand and offset the slowdown in private consumption.
• Containing inflation: Controlling food price growth is crucial for supporting real incomes and encouraging consumption.
• Addressing debt risks: The reliance on debt to fuel consumption raises concerns about longterm sustainability. Prudent policy measures are needed to mitigate these risks.
• Turning around consumer sentiment: Addressing the pessimism about the economic outlook is critical for a sustained consumption recovery. This requires a deeper understanding of how households perceive economic signals and how policy interventions can foster optimistic expectations. The persistent negativity in consumer sentiment, despite various policy responses to economic shocks, suggests a need to re-evaluate the effectiveness of these policies.

The paper highlights the critical link between consumption revival and medium-term growth prospects. Without a robust and sustained increase in private consumption, India’s growth momentum could be significantly hampered.

The post Will Consumption Revive? Understanding its Slowdown and Potential for Restoration first appeared on CSEP.

Executive Summary

Urbanisation is both a driver and a result of economic development. Many economic and social activities thrive in these densely populated areas, with some inherently requiring the agglomeration of individuals and businesses to function effectively. The world has become increasingly urbanised, with over 50% of the global population living in urban areas by 2007. This represents a remarkable shift from 2% in 1800 to 15% by 1900, when there were only 250 million urban residents globally—just over half of India’s urban population today. By the turn of the millennium in 2000, the global urban population had surged to 2.9 billion, an increase of 2.1 billion in just 50 years. Projections indicate that by 2030, nearly five billion people will live in urban areas, with 55% of this growth occurring in Asia. India alone is expected to contribute 300 million to this expansion, accounting for a quarter of Asia’s total increase.

India’s experience has been atypical, at just 35-36%, its urbanisation has progressed at a much slower pace. However, urbanisation in India rose from 11% in 1900 to about 28% by the end of the 20th century, while globally, urbanisation increased from 15% to nearly 50% over the same period. According to various projections, the Indian urban level should have reached 31% to 31.5% by 2001; however, the actual levels were far lower, only crossing the 31% mark a decade later in 2011. Although the rate of growth is still slow, the accretion to the Indian urban population in the first 30 years of this century—about 300 million—will surpass that of the whole previous one hundred years. This illustrates the magnitude of the problems that we need to face in terms of our policies related to urban development. This paper explores the reasons behind India’s slow urbanisation and its broader implications for economic growth, governance, and sustainable development. It also outlines critical policy actions needed to address these challenges.

Why is Indian Urbanisation Slowing?

According to official estimates, whereas the share of urban GDP in the total grew constantly until the turn of the century, it stagnated at about 52% from 1999 to 2012. It is estimated that this proportion is around 55% now. Faster urbanisation has typically been associated with high growth in manufacturing and manufactured exports, as exhibited by countries such as Japan, South Korea and later China, since it drives rural-urban migration and economic activity. The dramatic growth of Chinese manufacturing and exports, along with urbanisation from about 20% in 1982 to almost 65% now, bears witness to this phenomenon. However, the share of manufacturing in GDP has stagnated at 14-16% in India since the 1990s and urbanisation has been slowing down. One prominent hypothesis for the deceleration of urbanisation in India is the ruralisation of manufacturing. Unlike East and Southeast Asian economies, where coastal regions were hubs of industrial activity due to their connectivity and policy support, India has not leveraged its coastal regions effectively for manufacturing. Instead, manufacturing in India has increasingly shifted to rural areas, with 51% of manufacturing gross value added (GVA) now attributed to rural regions. Whereas it went down consistently from about 56% in 1950–51 to 32% in 1980–81, it has reversed course since, rising to 42% in 1993–94. This ruralisation of industry, combined with India’s capital-intensive approach to industrialisation, is inconsistent with the labour-intensive strategies that have historically driven urbanisation in other countries.

India’s urbanisation has been stifled by historical policy decisions and regulatory barriers. Labour-intensive sectors such as textiles and footwear were reserved for small-scale industries until the 1990s—the logic was that employment would expand faster since small-scale industries are more labour-intensive. However, Indian urban areas are not generating enough new employment opportunities as is illustrated by the low share of net rural-urban migration between censuses. It is remarkable that the share of net migration in total urban population growth over 50 years has been steady at about 20%. The rest is accounted for by natural growth, the addition of new towns, and the reclassification of existing towns and cities. Contrary to popular impression, rural-urban migration has not been high and has not been increasing in proportionate terms. This feature of Indian urbanisation is also at variance with the experience of other developing countries. Second, industrial policies discouraged the location of manufacturing in urban areas. At its most stringent, by the 1980s, no manufacturing unit could be located within 50 kilometres of the largest cities, and not within cities of any size. These provisions were diluted in 1991, but the thinking that led to these regulations may have continued to permeate the permitting process. Third, labour regulations, lacking adequate flexibility, have also discouraged investment in labour-intensive industries. Fourth, given the regulations governing urban land and difficulties encountered in its availability, land price is also found to be too high for industries that need extensive land. In any case, the Urban Land Ceiling Act introduced in 1976 made the assembly of large parcels of land in cities very difficult until its repeal in 1999. Fifth, it is also possible that managers of manufacturing firms find it difficult to manage large pools of labour and, hence, prefer more capital-intensive modes of production. Sixth, in view of all these issues regarding industrial location, labour laws, the high value of urban land, and the like, industries could have been pushed to go into more capital-intensive sectors, which can then be located in non-urban areas.

Of the ten largest cities in the world today, two are in India: Delhi and Mumbai. These large cities have great potential to improve productivity through agglomeration economies, but in India, their potential is constrained by weak governance and inadequate infrastructure. Mayors in Indian cities are largely ceremonial, with limited powers. Decision-making often rests with state-appointed municipal commissioners, leading to fragmented accountability. Moreover, there is a lack of technical competence in staff and overlapping jurisdictions impede the delivery of basic urban services like water, sanitation, and public transport. Financial constraints compound these challenges; local government revenues in India, as a proportion of GDP, are among the lowest globally. Without adequate financial autonomy, cities are unable to meet growing infrastructure needs or undertake major development projects. The rising population densities in Indian megacities exacerbate issues such as housing shortages and strained urban transport systems, negatively affecting the quality of life for residents.

What can be Done About it?

India’s slow urbanisation is an anomaly among developing nations and poses significant challenges to its economic and social progress. However, the fact that India is still only 35–36% urbanised suggests that we may be better placed to reorder our pattern and structure of urbanisation than many countries that are more advanced than we are. One critical step is to attract industries to urban areas by providing affordable industrial land and easing regulatory barriers. Encouraging labour-intensive industries, such as textiles, footwear, and electronics, to locate in cities can generate substantial employment, particularly for women, and boost economic growth. By fostering industrial clusters in urban centres, India can create vibrant economic hubs that enhance innovation and productivity.

Empowering municipal corporations is essential for effective urban governance. This includes leveraging technology to improve service delivery and transparency. A robust property tax system should be implemented, utilising digital tools for accurate assessment and collection. Additionally, municipal corporations should be encouraged to issue bonds for infrastructure financing, supported by transparent financial practices. These measures will enable cities to gain financial autonomy and reduce reliance on state and central government transfers. Investing in infrastructure is equally important to improve urban liveability. This involves providing affordable housing, expanding public transport networks, and enhancing basic services such as water, sanitation, and electricity. Safe and affordable mobility options, including metro systems and well-planned bus networks, are crucial, especially for women.

Indian cities already suffer from the ills of widespread pollution caused by both industrialisation and widespread emission-causing transportation. However, there are some reasons for hope. Cities such as London and Beijing have successfully improved their air quality through targeted policies and technological interventions. Green infrastructure and low-emission technologies must also be prioritised to address the challenges of climate change. Urban structures must change to implement effective mitigation measures along with adaptation.

India must also focus on developing its second-tier cities, such as Pune, Ahmedabad, and Hyderabad among others, to accommodate future urban expansion. Strengthening infrastructure and fostering economic opportunities in these cities can reduce the pressure on megacities like Delhi and Mumbai and ensure a more balanced pattern of urbanisation. Such change will enable higher growth of Indian urbanisation and manufacturing which are essential for achieving our overall aspirations for accelerated growth and development.

The post Indian Urbanisation is Slowing Down: What can be Done About it? first appeared on CSEP.

DOWNLOADS

• Download Working Paper
• Download Press Release

Executive Summary

Despite strong political, economic, and geostrategic motivations for cross-border railway connectivity, India’s progress in establishing a robust and thriving rail network with its neighbours has not progressed enough. This paper addresses a critical question in India’s connectivity efforts: Despite the political, economic, and geostrategic incentives driving New Delhi’s cross-border railway initiatives, why has India struggled to sustain momentum in this sector?

To explore this, the paper conducts a comprehensive review of India’s cross-border railway connectivity over the past two decades, analysing the progress and the primary drivers behind it. It seeks to answer four key questions: What has been India’s progress in developing cross-border railways in the last two decades? What are the economic, political, and geostrategic drivers of India’s renewed interest in enhancing railway linkages? What challenges have contributed to the slow development and expansion of railway connectivity between India and its neighbouring countries? Finally, what are the enablers for improving India’s cross-border railway connectivity?

While India has made some headway, inaugurating new lines with Bangladesh and Nepal, the growth of rail freight and passenger traffic remains limited. Road transport continues to dominate due to cost advantages, streamlined processes, and established infrastructure.

Several factors drive India’s push for rail connectivity. Economically, it offers a chance to tap into the
region’s burgeoning growth and lower logistics costs, enhancing trade competitiveness. Politically, it aligns with India’s “Neighbourhood First” and “Act East” policies, fostering regional cooperation. At the geostrategic level, railway connectivity provides New Delhi a counterbalance to China’s growing influence through infrastructure projects in South Asia.

However, progress has been slow due to several challenges:

• Institutional fragmentation: Limited coordination between railway agencies and other government departments in India and neighbouring countries hinders project implementation.

• Inadequate infrastructure: Shortage of cargo-handling equipment, inadequate platforms, and a lack of dedicated goods stations create bottlenecks and delays.

• Non-standardised operational procedures: Engine changes at borders, differing customs
practices, and CONCOR’s monopoly over container movement add complexity and reduce efficiency.

• Security concerns: Insurgency, smuggling, and political tensions in border regions disrupt operations and necessitate costly security measures.

• Limited private sector participation: Reliance on government funding restricts innovation,
investment, and operational efficiency.

To overcome these challenges and unleash the potential of cross-border rail connectivity, India should:

• Strengthen institutional cooperation: Establish dedicated units for cross-border rail projects within relevant ministries, fostering regular dialogue and coordination between Indian agencies and their counterparts in neighbouring countries.

• Leverage development cooperation: Strategically allocate Lines of Credit and grants to support
infrastructure development, technology transfer, and capacity building of railway personnel in partner countries.

• Improve cargo-handling infrastructure: Invest in modern cargo handling equipment, dedicated
goods stations, and elevated platforms at key rail yards and ICPs.

• Standardise operational procedures: Negotiate bilateral agreements for streamlined customs clearance, engine movement across borders, and simplify booking processes for exporters and traders.

• Enable private sector participation: Encourage private investment and operational management through PPPs to increase efficiency and reduce reliance on government funding.

• Address security concerns: Implement robust security frameworks, leverage technology for surveillance and cybersecurity, and engage in diplomacy and CBMs to mitigate risks in border areas.

By embracing these enablers, India can overcome the existing limitations and transform cross-border rail connectivity into a true engine of regional integration, economic growth, and strategic advantage.

In the Media

Salience of India’s cross-border railway connectivity – The Economic Times

The post Express Routes: India’s Railway Connectivity with South Asia first appeared on CSEP.

Executive Summary

Battery-driven electric vehicles (EVs) hold promise for decarbonising India’s rapidly growing road trans­port sector. However, achieving significant emission reductions through widespread EV uptake is not a given. It hinges on the energy performance of EVs and cross-sector linkages, especially to the power sector. This paper examines the complexities of the climate impact of the transition to electric drivetrains based on a data-driven analysis that best reflects the real-world use of EVs. It offers actionable insights that call for interventions spanning policy to imple­mentation levels to maximise the climate benefits of India’s EV revolution.

1. The Allure of Electric Mobility and the Imperative for a Reality Check

India’s economic progress is intricately linked to the expansion of its road transport network. This sector, while vital, is a significant contributor to the nation’s greenhouse gas (GHG) emissions and deteriorating air quality. EVs, heralded globally as a cornerstone of green transportation, offer a compelling solution to mitigate these environmental challenges. However, in a country where fossil fuels still dominate electricity generation, transitioning from petroleum to elec­trons in powering the vehicles does not automatically result in substantial emission reductions.

This paper provides an in-depth analysis of the fac­tors influencing the actual climate benefits of EV adoption in India. It moves beyond simplistic com­parison of individual vehicle models and assumption of constant electricity supply mix across the country to examine the broader EV and energy landscape, considering:

• The diversity of vehicle energy performance within and across segments.
• The dynamic nature of India’s grid electric­ity supply, including the temporal variation in renewable energy (RE) share.
• The crucial role of EV charging pattern and its alignment with clean electricity availability.
• The geographical variation in electricity supply mix and its implication for regional EV strategies.

By dissecting these linkages, the paper aims to pro­vide policymakers, implementing agencies, industry leaders, and investors with the insights needed to make informed decisions and unlock the full decar­bonisation potential of electric mobility in India.

2. The Fallacy of Simplicity: Why a Real-World Approach is Essential for Evaluating EV Emissions

Numerous studies have attempted to quantify the emission reduction potential of EVs. However, many rely on simplified methodologies that can misrepre­sent the true climate impact. These approaches often fall short in several critical aspects:

• Cherry-Picking Models for Comparison: Focusing on comparisons between select EV and conventional vehicle models fails to capture the wide range of energy efficiencies that exist within vehicle segments. This can lead to misleading generalisations about the overall impact of EV adoption.
• Overlooking the Dynamics of the Grid Electric­ity Supply: Assuming a static national average grid electricity carbon dioxide (CO₂) emission factor disregards the fluctuating nature of India’s electricity supply mix. The share of renewable energy (RE), particularly solar and wind, varies significantly throughout the day, influencing the emissions associated with EV charging at differ­ent times.
• Ignoring Variable Charging Patterns: EV charging is not a constant load. Factors like vehi­cle use-case, travel characteristics, and the avail­ability of charging infrastructure influence when and where EVs are charged. Owing to the varying charging pattern, EVs may avoid GHG emissions significantly, deliver limited climate dividends, or even consume more carbon space depending on their charging alignment with periods of high RE availability.

3. A Deeper Analysis: Unveiling the Underlying Factors Shaping Emissions from EVs

Electric Drivetrains Outperform in Energy Efficiency, but Grid Electricity Dictates Emissions

Analysis of a comprehensive dataset of vehicle models available in the Indian market confirms the inherent efficiency advantage of electric drivetrain across nine distinct vehicle segments, including two-wheeled and three-wheeled vehicles, passenger cars, and buses. On average, EVs consistently demonstrate end-use energy consumption levels at least three times lower than their conventional counterparts. Moreover, advancements in battery technology and power electronics promise further improvements in EV efficiency, widening the gap in the years to come.

When factoring in the annual average carbon emis­sion factor of India’s grid electricity at present, the emissions advantage of EVs diminishes. While still generally cleaner than internal combustion engine vehicles, their emissions are directly tied to the pro­portion of fossil fuels used for power generation. This highlights the critical need to accelerate the decar­bonisation of the electricity grid to fully realise the emission reduction potential of EVs.

Time-of-Day Charging: A Critical Factor for EV-Related Emissions

This study underscores the profound impact of aligning EV charging with periods of high RE sup­ply on the grid. Charging during evening or over­night hours, characterised by increased reliance on coal-fired power plants, leads to significantly higher emissions compared to charging during the daytime when sunshine brings down the carbon load of grid electricity.

The findings demonstrate that choosing the right time to charge can significantly alter the emissions profile of an EV. Charging during the day can avoid nearly 10% higher CO₂ emissions compared to charging during the evening. This translates to addi­tional yearly emission reductions of 10 kg of CO₂ in the case of an electric scooter and 106 kg for an elec­tric sedan.

The impact is even more profound for electric buses, where daytime charging is not just beneficial but essential to achieve meaningful emission reductions.

Geographical Variations: Tailoring EV Strategies to Regional Electricity Mixes

For different reasons, the majority of RE growth in India is in a handful of states. Recognising the diver­sity of electricity generation sources and associated emission intensities across India is paramount for an effective decarbonisation strategy. This paper anal­yses the power procurement mixes of nine major Indian cities, revealing substantial variations in the carbon footprint of their electricity supply. Conse­quently, the emissions from an EV can vary signifi­cantly depending on the city or state in which it is operated. This underscores the need for ramping up renewable electricity generation capacity at a sub-na­tional level and regionally tailored approaches to EV deployment and charging.

4. A Clean Energy Future: Unlocking the True Potential of Electric Mobility

India’s desired low-carbon electricity pathway, detailed in the National Electricity Plan (NEP), is crucial for unlocking the climate benefits of EV tran­sition. The plan envisions a substantial increase in non-fossil fuel-based power generation, resulting in a projected decline in the grid emission factor by end of this decade.

This clean energy transition will be vital for EVs. As the grid becomes progressively decarbonised, the emissions gap between EVs and conventional vehi­cles will widen significantly. By FY 2031-2032, EVs across all segments are projected to achieve sub­stantial emission reductions. However, this benefit is predicated on the alignment of EV charging with hours of high RE share on the grid and/or large-scale deployment of long-duration energy storage capacity.

5. Overcoming Barriers: Navigating the Challenges to a Sustainable EV Transition

While the path to a cleaner transportation future through electric mobility is promising, several key challenges need to be addressed:

• Accelerating RE Capacity Addition: Meet­ing ambitious targets for solar and wind power deployment will be essential to achieving the desired grid decarbonisation. The runway to real­ise the goals is getting shorter each passing day.
• Managing the Intermittency of RE: Optimal utilisation of the high shares of variable RE sources like solar and wind necessitates signif­icant investments in energy storage capacities, including pumped hydro and battery energy storage systems.
• Making Clean Electricity Available for EV Charging: Increasing the share of variable RE will further skew the temporal distribution of clean electricity making it harder to decarbonise EV charging.

6. Conclusion: A Call to Action for a Sustainable Electric Mobility Future

This paper emphasises that transitioning to a cleaner and more sustainable transportation future through vehicle electrification requires a holistic and realistic approach. It calls for coordinated action from poli­cymakers, industry stakeholders, and consumers, focusing on:

• Aligning EV Charging with Greener Hours: Encouraging daytime charging through time-of-day electricity tariffs tailored for regional contexts, providing public charging in sync with travel patterns, and leveraging the charging flexi­bility in case of battery swapping.
• Promoting EVs with Higher Energy Effi­ciency: Nudging production and marketing of more efficient EV models by mandating energy labelling of traction battery packs and systems and setting more stringent CO₂ emission targets under future Corporate Average Fuel Economy (CAFE) enforcement cycles with expanded scope.
• Coupling EV Charging Infrastructure with Distributed RE Resources: Facilitating cost-ef­fective integration of charging facilities with RE at the local level through innovative renewable-en­ergy-as-a-service mechanisms and application of end-of-mobility-life batteries for energy storage.

By embracing this multifaceted strategy, India can harness the full potential of EV transition to curb transportation emissions and drive its mobility to a sustainable future.

The post Demystifying the Climate Benefit of EV Transition in India first appeared on CSEP.

The Ministry of Power has notified a formula for “green tariffs” for large (greater than 100 kW) electricity consumers to encourage green power uptake from distribution companies. Our analysis finds that this push to create demand for green power (based on Renewable Energy, or RE) has several limitations, including: 

1. Financials: Losses to the distribution companies compared to today’s tariffs (i.e., regulated retail prices).
2. Operations: Lack of clarity on the ability of the distribution company to supply the required incremental green power; this includes challenges in matching the demand by time of day through RE and the likelihood that this is likely to be a reallocation of already procured RE.

To study green tariffs, we analysed current cost and retail pricing structures across twenty-three distribution companies in 11 states, which cover almost two-thirds of units sold across India. Costs include both fixed and variable costs of generation, transmission, and distribution of electricity. We also quantified pricing distortions that include cross-subsidies, where commercial and industrial (C&I) consumers typically overpay compared to the average cost of supply. 

The primary difference between the current electricity retail pricing norms and the proposed green tariff lies in the cost components. Current norms start with the average power procurement cost (APPC) and then add utility distribution costs and cross-subsidies. The proposed green tariff is solely based on renewable energy procurement costs, with caps on costs for both distribution costs and cross-subsidies. 

The calculated average cost of supply for the 11 major states was determined to be Rs 7.47/kWh, but the green tariff works out to only Rs 6.50/kWh—15% lower and thus loss-making. 

If such green tariffs are approved by the respective state electricity regulatory commissions, this could lead to a large-scale migration of high-paying utility consumers, leading to fewer avenues for cost recovery, which would affect distribution company revenues or raise prices for other consumers. 

While the Ministry’s green open access order and green tariff notification are well-intentioned, in their present form, they ignore critical issues that affect the distribution companies today, and may also distort the RE industry because: 

1. The proposed formula does not reflect the cost of supply.
2. Offering and making available 24×7 green energy—one of the conditions in the green order—is possible only by charging a premium.
3. The load profiles of C&I consumers are heterogeneous and may or may not coincide with the corresponding RE generation profile, so a uniform green tariff across the consumers is not efficient.
4. If the renewable energy procured is not new and incremental, this could lead to a zero-sum game, with a skew—there appears to be a disparity in access to affordable renewable energy sources. Premium, i.e., C&I consumers have greater access to cheaper renewable options, potentially resulting in a situation where less affluent and poorer consumers are left with more expensive conventional energy sources.

If the motivation for the green tariff is to increase renewable energy purchases, then its design and features should benefit both distribution companies and consumers. The following could aid distribution companies and improve the scaling of renewable energy: 

1. Distribution companies must calculate the true costs of supplying green power and set the tariff at levels that recover their costs.
2. Distribution companies should increase procurement of green power, but such power should be available to all consumers, not just a subset of consumers.
3. There must be consistent norms for defining green power, especially those that reflect time-ofday differentials. For example, banking of renewable energy should not qualify as green power if some of the delivered power is procured by non-renewable energy means. 6 Green Electricity Tariffs Pricing and Other Challenges
4. Consumers should be incentivised to increase usage during periods of cheaper green supply (typically mid-day, with solar, and focused on renewable energy without storage). One option is time-of-day pricing.
5. Increasing renewable energy beyond a threshold will require storage and system overhauls, e.g. improved flexible supply and ancillary services, the cost of which must be factored in.

Achieving the ambitious target of 500 GW of nonfossil capacity by 2030 necessitates a substantial annual increase of close to 46 GW in non-carbon dioxide-emitting technologies. Variable renewable energy is anticipated to be the primary contributor to this growth. While behind-the-meter renewable energy procurement, such as rooftop solar, is gaining traction, distribution companies remain, and will continue to be, the key source of renewable energy procurement. To ensure the long-term viability of this endeavour, the financial health of distribution companies is paramount. 

Media

Green electricity tariffs: Pricing and other challenges

India’s green electricity tariffs may lead to financial losses for distribution companies

Green Tariffs May Hurt Energy Distribution Companies: CSEP Study

The post Green Electricity Tariffs: Pricing and Other Challenges first appeared on CSEP.

India’s electricity distribution companies (or discoms) are grappling with significant challenges, plagued by high losses and operational inefficiencies, resulting in poor financial health requiring frequent bailouts. Most of India’s discoms are under state-ownership. To enhance their efficiency, there have been policy changes encouraging private sector involvement. Other countries have encountered similar issues and have devised a variety of solutions. Studying these international experiences can provide valuable insights and strategies for addressing the ongoing challenges faced by the Indian electricity distribution sector as well as those in other countries. 

This paper analyses the performance of the electricity distribution sector in developing countries under different ownership models. The rationale behind this study is to identify key lessons and effective strategies that could be applied to the Indian electricity distribution sector in addressing ongoing challenges such as inefficiencies, losses, and the need for significant sectoral reforms. 

The countries chosen for this study are distributed across three geographical regions: four in Africa (Uganda, Tanzania, Kenya, and South Africa), and two each in Latin America (Brazil and Argentina), and Asia (Turkey and the Philippines). Our choice of case studies is guided by two key criteria: their ability to offer distinct ownership experiences and their relevance to India’s context. The paper is distinctive not only for focusing on the experiences of developing countries but also for viewing them not as deviations from a standard model, but as models in themselves that can offer potential strategies and ideas. 

The paper used a case study approach to analyse the performance of electricity distribution sectors in the selected countries involving a detailed examination of each country’s specific context, ownership models, regulatory frameworks, and performance outcomes. This approach allows for a comprehensive understanding of the complexities and nuances associated with different approaches to managing electricity distribution. Publicly available information in the form of policy briefs and documents as well as secondary literature were used for the case studies. 

The study examines four different ownership options: public ownership, management contracts, concessions, and private ownership. Public ownership typically involves government-run departments or state-owned companies. Management contracts are agreements where a private company manages the distribution for a period, under specific terms and conditions, but the assets remain with the government. Concessions are licences to operate the distribution business, with assets returning to the government at the end of the term. Private ownership entails complete control by a private entity, often resulting from the divestiture of state-owned assets. 

We find that the motivation for reforms in the selected countries varied, often influenced by factors such as World Bank funding requirements or the need for investment. Participation in reform efforts also differs, with foreign companies often playing a substantial role. In the African case studies, for both privatisation and management contracts, it has mostly been foreign companies from outside Africa and/or South Africa’s Eskom, which have participated and won contracts and concessions. Brazil and Argentina saw investment from several foreign firms as well as local firms. This is similar to the experience in the Philippines. In Turkey, however, it was primarily Turkish private companies that invested in the privatisation effort. 

We found that in the African case studies, management contracts and concessions have generally been good at increasing collection efficiency and bringing down commercial losses. Incentives in the contracts and the government’s support for loss reduction facilitated the meeting of these two objectives. In many countries, this was accompanied by the dismantling of cross-subsidies and an increase in tariffs to more cost-reflective tariffs. However, with few exceptions, the contractors and lessees were not able to improve the reliability of the grid or make sufficient investments into the grid to improve access. 

Our analysis holds lessons for countries, such as India, looking to undertake reforms. 

• Contract Design: The experience in Africa shows that it is possible to design contracts that reduce losses. However, these contracts must be designed so that the incentives are aligned with the targets. Government support and clear performance measurement parameters are also necessary. 8 International Experience with Distribution Ownership Options in Developing Countries 

• Unbundling and Ownership Separation: Stricter unbundling requirements promote competition and a level playing field among market players. In India, where unbundling of vertically integrated utilities has been a requirement, the result has often been unsatisfactory with the resulting entities behaving as divisions of the same company. To promote competition in the industry and ensure a level playing field, India could look at examples from Brazil and Argentina on implementing stricter unbundling requirements.  

• Energy Mix Diversification: The study has also highlighted the importance of diversification of the energy mix for generating electricity. Avoiding overreliance on specific energy sources is crucial for resilience, as seen in cases of drought-related challenges in Africa and Latin America. Kenya has been successful in diversification by investing in geothermal energy and moving away from excessive reliance on hydropower. 

• Power Procurement Planning: Long-term planning minimises risks associated with hastily contracted generation capacity. Kenya’s use of a multi-stakeholder Least Cost Power Development Planning (LCPDP) since 2009 could provide a model for such planning exercises and the resulting benefits. 

• Electrification and Access: Across our case studies, government-led programmes with sustained financing were key to increasing access, with private companies as potential partners. 

• Regulatory Independence: Ensuring regulatory independence through legislative safeguards and financial autonomy enhances credibility. Brazil’s Agencia Nacional de Energia Eléctrica (ANEEL) could serve as an example. 

• Independent Utility Boards: Our findings suggest that creating independent boards can enhance transparency and operational autonomy, though challenges of political interference persist. 

• Competition in Distribution: There has been a gradual introduction of competition in our case study countries, with a separation of wires and supply, and mandatory open access. This contrasts with India where, in the absence of legislation separating wires and supply, multiple electricity distribution licences are being contemplated, which could result in duplication of network assets. 

• Political Influence: A sobering finding from these case studies was that none of the countries managed to isolate their electricity sector from politics. While the problems with such intertwining of politics and the electricity sector are wellknown in India, we found that it also presents opportunities. When governments are committed to reforming the electricity sector, it is possible to address the problems of the sector comprehensively, including setting up institutions which are buffered from the government. For example, in the Philippines and Turkey, the governments backed the implementation of reforms leading to their successful implementation.  

• Comprehensive Sector Structure: The most important finding from this study is the need to think of the structure of the entire sector before any changes are made. As the eight case studies illustrate, trying to reform a single segment of the electricity sector without addressing the weaknesses of the other segments is unlikely to lead to sustained improvement in the sector. This is particularly true for electricity distribution where the end-of-line entities, the distribution companies, are affected by the accumulated problems of the upstream segments. 

Media

Electricity distribution ownership options in developing countries

The post International Experience with Distribution Ownership Options in Developing Countries first appeared on CSEP.

DOWNLOADS

• Download Working Paper

Executive Summary

India has pledged to achieve net zero by 2070, which requires a reduction in CO₂ emissions and a shift towards clean energy. However, this shift will have fiscal implications, as revenue generated by fossil fuels (both tax and non-tax revenue in 2019–20) accounts for 3.2% of India’s GDP. This calls for the need to not only find alternative tax options to compensate for potential loss in revenues but also examine how these tax alternatives will impact economic efficiency, emissions intensity, and equity (E3). This study addresses the critical question of how the replacement of existing fossil fuel taxes with various indirect tax options will influence E3.

While previous research has explored the potential impacts of introducing new eco-taxes, this study introduces a novel perspective by evaluating the effects of replacing existing fossil fuel taxes with alternative taxation strategies, particularly within the unique context of India.

This paper uses the aggregated version of the Environmentally-extended Social Accounting Matrix (ESAM) for India 2019–20, where labour has been aggregated into 32 categories and households into 40 categories. The study has substantially altered the multiplier model and the price vector model. Using these methods, we estimate the potential impacts of replacing existing fossil fuel taxes with seven different tax options, which can be categorised under three sub-heads—Carbon Taxes (CT), User Taxes (UT), and Goods and Services Taxes (GST). These scenarios have been explained below.

The study finds that the restructuring of fossil fuel taxes will impact the welfare of households by marginally impacting their tax burden. The incidence is mildly regressive in almost all the scenarios, except in the case of the distance travelled tax and a combination of electricity and distance travelled tax. The macroeconomic and environmental impacts of these taxes vary across scenarios.

We find three key results. First, a carbon tax on coal emissions has positive impacts on real GDP and reduces emissions. However, it is regressive. Moreover, a carbon tax on coal would only hasten the transition process but not address the long-term fiscal challenge. Second, user taxes (scenarios 5 and 6) may be difficult to levy institutionally and are mild to strongly progressive. However, they are likely to have a strong adverse impact on real GDP and emissions. Third, a proportionate increase in GST results in a strong negative impact on emissions and mild impacts on equity and real GDP.

We can conclude there exists a trade-off in all these scenarios. In the medium term, fossil fuel taxes can be replaced with a carbon tax on emissions from coal; however, this will negatively impact equity. In the long run, replacing fossil fuel taxes with user taxes will negatively impact real GDP, whereas if a proportionate increase in the GST replaces fossil fuel taxes, then this will impact equity. The regressivity concerns can be addressed by providing revenue transfers from the State to the lowest quintiles and can be examined in future studies.

All these taxation alternatives will involve concerns related to institutionalising these in the Indian context, which often involves political economy concerns and addressing structural changes, which are dynamic challenges and hence will require further investigation. There will be intrinsic costs involved in choosing each of these alternatives, which is difficult to factor into the model simulations.

In the media:

Carbon tax best solution to make up for revenue loss from fossil fuel transition, says CSEP study

The post Taxation Alternatives for India’s Energy Transition – ESAM Analysis first appeared on CSEP.

Abstract

Women’s access to healthcare is an important public health and human rights issue. India has been at the forefront of efforts for Universal Health Coverage (UHC) via publicly funded health insurance (PFHI) programmes. However, the rapid rise of non-communicable diseases (NCDs) signals a need to re-examine and reorient health policy priorities. The paper examines the changing burden of NCDs which include cardiovascular diseases (CVDs), cancer, diabetes and kidney disorders, and chronic respiratory diseases for women in India, its determinants, particularly the role of women’s agency, and compares the concordance between the burden of disease with health accessed via insurance using the case study of Meghalaya, India. Evidence from our research indicates the need for state specific policies to address the NCDs among women and secondly to understand the NCD burden based on risk profiles and its district wise variation. 

The post Health Insurance Access and Disease Profile for Women in India first appeared on CSEP.

Abstract

The Pradhan Mantri Awas Yojana Urban (PMAY-U), an ongoing programme since 2015, is India’s largest urban housing programme. An unprecedented 11.9 million houses, which is about 10 per cent of the Census 2011 urban housing stock, have been sanctioned across its five sub-schemes. The aggressive housing agendas of a few states and the popularity of the Beneficiary-Led Construction (BLC) sub-scheme (which provides subsidies for the construction of a house to land-owning Economically Weaker Section (EWS) households—i.e., households with an annual income of Rs 3 lakh or less) in small cities were key to PMAY-U’s scale. We find that PMAY-U better serves small cities compared to million-plus cities. Two aspects of PMAY-U warrant attention: its poor coverage of slum households and the significant number of delayed and yet-to-be-completed houses. Some of the issues affecting PMAY-U’s implementation are specific to PMAY-U and easier to resolve, while others are systemic in nature. Some of the systemic issues are complex property records and registration systems, slow dispute resolution, and EWS households’ poor access to institutional finance. Based on our findings, we propose improvements in programme design and monitoring, as well as broader systemic measures required to make the recently announced second phase of PMAY-U more impactful than the first.

The post Deconstructing PMAY-U: What the Numbers Reveal first appeared on CSEP.

This paper traces the history of the evolution of India’s healthcare policy framework, focusing on its major objectives, challenges faced, and outcomes emerged. Though the groundwork for the healthcare framework was laid down by the Bhore Committee’s well-thought-out report in 1946, the country’s attention was focused on controlling and eradicating several communicable diseases in the first three decades post-independence. It was only in 1983 that the country framed the first National Health Policy (NHP) with the goal of improving healthcare services. The NHP-1983 was replaced by NHP-2002, which, in turn, was replaced by NHP-2017. Several other policy initiatives were also concurrently undertaken, which, among others, included Pradhan Mantri Swasthya Suraksha Yojana (PMSSY), National Rural Health Mission (NHRM) (which was subsumed under National Health Mission in 2015), Rashtriya Swasthya Bima Yojana (RSBY), Pradhan Mantri Jan Arogya Yojana (PM-JAY), and Pradhan Mantri Ayushman Bharat Health Infrastructure Mission (PM-ABHIM). The key themes prevalent across most of these policies and specific initiatives included: (i) increasing public health spending and reducing out-of-pocket or catastrophic health spending; (ii) addressing rural-urban inequalities in healthcare; (iii) developing primary healthcare; and (iv) achieving universal health coverage.

Undoubtedly, the country has made a good progress in healthcare facilities post-independence, with a significant improvement in various health indicators over the years, such as life expectancy at birth, child and maternal mortality rate, creating a large pool of medical and para-medical personnel, among others. However, despite these improvements, health has remained a low priority, with public health spending at about 1 per cent of GDP, much lower than many of its peers with similar tax-GDP ratios. Consequently, the out-of-pocket expenditures in India are among the highest in the world, pushing about 55 million people into poverty every year due to catastrophic health spending. The rural-urban divide in healthcare services remains wide, with the relative neglect of primary healthcare. The goal of universal health care has eluded so far, constrained primarily by inadequate public health spending. Research at a global level and experiences of many other countries suggest that achieving the goal of Universal Health Coverage (UHC) will require public health spending to rise to five per cent of GDP. Therefore, both the central and state governments need to commit to raising public health spending to five per cent of GDP in a time-bound manner.

Keywords: Healthcare policy, Healthcare schemes, Primary Healthcare, Universal Healthcare (UHC)

Media

Evolution of the health care policy framework in India

The post Evolution of the Healthcare Policy Framework in India first appeared on CSEP.

Abstract

India has made significant progress in improving primary healthcare delivery, but its focus, until recently, has largely remained on the provision of reproductive and child health services. Given the growing burden of non-communicable diseases (NCDs), and the overall demographic transition, the Government of India launched the Ayushman Bharat-Health and Wellness Centres scheme (renamed Ayushman Arogya Mandir) in 2018. The scheme aimed at transitioning from selective to comprehensive primary care in a phased manner by converting sub-centres (SCs) and primary health centres (PHC) into Health and Wellness Centres (HWCs). Nearly five years after its implementation, India has made progress in attaining some of its primary health goals, yet challenges remain in terms of the inadequacy of funding, inequities in the availability of physical and human infrastructure, and a fragmented, low-accountability, and quality assurance system. This paper identifies some of the key gaps in policy design and implementation and reflects on the key insights from comparable countries, which experienced similar challenges to India in the recent decades. The paper makes a case for: 1) A system-initiated model of primary healthcare that focuses on population health, 2) A care system integrated across primary, secondary, and tertiary levels of care, 3) Re-thinking of the workforce mix and improving the density of frontline workers, 4) Design elements that improve quality and accountability of services, and 5) Greater budgetary allocation towards primary healthcare, with a dedicated administrative structure within the Ministry of Health and Family Welfare (MoHFW) focused on the strengthening of the primary healthcare system. 

The post Strengthening Primary Care in India first appeared on CSEP.

The key focus of the study is to assess the role of fiscal transfers from the Union government compared to States’ own revenue in explaining their healthcare spending. The study found that both States’ own revenue and unconditional transfers from the Union impact their health spending. However, own revenue was more significant than unconditional fiscal transfers in explaining health spending by economically well-off states. In contrast, health spending by economically weaker states was determined solely by unconditional fiscal transfers from the Union. Generally, States were substituting their non-National Health Mission (NHM) health spending with NHM health spending. However, this substitution effect was  much less pronounced in the case of economically well-off states compared with economically weaker states. Post-NHM, there was a slight increase in horizontal inequalities. The intricate interplay between fiscal transfers and health spending by Indian states underlines the need for nuanced policy changes. A differentiated strategy is needed for economically well-off and economically weaker states to improve healthcare spending in the country. 

The post Fiscal Transfers from the Union to States and Healthcare in India first appeared on CSEP.

Abstract

The Paris Agreement, adopted by 196 countries at the 21st Conference of Parties (COP21) in 2015, provided a significant boost to the clean energy transition process, including solar and wind energy and battery storage, resulting in unprecedented global growth in the demand for critical minerals required as inputs to manufacture the requisite equipment. At COP26 held in 2021, India presented its climate action strategy, including a commitment to achieving the target of net zero emissions by 2070. However, there are several challenges in achieving these targets, including mobilising adequate investments, solving technical and operational challenges, and creating a just transition framework. Another imminent concern is ensuring resilient access to the requisite green technologies and the raw materials needed for their manufacturing, referred to as “critical minerals.” This paper estimates the mineral requirements to manufacture the clean energy technologies needed for India to meet its climate action commitments. It highlights the cases in which India has access to these materials domestically and the reliance on imported minerals—in either their raw, processed, or component-embedded forms—to meet the needs of the growing domestic clean energy equipment manufacturing sector. Though the mineral requirements for EV manufacturing have not been considered in this paper, a large demand is expected from this sector as well. Other sectors being electrified in India include cooking and heating, but their mineral requirements are not computed either. The demand for critical minerals in the clean energy transition will rise manifold over the coming decades. Most of these have been identified as critical by the CSEP and Ministry of Mines reports. For these minerals, especially those with no known domestic resources, mineral-wise strategies are required to ensure robust access for India’s manufacturing needs and climate change mitigation ambitions. The study also shows that promoting recycling and the use of recycled materials in supply chains can help mitigate additional requirements for mines, as would improvements in mineral intensities and technology efficiencies. 

In the media

India’s First Offshore Mineral Auction: Critical Gains vs. Environmental Risks – Modern Diplomacy

The post Projecting Critical Minerals Need for India’s Energy Transition: How Much of Which Minerals are Needed for the Transition? first appeared on CSEP.

A large volume of evidence sharply highlights the rural-urban divide in health outcomes in India, along with the differences in availability, accessibility, and affordability of healthcare services between rural and urban areas. This paper attempts to address the challenges of urban health in India. It reviews current definitions of ‘urban,’ administrative and governance challenges, major government initiatives, and the success of decentralisation—an important factor for improving urban indicators—via the 74th Constitutional Amendment. The paper finds that India is far from reaching the goal of effective self-governance of local bodies in urban areas, and one casualty of this gap has been the lack of a coherent and cogent approach towards urban health. Urban health outcomes remain adverse, especially for the urban poor, and service provision remains woefully inadequate for all, with a disproportionate burden on the less privileged. The lack of equitable and available primary care services, coupled with overburdened secondary and tertiary care services with inadequate availability of human resources and infrastructure, has led to high out-of-pocket expenditures for many households without financial protection. Sensibly addressing urban health requires an urgent overhaul of institutional, administrative, and governance structures that often work in parallel without converging. Such reform would have a far-reaching impact on not only the health sector but on sectors such as education, labour, water, and sanitation as well. 

The post Urban Health: Slipping Through the Cracks first appeared on CSEP.

Abstract

The paper seeks to understand (i) the role of National Health Mission (NHM) in defining/resetting health priorities in States and addressing horizontal inequalities; (ii) the constraints faced by States within the federal structure for delivering effective healthcare services; and (iii) the mechanisms through which States manage these constraints. The NHM helped reverse the declining trend in health spending by States by providing them with non-wage resources in the context of their low own revenues. However, health continues to be a low priority in state budgets, with the share of health spending in the total expenditure of State budgets remaining broadly unchanged over the past 30 years. Political leadership often plays a key role in determining health as a priority. Post-NHM, horizontal inequalities have reduced to a small extent. Generally, States feel constrained by the Union government taking the lead in designing health schemes and setting priorities, with their role being reduced to mere delivery and implementation bodies. They also face uncertainty in fund flows, and there are no clearly defined platforms for communication. States address these constraints by exercising flexibility within the broader NHM framework, relying on their own funds using different platforms for communication. This, however, often occurs in an ad hoc manner, based on needs and issues faced.

Media

Federal financing of health: Implications for capacity and priority

The post Federal Financing of Health: Implications for Health System Capacity and Priority first appeared on CSEP.

This paper assesses the feasibility of India achieving its stated goal of net zero by 2070 and presents a medium-term strategy for what would be required over the next decade to achieve this objective. It advocates a combination of price-based measures, such as an Emissions Trading System (ETS), and sector-specific interventions to facilitate the transition. The key elements over the next ten years would be (i) the design of the ETS, (ii) the pace of expansion of renewable energy (RE) capacity, (iii) the electrification of transport, and (iv) the shift to energy efficient systems, such as from private to public transport and from road to rail for freight. The paper also estimates that the additional investment needed to make this transition will be about 2% of India’s GDP by 2030, much of which will have to come from additional public and private savings. In this context, some form of carbon pricing would help generate additional revenue. A major challenge is that action will need to be taken across several areas, with responsibilities divided among different ministries in the central government and, in many cases, with state governments. An internally consistent and cost-effective strategy can only be developed through close consultation between the different actors, and this will require the establishment of a high-level commission chaired by the Prime Minister. As some of the actions needed are also politically difficult, it will be necessary to build a broad political consensus on the need for change. This would be facilitated if the strategy were discussed and endorsed by a high-level centre-states forum. A subset of the targets in such a strategy could become India’s new Nationally Determined Contributions (NDCs) to be submitted to the UN Framework Convention on Climate Change (UNFCCC) in 2025.

The global stocktake at COP28 in Dubai showed that the world is not on track to meet the global warming target, and all countries need to take stronger actions to reduce emissions if we are to avoid climate catastrophe. The issue is particularly important for India, as it will be one of the worst affected countries. India’s response is also important for the world. Although India’s per capita emissions are very low, they are rising rapidly due to robust growth, making India the fourth-largest emitter after China, the US, and the EU. Thus, India is systemically important in the struggle to control global emissions.

This paper explores what could be a credible medium-term plan for India consistent with its COP26 target of reaching net zero by 2070. The paper is organised as follows: Section 1 presents an assessment of whether it is technically feasible to reduce emissions to net zero, based on various quantitative studies that have examined the issue. Section 2 examines the role of price-based interventions—such as a carbon tax or a suitable alternative—in promoting a shift from polluting to non-polluting sources of energy, which is a critical part of the strategy. Sections 3 to 6 examine sector-specific interventions in various sectors that would help the decarbonisation objective. Sections 7 and 8 discuss, respectively, the steps that can be taken to build domestic manufacturing capacity to support the energy transition and the investment requirements of the transition. Section 9 draws the main conclusions.

Media:

How India can reach net zero: a strategy for 2025–35 – Oxford Review of Economic Policy

The post A Medium-Term Strategy for Transitioning to Net Zero by 2070 first appeared on CSEP.

Under the ‘Neighbourhood First’ and ‘Act East’ policies, India’s regional connectivity strategy has predominantly focused on maritime domains, including new ports and shipping links. While this has helped deepen economic linkages between South Asia and Southeast Asia, inland connectivity initiatives have lagged, with persistent delays and obstacles affecting transportation infrastructure and economic integration beyond coastal areas around the Bay of Bengal. India’s Northeast region, which is yet to be effectively linked to the sub-region formed by Bangladesh, Bhutan, India, and Nepal, continues to lack any significant economic land bridge or corridor with Southeast Asia. For instance, the Bangladesh-China-India-Myanmar corridor has failed to materialise, and initiatives such as the Kaladan Multimodal Transit Transport Project or the India-Myanmar-Thailand Trilateral Highway remain bogged down by delays. While the rest of Asia’s hinterland economies are now rapidly connecting via rail, there is still no progress on a rail link between South and Southeast Asia.

This paper argues that India must prioritise the development of multimodal transportation infrastructure beyond coastal areas to bridge the current gap between maritime and land-based initiatives around the Bay of Bengal and spur the creation of sub-regional, regional, and inter-regional economic corridors. We assess the challenges and opportunities for policymakers to pursue the hard and soft dimensions of connectivity, which can accelerate the much-delayed regional integration in the Bay of Bengal hinterland. The hard transportation and logistics dimension includes four sectors: road linkages, rail connectivity, and both land and dry ports to facilitate mobility, including trade in goods. Beyond transportation infrastructure, on the softer side, there are five additional domains warranting attention: institutional capacity for coordinating connectivity initiatives between central and state levels; instruments to support cross-border stability and security; new international partnerships, especially with regional organisations and multilateral institutions; closer regional collaboration on infrastructure norms and standards; and increased engagement with the private sector.

Keywords: Land connectivity, Bay of Bengal, Southeast Asia, India, Indo-Pacific

The post Beyond the Coastline: India’s Land Connectivity Options around the Bay of Bengal first appeared on CSEP.

In the Indian electricity business, a franchisee is an entity appointed by a distribution company to undertake all distribution operations within a specified area, except for power procurement and planning. The distribution company remains responsible for regulatory and legal compliance. It supplies electricity to the area, and the franchisee pays a fixed, predetermined rate per unit of the electricity supplied, known as the “input rate.” The franchisee aims to make profits by reducing losses to a lower degree (and quicker) than the level indicated by the input rate quoted in their bid. This arrangement is known as the “InputBased Distribution Franchisee” (IBDF) model.

Inspired by the success of Bhiwandi, franchisees have become a major element in the electricity distribution reform toolkit. They are prescribed as a standard measure for reducing technical and commercial losses to all the loss-making electricity distribution companies. Bailout packages, ranging from the Financial Restructuring Plan of 2012 to the latest Revamped Distribution Sector Scheme (RDSS) in 2023, have advocated implementing franchisees as a solution for reducing distribution losses. Although policymakers favour the franchisee model for loss reduction, evidence from on-the-ground experiences suggests otherwise.

Currently, the IBDF model and its variants are implemented in about twenty-eight divisions or circles across nine states. Of these, only twelve are operational, and the status of four remains uncertain due to the absence of publicly available data. Although operational franchisees often claim significant loss reduction, most of this data is self-reported. Despite contractual requirements and regulatory directives, independently verified third-party audits of their performance are frequently delayed or not publicly available. Data regarding their capital expenditure plans and actual capitalisation is also not available in the public domain; unlike similar data for the distribution company, which is usually publicly available through the tariff revision process.

The analysis also reveals serious limitations in the distribution company’s ability to enforce contractual terms and conditions that safeguard its financial interests. It reveals that most state regulatory commissions view the franchisee as a vendor or subcontractor of the distribution company and hence they do not monitor its operations or performance. In cases where commissions have intervened, such as in Uttar Pradesh, their jurisdiction has been challenged, with the matter pending before the Supreme Court of India. Contractual disputes between distribution companies and franchisees have also arisen, leading to complex and protracted legal or arbitral proceedings with financial impacts on consumers.

Considering these experiences across various states, the paper advises caution in prescribing the IBDF model as a “standard” policy solution for loss reduction. While the franchisee was once viewed as an alternative to privatisation, which was deemed more difficult and challenging to implement, the ground reality shows that without political support for the franchisee—a private player—the model is unlikely to even take off, let alone be sustainable. In other words, the franchisee model does not circumvent the need for political support, arguably the toughest challenge in the privatisation process.

With the rapidly unfolding energy transition, the nature and role of the traditional distribution company is also evolving. In this context, when considering a shift in ownership structure to attract investments or enhance managerial efficiency, a stronger case emerges for privatisation as opposed to the franchisee model. In privatisation, greater ownership provides a stronger incentive not only to reduce losses, but also to enhance the overall network, service delivery, and introduce innovative practices to stay relevant in the industry. More importantly, in privatisation, the accountability of the licensee to the regulatory commission, consumers, and the public at large is more direct and hence greater and much stronger.

The post Rethinking Franchisee Efficacy in India’s Power Sector: A Critique of Input-Based Distribution Models first appeared on CSEP.

India’s two-way trade and investment volumes with China overwhelm the corresponding numbers with each of its other neighbouring countries to the North and the East, namely Bangladesh, Myanmar, Nepal, and Bhutan. As with any other grouping of neighbouring nations, the security and territorial claims of individual countries have consequences for economic exchanges. The physically and economically larger, militarily more powerful nations within any group of such countries with shared borders tend to dominate, overtly or at times not so openly. This is to be expected, given the smaller geographical size, population, and lower technological-economic development of the other four countries compared to China and India. At the same time, surface transportation routes between India and these four smaller countries are much shorter. These relatively inefficient overland transportation routes between India and its smaller neighbours mean that additional transportation routes over land and water could result in a multiplier effect on trade and investment volumes.

This study reviews the strategic aspects and related ramifications of existing and potential surface trading routes between India and the three South Asian Association for Regional Cooperation (SAARC) countries: Nepal, Bangladesh, and Bhutan, and the Association of South East Asian Nations (ASEAN) member country Myanmar. If the current military or some future leadership in Myanmar were to become less apprehensive about political liberalisation within the country, it could become a key land transportation route for India to higher per capita ASEAN countries such as Thailand, Malaysia, and Vietnam. Given that this is unlikely to happen soon, the alternative for India is to augment existing sea routes to ASEAN nations. The currently strained relations between India and China due to the military confrontation in the Galwan area in Eastern Ladakh, in April-May 2020, have complicated the raising of trade and investment ties between the two most populous countries in the world and within India’s immediate neighbourhood (Kaura, 2020). In overall terms, the differences in strategic interests between India and its friends in the West and China are likely to stand in the way of significant growth in economic-technological exchanges. China has the ability and intention to forge closer economic and overall links with India’s neighbours to the north and east, including Bangladesh. If India does not pay sufficient attention, it could find itself incrementally crowded out of its immediate neighbourhood, with which it has had centuries of close economic, social, linguistic, and religious ties. India needs to include coordination with Japan and South-Korea in working to enhance economic and transportation linkages with its smaller neighbours to the north and east.

The post Crossroads of Power: Strategic Aspects of India’s Economic Relations with Neighbours to the North & East first appeared on CSEP.

This paper examines the building of railway tracks in India prior to 1947 and, to a limited extent, the construction of railway lines in countries such as the US, Russia, Japan, the UK, and China. Prior to India’s independence and, particularly in the 19th century, the laying of railway lines involved high human costs and resulted in substantial profits for British financiers, intermediaries, and Indian producers of goods and agricultural products. This led to beneficial consequences for the Indian  economy, although these were limited by design. The gradual yet steady development of Indian railway networks from the mid-nineteenth century until Indian independence, almost a hundred years later, made it increasingly easier for British India to exercise greater administrative and military control over the entire Indian subcontinent. The development of India’s railway networks could have contributed more to the industrialisation of pre-independent India. This did not occur, and the paper discusses a few illustrative causal reasons driven by British colonial economic imperatives. The last section of this paper moves from the post-Indian independence 1950s to the 2020s and compares the extent to which the current state of Indian Railways lags behind railway systems in developed countries and China.

Two significant reports on the functioning of the Indian Railways and recommendations for reforms
were submitted by committees headed by Rakesh Mohan in 2001 and 2014. Subsequently, another
central government-appointed committee headed by Bibek Debroy submitted its suggestions on reforms in 2015. It has been 22 years since the submission of the first report in 2001. Unfortunately, little forward movement has been achieved in implementing the systemic reforms which were recommended. For instance, Indian Railways could have become a corporation by now, as recommended by the aforementioned committees, and the construction of dedicated freight corridors could have progressed much further than what has been achieved. The lack of progress on several fronts is also attributed to Indian Railways not adding at least another 20,000 kilometres of broad-gauge railway tracks between 1947 and 2023. There are continuing economic and social welfare opportunity costs of not taking the required steps to get freight and passenger trains to run faster. It is also crucial to bring greater transparency and independence from government intervention in the financial statements of Indian Railways.

This paper highlights the: (a) high returns for financiers based in the UK and the administrative-control reasons for the development of Indian Railways by the British; (b) the remarkably long lengths of railway tracks laid between 1857 and 1947; (c) significant achievements post-Indian independence in building broad-gauge railway tracks, achieving high levels of electrification, and constructing dedicated freight corridors (DFCs); and (d) the unimplemented recommendations of Indian government-appointed committees.

The post Riding the Tracks of Time: Indian Railways – An Unfinished Revolution first appeared on CSEP.

This paper examines the regulatory framework of the Indian power sector, often criticised for contributing to the financial strain of electricity distribution companies. This criticism arises primarily because tariffs are frequently set too low, preventing these companies from fully recovering their costs.

While other scholars have proposed reforms centred on the selection process for regulators, oversight mechanisms, and regulator training, this paper takes a different approach. It delves into the structural reasons behind the issues in the current regulatory framework, addressing questions such as: Does the ownership structure of the distribution company influence the effectiveness of regulation? Are incentives aligned within the institutional and organisational structure to encourage good financial performance by distribution companies? What changes could enhance the organisational structure or governance of distribution companies to enable more effective regulation?

Regulation becomes necessary when there is a need to balance competing interests, typically those of the utility versus the consumers’ or the public interest. Given that government ownership of distribution companies is expected to sufficiently protect the public interest, regulation is mostly associated with privately-owned utilities. However, in India, as in other developing countries, state-owned companies are also subject to regulation.

Regulation is generally more effective with private distribution companies due to their strict budgets, creating an inherent incentive for better financial performance. This claim is supported by experience in India and other developing countries, where private utilities tend to perform better, and regulation is more effective.

While effective regulation may be best achieved with privately-owned distribution companies, there is often political resistance to privatisation, as seen in India. In cases of strong resistance, drawing on the Canadian experience of successfully regulating publicly-owned utilities, the governance of state-owned distribution companies can be modified so that they emulate the behaviour of privately-owned companies. This can be achieved by professionalising government ownership; developing more effective, stronger, and independent boards; and enhancing the commercial orientation of the distribution companies. However, these changes will be challenging for the government to implement, and therefore, privatisation should be given priority, and improving governance of stateowned distribution companies should be pursued only when absolutely necessary.

Reforming the regulatory framework is crucial for improving the Indian power sector. Nevertheless, expectations from regulation must be realistic, and challenges to reform must be recognised. The paper highlights that in many cases, regulation is transformed by the governance culture and processes in a country, rather than the other way around. The paper concludes by noting the complexities of regulating politically sensitive sectors like power.

The post Structural Reforms to Improve Regulation of Indian Electricity Distribution Companies first appeared on CSEP.

This study explores the relationship between economic growth and non-income components (health and education) of the Human Development Index (HDI) for 26 Indian states during the period from 1990 to 2019. By applying the auto-regressive distributed lag (ARDL) model and Granger causality technique, we identified a strong two-way relationship between economic growth and non-income components in the long run. We found that public expenditure on health and education did not impact human development outcomes, whereas total expenditure (public and private) did. However, public expenditure on health is crucial in ameliorating households’ financial burden and preventing impoverishment due to catastrophic health expenditure. Furthermore, the analysis of the relationship between different educational levels (primary, secondary, and tertiary education) and the gross state sectoral value added revealed that while education limited to the primary level had no discernible influence on economic activity, secondary and higher education played a pivotal role in determining sectoral economic activity. Secondary education positively influenced agriculture and manufacturing, while higher education significantly shaped the services sector. The impact of higher education on services was four times greater than that of secondary education on manufacturing.

The post Interlinkages Between Economic Growth and Human Development in India: A State-Level Analysis first appeared on CSEP.

The global shift from fossil fuels to renewable energy sources is transforming energy production and consumption worldwide. As countries intensify their efforts to combat climate change and reduce greenhouse gas emissions, the transition to clean energy is gaining momentum. India has committed to ambitious targets, aiming to achieve net-zero emissions by 2070, aligning itself with this global shift. However, this transition away from fossil fuels presents significant fiscal and institutional challenges that warrant careful examination.

This study primarily explores the dynamics of tax revenues and the fiscal implications of India’s transition. As fossil fuel consumption declines over time, government revenues generated from fossil fuels are also expected to decrease relative to GDP. This scenario demands a sense of urgency due to India’s ongoing efforts to reduce its reliance on fossil fuels.

The research examines the institutional challenges related to enhancing existing tax systems and considers the viability of implementing a carbon tax as an alternative revenue source to replace fossil fuel taxes. The study assesses various tax revenue options, evaluating their effectiveness in revenue generation, longterm sustainability, required institutional changes, and the preservation of state autonomy. Allocating revenue between the Union and individual States can be intricate, given that States have limited revenue sources that provide them with substantial autonomy.

The study highlights the potential of carbon taxes as a valuable medium-term solution to address revenue loss. However, it also underscores the challenges associated with their implementation, including institutional barriers and political-economic complexities, particularly within India’s fiscal-federal structure. Active engagement from institutions like the Finance Commission and the GST Council is emphasised, recognising their critical roles in managing this transition and mitigating its impact on state-level fiscal autonomy.

The study argues for the need to consider multiple factors, including efficiency, equity, sustainability, institutional considerations, and the possibility of reducing expenditures on non-essential goods. This recognition underscores the importance of further research in this area, as India navigates the intricate landscape of fiscal and environmental policy changes.

The post Compensating for the Fiscal Loss in India’s Energy Transition first appeared on CSEP.

The implementation of the Carbon Border Adjustment Mechanism (CBAM) in 2026 is expected to pose considerable challenges for nations heavily dependent on exporting energy-intensive goods and materials to the European Union (EU). This research specifically focuses on the uncertainties surrounding the potential impact of CBAM on trade-exposed sectors with high energy intensity, particularly in developing countries like India. The primary aim of this study is to assess the effects of fluctuations in energy prices and carbon taxes on the economic performance of companies operating within these trade-exposed sectors. To achieve this objective, the study analyses data from Indian manufacturing firms belonging to five key trade-exposed industries with high energy intensity within the timeframe from 2012 to 2021.The research’s key findings indicate that a 10% increase in fuel costs corresponds to a 2.41% decrease in earnings from exports, a 0.23% reduction in Return on Assets (RoA), and a 1.34% decline in post-tax profits. Additionally, our study underscores the significance of a firm’s size and age. For a 10% rise in fuel costs, medium-sized enterprises demonstrate a statistically significant 2.9% profit decrease, while large firms experience a 3.5% decline, although this latter finding is not statistically significant. In contrast, smaller firms exhibit a statistically significant profit decrease of approximately 0.75%, and newer firms witness a 2.1% profit drop along with a 0.26% RoA reduction. This suggests that larger and newer companies are more vulnerable to fuel cost fluctuations. Furthermore, when examining sector-specific impacts, the cement industry faces a substantial 6.7% decrease in post-tax profits. In contrast, the coal, fertiliser, and steel and iron industries experience RoA declines of around 0.22%, 0.24%, and 0.21%, respectively. Moreover, the steel and iron industry also suffers a statistically significant 2.9% reduction in export earnings. In summary, the implementation of CBAM is poised to have an adverse effect on the economic performance of enterprises operating within India’s Energy-Intensive and Trade-Exposed (EITE) industries.

Keywords: CBAM, EITE-Industries, EU carbon tax, climate change mitigation

The post Assessing the Impact of CBAM on EITE Industries in India first appeared on CSEP.

This paper presents a detailed review and analysis of India’s health insurance landscape, with a focus on voluntary health insurance (VHI). This review aims to provide various stakeholders (especially providers, employers, insurance companies, pharmaceutical firms, and government and non-government policy thinkers) an assessment of all the factors to be considered when envisioning expansion of health care coverage for the population by enhancing financial protection through insurance. In the quest towards attaining universal health coverage (UHC), insurance has become a dominant financing model globally. Most high-income countries have a national insurance scheme as in Germany and Canada, or a national health service funded through general taxation as in the United Kingdom (UK). In low-and-middle-income countries (LMICs), due to the low priority accorded to health as well as budget constraints, health financing is fragmented. Financing includes a mix of mandatory insurance schemes for the formal sector, voluntary insurance schemes (mostly commercial and privately managed, but could be managed by the public sector as well) for those not covered by a mandatory insurance, targeted insurance schemes for the poor, and a high proportion of out-of-pocket (OOP) spending. Voluntary Health Insurance is therefore, one of the insurance schemes covering the population.

The health insurance experiences of various countries reveal that VHI, in its commercial form, plays a supplementary, complementary or substitutive role. Overall, on an average, 10% of a country’s population is covered by VHI (mostly in its substitutive form). Voluntary health insurance that is subsidised by the government can play a role in increasing demand for insurance, providing coverage to the “missing middle” or the informal sector, especially in LMICs. Country experiences on coverage of the missing middle demonstrate that government subsidies as prepayments are key to creating demand and achieving universal coverage of this section, as seen in China and Thailand. This section concludes that VHI is unlikely to play a dominant role in the path to UHC and needs to be well regulated by the government in order to be integrated with the overall health insurance landscape.

In the section on India’s health insurance landscape, we observe that India has diverse revenue sources for financing health. Health care in India suffers from deep fragmentation, including the fragmentation of financing pools, payers, providers, and governing structures. The system is also cost inefficient, resulting in high out-of-pocket expenditure (OOPE) and health inequities in terms of access and outcomes. Given that in the quest towards UHC, insurance is set to become the dominant form of financing, this section describes and analyses India’s health insurance landscape in detail, and more importantly, the role of VHI in this scenario. We construct this landscape based on various available data sources and find that 46% of the population is covered by some scheme of medical insurance which is mostly indemnity-type plans for in-patient services, and hence shallow. These schemes broadly include: social health insurance, involving employee–employer based pooling, provided by the public sector (CGHS, ESIS, ECHS and so on); voluntary health insurance (VHI) which is commercial insurance purchased by individuals and private sector employers (group insurance) and; government (centre and state)-sponsored targeted insurance schemes for the poor (Pradhan Mantri Jan Arogya Yojana currently being the main central programme).

The health insurance market in India has expanded in the last two decades and has introduced many private insurers. India now has 36 general insurance, 24 life insurance, and 7 standalone health insurance companies that provide health insurance. There are only five public insurance companies (four general insurance and one life insurance company). While health insurance penetration and density has increased over time, the breadth and depth of coverage remains low and shallow. Furthermore, despite the numerous health insurance schemes available across the country, the health insurance market has still not matured enough. There are too many players with weak regulation in place. At present, 46% of the population is covered under insurance schemes, with varying depths of coverage. Those in the formal sector (government and private) enjoy better health insurance coverage than those covered by government sponsored/subsidised schemes (PMJAY and state-sponsored schemes) and individual VHI schemes. Data shows that government-sponsored schemes are poorly funded while attempting to cover a large proportion of the population, resulting in shallow coverage. In contrast, formal sector employees have greater depth of coverage with more robust funding. This indicates the regressive nature of financing and inequities in coverage.

All types of health insurance schemes face regulatory and governance challenges, but these need to be strengthened in order to minimise insurance-related market failures. The space for commercial VHI has expanded over the last few decades with the expansion of the insurance market, but VHI financing is regressive and faces considerable market failures in India. The country’s regulatory mechanisms in health insurance are not robust. Several gaps and challenges in the regulation of commercial insurance schemes continue to exist, along with weak regulation in pricing of premiums as well as costs levied by private providers. As such, there is a growing need for a separate vertical monitoring only health insurance within the Insurance Regulatory Authority of India (IRDAI). Administrative and commission costs for insurance companies and agents exceed 40% which is very high and impacts insurance claims. The public/consumers are ill-informed and lack knowledge about insurance policies; grievance redressal is mostly limited to claim rejections. There is no standardised benefit package. India’s health insurance landscape is therefore fraught with adverse selection and moral hazards, and high costs and inequities across class and region. This defeats the purpose of universal accessibility and equity. These challenges need to be underscored before coverage is expanded with the objective of financial protection through insurance.

Given the consistently low levels of government investment, and that only 46% of India’s population is covered by some form of health insurance, alternative forms of health financing to expand coverage to the missing middle class need to be strategically thought out in order to improve financial protection. India could explore the potential of expanding VHI, making it more accessible, provided that is well regulated and supervised. At present, other country experiences show that VHI (funded either by public and private funds or both) plays a marginal role in total health expenditure, but can be used to bridge the gap in coverage. The paper concludes that only substantive tax-based financing, consolidated risk pools, strong regulation of insurers and providers to minimise market failures, and restructured service delivery, can enable mandatory universal coverage. However, thoughtfully expanded and government-managed VHI could serve as an interim stepping stone towards more comprehensive publicly-financed universal coverage in the long run.

The key takeaways from this paper are –

• • In India, around 46% of the population is covered by some form of health insurance. This includes social health insurance schemes, government-sponsored insurance for the poor, employer-provided insurance, and commercial VHI. However, the coverage is highly fragmented and inequitable.
  • Globally, VHI plays a marginal role in total health expenditure, but can help bridge coverage gaps. It is unlikely that UHC can be achieved through VHI alone, due to challenges like adverse selection, high administrative costs, and inequitable access.
  • India could strategically expand regulated VHI on an interim basis to extend coverage to the “missing middle” that is not covered by government insurance or employer schemes. The government needs to substantially increase public financing, merge insurance pools, strengthen regulation, and restructure health care delivery and other supply-side issues. The reforms have to be systemic.
  • The paper argues that India can expand regulated VHI to bridge coverage gaps in the short-term, but universal mandatory insurance, financed more through taxation and consolidated pools, is needed for equitable universal coverage in the long run.

The post A Report on Voluntary Health Insurance in India: A Bridge Towards Universal Coverage? first appeared on CSEP.

Addressing the nation on Independence Day, 2023, the Prime Minister announced that the government is working on an interest relief scheme to help urban residents living in rented housing, slums, and chawls own a house. The intent is well-placed since access to housing is a prerequisite for a dignified life, and yet, it remains unattainable for a significant proportion of Indians; 17% of all urban households live in slums. The situation is especially grave in India’s bigger cities—41% of households in Greater Mumbai, 30% in Kolkata, and 29% in Chennai live in slums. Successive governments have focused on providing housing to the disadvantaged, arguably the most notable efforts being the Indira Awas Yojana (IAY) for rural areas, and the ongoing Pradhan Mantri Awas Yojana (PMAY) for urban areas. Given the scale of the housing deficit, despite a significant push by the government to resolve this problem, it is imperative to understand two fundamental questions: (a) How expensive is housing in India, and why? (b) What explains the tepid increase in house price growth over the last 7–8 years? Answering these questions will provide clarity on how to tackle this challenge going forward.

Housing in India is indeed expensive relative to its yardstick of affordability, but we are not alone. At a price-to-income ratio (PTI) of 11, housing in India is more than twice as expensive as its affordability benchmark of 5. Housing in countries like the United States, Australia, and Germany with PTIs of 3.6, 7.6, and 9, respectively, is more affordable. On the other hand, several other countries, especially in the developing world, such as Bangladesh, Sri Lanka, and China have PTIs that are worse than India’s at 12.3, 26.3, and 29.1, respectively.

India’s high house prices are, however, not due to a supernormal price increase over the past 30 years, but due to structural problems afflicting the real estate sector. House prices have appreciated by 9.3% on an annual basis between 1991–2021, which is similar to gold at 9.2% and lower than the Sensex at 13.5%. This pattern and profile of returns across assets is consistent with those in other countries. House prices (housing affordability) move in tandem with the degree of transparency of the real estate industry, which comprises structural elements such as the regulatory and legal architecture, and transparency across transaction processes, among others. For countries comprising the ‘highly transparent’ cohort in JLL’s Global Real Estate Transparency Index, the average PTI is 8, compared to an average PTI of close to 14 for the ‘low transparency’ countries. India is currently part of the ‘semi-transparent’ cohort, which has an average PTI of 13.6. It is noteworthy that we have been adjudged as the “best improver” in the Asia Pacific (APAC) region over the past couple of years by this Index as a result of reforms like the digitisation of land records through the Digital India Land Record Modernization Programme, and the implementation of the Real Estate (Regulation and Development) Act.

One of the key reasons for India’s ‘semi-transparent’ ranking is the lack of credible and rigorous land use planning and implementation, which leads to a constrained and unpredictable supply of land. Only 28% of Indian cities have approved master plans and almost none are granular enough, and do not contain the requisite financing and sequencing for key plan proposals. This absence of granularity and concomitant financing makes it unclear and uncertain if the city will actually develop according to the plan and by what timeline. This milieu makes the entry of new real estate players (developers) difficult, giving rise to a less-than-competitive industry structure. Such an industry structure incentivises and enables real estate developers to maximise profits by keeping prices high and supply low. It comes as no surprise, then, that when compared to other industries like IT, Auto, and FMCG, real estate in India has a significant number of firms making supernormal profits (of more than 20%) in the long run. A less-than-competitive real estate industry operating in a semi-transparent environment induces economic agents, especially those with unaccounted income (the shadow economy) and/or insider information (about planning policies such as land use changes), to invest in real estate, reinforcing the high price structure. It is testimony to the general popularity of the asset that 77% of India’s household wealth is in real estate compared to 62% for China, 44% for the US, and 37% for Germany.

A corollary of the argument thus far is that the tepid house price growth witnessed in the last few years does not portend a more affordable housing regime in the future. House prices go through decadal cycles of rapid price growth followed by downturns that co-move with the broader macroeconomic environment in the country, and the current cycle is no different. House prices have gone up by 3.7% per annum between 2017 and 2022, compared to an annualised increase of about 9.3% between 1991 and 2021. During the same period, real GDP growth was 3.9% and 5.8% respectively. The real estate industry is beginning to show signs of revitalisation on the back of strengthening economic fundamentals, particularly GDP growth. In 2022, house prices in major cities appreciated by 4–11%, sales recorded a 68% y-o-y increase, and new launches increased by 81% y-o-y. Ceteris paribus, house price growth in the future will depend on how the underlying macroeconomic trajectory evolves from hereon.

The need of the hour, thus, is to accelerate the implementation of policy reforms by focusing on releasing (developable) land supply in a transparent manner through credible and rigorous land use and implementation. This will increase competition by enabling and encouraging the entry of new real estate developers, putting pressure on prices, and in turn, improving affordability. Not only will this provide a large segment of Indians with access to decent housing, but in the process will also boost GDP growth and create muchneeded non-farm employment. To ensure that such reforms actually have the desired impact, the government needs to institutionalise rigorous measurement and tracking of key metrics like the PTI across cities, industry competitiveness, and transparency of the sector, all of which are critical for affordable housing.

Media

House prices in India shot up 15 times over last 3 decades: Study – Indian Express

What explains high housing prices in India? ‘Lack of credible land use planning, shadow economy’ – The Print

House Prices in India- How high and for how long – EPW Journal

The post House Prices in India: How High, and for How Long? first appeared on CSEP.

This paper studies growth in electricity consumption, the key factors affecting it, and its link with economic activity. To do so, the paper discusses the major characteristics of India’s power sector, and the historical trends of power consumption and economic growth, by tracing the changes over the years. The study also briefly discusses the key factors that have impacted consumption measures, including captive power, deficits, enhanced efficiency, etc. It also discusses the historical role of the manufacturing sector, the growing importance of the agriculture and household sectors, and the introduction of new and more energy-efficient technologies (such as the LED bulb), in determining power-sector outcomes. In the process, the study provides an overview of the existing relationship between energy and gross domestic product (GDP) in India, using past data and extant literature. Finally, the study conducts a time-series analysis to estimate the elasticity of energy consumption with respect to overall economic activity (using gross value added (GVA) as a measure). It finds that despite ups and downs in consumption and elasticity estimates over time, the long-term elasticity has been close to unity. Therefore, given that long-term annual economic growth is expected to be in the 5–7 percent range, India should plan for capacity increases at 6–7 percent for the next five- to ten-year horizon as it is better to err on the side of excess than shortage.

At fairly conservative growth rates we find that India will need to plan for electricity consumption levels that are approximately double of those at present, and higher than other estimates like central electricity authority (CEA). This calls for significant investments in electricity-generation capacity.

However, elasticities can change over time. India is an emerging economy, moving away from its dependence on fossil fuels. This is as a consequence of the global decarbonisation process and adding more renewable capacity. This study notes that as elasticities may change in the future, the power planning horizon should be limited to ten years, appropriate investments made in electricity-generation capacity, a constant watch kept on electricity-consumption growth, and consumption
closely monitored.

The post On India’s Electricity Consumption first appeared on CSEP.

Abstract

This paper presents the second edition of the CSEP Sustainable Mining Attractiveness Index (CSEP SMAI). The first edition evaluated the mining sustainability of 24 districts of Jharkhand. The second edition has expanded the scope to 323 districts across India’s top 12 mining states—Andhra Pradesh, Chhattisgarh, Goa, Gujarat, Jharkhand, Karnataka, Madhya Pradesh, Maharashtra, Odisha, Rajasthan, Tamil Nadu, and Telangana. These states produce various minerals, including bauxite, chromite, copper, iron, lead, manganese, zinc, and limestone.

Although they have significant mineral resources, some of these states are among the country’s more impoverished and rank poorly in various human development metrics. The paper highlights the economic importance of mining activities and the need to be environmentally responsible and safeguard the welfare and livelihoods of the local communities.

The SMAI aims to provide stakeholders with a holistic understanding of the potential of mineral resources-led, district-level development in states. The performance of all 323 districts from the 12 mining states has been divided into three groups (high, medium, and low) based on their mining characteristics and their mining potential and performance (MPP).

The SMAI has been computed by evaluating the districts under these three groups using various secondary data. The data were normalised and aggregated under the five broad pillars that reflect the sustainable mining attractiveness of a district: (1) mining potential and performance; (2) infrastructure; (3) policy and governance; (4) socio-economic status; and (5) the environment. The weighted arithmetic mean of the scores of the five pillars has been calculated to reach the SMAI score for each district.

The Index is computed based on investment attractiveness and sustainability. The MPP and the business-enabling positive economics pillars (policy and governance; and infrastructure) constitute investment attractiveness. The sustainability attribute rests on the normative economics pillars (socio-economic status; and the environment). The study results provide information for potential mining businesses and highlight policy priorities for respective governments and administrations to improve the attractiveness of districts for holistic, sustainable mining development.

The post CSEP Sustainable Mining Attractiveness Index (SMAI) first appeared on CSEP.

Abstract

India’s electricity grid is moving from one dominated by coal to one where renewable energy (RE) will dominate supply, especially wind and solar. By 2030, the target is to triple non-fossil sources of power to 500 gigawatts (GW) of capacity. Wind and solar sources are intermittent, and given a power grid needs to balance supply to meet demand at all points in time, this raises immense challenges for planning and operations.

This paper studies the impacts of times-of-day and seasons on the different types of fuels for generation electricity, their output ramp (swing up or down) rates, daily swings between maximum and minimum output, and relative contributions of each fuel type. It also covers net demand (total demand excluding RE) separately to highlight RE’s interplay with other supply sources.

We focus on calendar year 2019, which was the last year before the impact of the COVID-19 pandemic. We analyse data at 5- and 15-minute resolutions not just to understand granular gridbalance requirements but also examine ramping requirements. The larger policy objective remains improving the integration of more variable renewable energy (VRE) sources into the electricity grid and cost-effectively balancing different fuel types during specific times and/or seasons.

A key insight is that the average numbers (e.g., for correlation) are misleading and one needs granular data to consider “worst case” time periods for which we need adequate and appropriate supply. We also find that RE places greater burden on the rest of the grid in terms of ramping requirements, measured through net demand, which is the remaining demand after subtracting variable RE.

The post Understanding Time-of-Day and Seasonal Variations in Supply and Demand for Electricity in India first appeared on CSEP.

The state of Jharkhand is rich in mineral reserves, including coal, but lags in development compared to most of India. This paper attempts to examine the structure and legacy of electricity distribution in the state with a lens to examine how that impacts the future viability of the distribution companies (DisComs).

After unbundling of the erstwhile Jharkhand State Electricity Board (JSEB), Jharkhand Bijli Vitran Nigam Ltd (JBVNL) took over virtually all of the distribution segment in 2014. It inherited High AT&C losses, poor electricity access, and a list of legacy issues. While there are five distribution companies (DisComs), their size and performance are very skewed. Four have very low operational and financial losses, but still Jharkhand state’s overall performance parameters (e.g., AT&C losses) are significantly worse than the all-India average.

The analysis shows that two public sector utilities, JBVNL and Damodar Valley Corporation (DVC), serve more than 90% of consumers. The latter is a hub for major industrial activities that have cumulatively and historically had a high energy demand. DVC also happens to be an integrated utility under Central Govt. control, with extensive generation capability, also selling power in parts of West Bengal. This leaves smaller and less remunerative consumers for JBVNL to serve, with DVC keeping large industrial consumers. This leads to DVC having lower AT&C losses and high revenues, and JBVNL lacking a diverse consumer mix with enough consumers capable paying crosssubsidies for offsetting under-paying consumers. The asymmetric consumer profile becomes a key challenge for the viability of the majority provider of electricity (JBVNL) considering the traditional Indian utility equilibrium has relied not just on subsidies (which are extensive in Jharkhand) but also cross-subsidies from so-termed “paying customers”, the commercial and industrial (C&I) consumers, which are overwhelmingly missing from JBVNL. This paper attempts to examine DisCom viability in light of not only consumer profile distortions but also trendlines of energy sales. We find that a model based on gradual improvements (efficiency) is unlikely to be sufficient in the near term and we may require new policies or instruments, and perhaps new modes for social welfare redistribution outside traditional cross-subsidy models in India. With this, either the burden upon the state exchequer will be high or quality of service may suffer.

The post Viability of Jharkhand’s Electricity Distribution: Distorted by Legacy and Consumer Profile first appeared on CSEP.

The paper makes the case that poverty alleviation, growth, and climate-related transition, which require both public and private funds, need to be pursued in parallel. Given the scale of these challenges, private capital mobilisation is imperative. However, this should not come at the cost of economic vulnerability and risk. The paper identifies a range of challenges that stand in the way of the smooth flow of resources necessary for the adaptive and other transitions associated with climate change. These challenges are examined across three dimensions – public and private, domestic and international, and equity and debt, and require both global and domestic actions. Such actions include separating the construction, operation and maintenance phases of projects, allocating a greater role to the public sector in the former, concessional capital to national development finance institutions to facilitate project pipeline development, using aid to de-risk countries as opposed to projects; leveraging environmental, social, and governance assets for climate finance in developing countries; eliminating flaws and biases working against developing countries in the credit rating process; ensuring fairer arbitration processes and revision of bilateral investment treaties; improving contract resolution processes; reducing informational asymmetries, and fostering greater transparency in climate finance. Finally, the study calls for the allocation of the climate finance burden on the basis of ability to bear, as failing to do so could lead to macroeconomic stress at the national and global levels.

The post Harnessing Private Capital for Global Public Goods: Issues, Challenges and Solutions first appeared on CSEP.

This paper analyses the non-price policy measures that aim to lower carbon emissions across the G20 countries. A comprehensive range of non-price policies is mapped across sectors, objectives, and targets, uncovering substantial heterogeneities and complexities. The paper underlines the difficulties in assessing effectiveness and comparability of non-pricing mechanisms vis-à-vis explicit ones such as carbon taxes. A cross-country assessment of sequencing and stringency patterns, along with the impact of and experiences with non-pricing policies, is also undertaken. The findings point to critical gaps and a lack of rich data and hard evidence on non-pricing policies. This impedes evaluations of their effectiveness in reducing emissions. We conclude that a balance of price and non-price measures might be the most suitable for global coordination of climate action.

The post Non-Price Policies for Addressing Climate Change: The Global Experience first appeared on CSEP.

Abstract

India’s health system faces considerable challenges in the provision of health provision. Like in many other countries, health workforce gaps are a particular contributor to this issue shortage of doctors, skewed distribution, and mismatch in skills, all result in a system that is often provisioning below par. Recognising the demand–supply gaps in medical education, attempts have been made to increase the medical seat capacity, with public medical colleges leading the bulk of the seat capacity expansion, and infrastructure requirements for setting up medical colleges have also been relaxed.

While policy initiatives have led to an increase in the number of medical colleges and seats, yet gaps between demand and supply remain. India has the largest number of medical colleges in the world, but the number of medical graduates per 100,000 population is 4.1, which is among the lowest in the world. Despite the explicit focus on increasing the penetration of doctors in under-served regions, the bulk of seat capacity expansion has taken place in only a few, mostly developed states. In underserved areas where colleges have been developed, unaddressed structural issues have led to intra-country migration, which continues to skew the distribution of doctors. Teaching faculty shortfall (despite attempts to augment the teaching pool), continuing requirements for setting up and running medical colleges, and the unattractive economics of setting up medical colleges, have emerged as key barriers to scaling medical colleges. To counter this, the focus has largely been on relaxing the existing student intake norms, and augmenting physical infrastructure. However, adequate attention has not been given to addressing crucial economic barriers, and the structural barrier of faculty shortage, which remain critical impediments.

Amongst the supply gaps, the shortage of specialists is particularly acute. This is a matter of concern, considering that the disease burden associated with six of the top ten causes of deaths in India require the attention of specialist doctors. Select states have attempted to address this shortage by promoting alternative routes to specialisation (e.g., DNB, CPS), but a lack of uniform recognition across states and by the National Medical Commission has affected the uptake of these courses and, in turn, the availability of specialists.

The paper argues for a rethink of the existing regulatory and policy requirements pertaining to setting up and, more importantly, scaling up medical colleges, in order to ensure a greater number of seats per college, and for a more equitable distribution of seats. The paper simultaneously highlights the need to address the structural aspects that lead to the gaps between production and availability of doctors. It makes a case for addressing the teaching staff shortfall by targeting the core issue of the high financial opportunity cost of giving up full-time practice. The current policy focus on reforms like increasing the retirement age and allowing visiting faculty, bypass this core concern and provide only short-term solutions to this structural problem. The analysis emphasises the need for the optimal utilisation of the existing workforce through greater task shifting between specialists and general practitioners, and a stronger referral-based integrated system that enables better utilisation of scarce specialist resources. The analysis also brings forth the lacunae in India’s existing data collection systems, thereby necessitating more systematic mechanisms for data collection and dissemination.

The post Medical Education in India: A Study of Supply-Side Dynamics first appeared on CSEP.

• The lowest hanging fruit for decarbonisation is adding more wind and solar power, which are cost-competitive compared with other alternatives.
• In addition to globally leading targets to scale up wind and solar power, India has ambitious plans for using electricity for new services, including mobility (electric vehicles) and green hydrogen production for industrial use. Such use would happen even before India’s electricity grid is carbon-free. Thus, a key question is how “green” will such services be.
• Making the grid greener has two challenges. The first challenge relates to scaling up wind and solar power. As wind and solar capacities increase, grid integration will become increasingly difficult because of the well-known challenge of renewable energy’s (RE) intermittency, for which one solution would be to add storage. Unfortunately, storage is likely to be more expensive in the foreseeable future than many models and public documents estimate for two reasons. One, the upfront costs associated with grid-scale batteries are likely to be much higher than estimates often calculated based on the cost of cheaper automotive batteries. Two, most models fail to capture battery usage patterns or duty cycles and instead use an expected or ideal usage pattern. Such calculations typically assume almost full daily usage as part of calculating the levelised cost of energy (LCOE). Another option for increasing RE output is oversizing RE capacity with expected strategic (temporary) excess. This is cost-effective up to a point, but it also means India must add even more RE capacity.
• The second challenge with wind and solar power (without storage) is that their variability and performance in a portfolio of supply can significantly reduce the “greenness” of grid-based electricity powering electric vehicles (EVs) or the production of hydrogen. Pure matching of hydrogen production or EV charging to times and locations when there is incremental green power becomes expensive or limiting. Furthermore, instead of matching, current green energy and green hydrogen norms in India are based on average-basis accounting over a long period, termed banking. This means over- and under-generating RE at different times while still relying on traditional supplies, predominantly coal, for non-direct–RE periods. Systems based on banking can reduce the growth of carbon dioxide (CO2) emissions through offsets—that too only in the short run—but cannot eliminate emissions.
• Policies and frameworks should be updated to ensure electricity services are truly green to the extent possible. This requires policies where granular additionality of green supply is the key criterion and is measured across a short timeframe and not just averaged over time. Such measurements need rigorous norms and scientific tools, such as grid models, for verifying and ease of developer planning.
• Proper frameworks are essential not just for reducing CO2 emissions but also for compliance
  with green norms that may be set by other countries, banks, or third parties, which would thus impact exports or access to climate funding.

The post Properly Defining “Green Electricity” is Key to India’s Broader Energy Transition first appeared on CSEP.

In the workhorse new Keynesian models, sectoral deflation is of little consequence unless it affects overall inflation. But in practice, sectoral deflation combined with nominal debt contracts and rigidity in the labour market can have large and significant adverse effects. Using data from India (the second-largest steel producer in the world), we estimate the effect of large movements in metal prices during 2011-16. As expected, a decrease in commodity prices led to a decline in profit in general, with defaulting firms experiencing an even larger decline in their profitability. Using a difference-in-differences design, we find that banks with higher exposure to the metal sector declared significantly higher non-performing assets after the commodity price crash, compared to banks with little or no exposure. Hence, a large decline in commodity prices can cause a prolonged twin balance-sheet crisis, an area that has not received enough attention in the existing literature. This type of balance-sheet crisis hurts credit and economic growth in the medium run. Results also suggest that the large decline in domestic metal prices post 2011 was mostly driven by lower prices of imports from China and the less-than-proportionate depreciation of India’s nominal exchange rate.

Keywords: Metal Prices; Sectoral Exposure; Exchange Rate Pass-Through; Profitability; Nonperforming Assets

Media

Getting Indian banks back on the track – Hindustan Times

The post Commodity Prices and the Twin Balance Sheet Crisis first appeared on CSEP.

DOWNLOADS

• Download Working Paper

Abstract

India has a long-standing problem of data gaps, which have serious implications for fiscal policy and economic growth. The lack of transparency around off-budget borrowing is a major example of data gaps in India, and has been persistent across the union and state levels. This paper examines the regulatory framework and institutional gaps surrounding off-budget borrowings in India. It attempts to build a comprehensive understanding of the methods used for such borrowings and ascertains their true extent. The paper relies primarily on data from the CAG audits of the union and state finance accounts. It welcomes the Union’s recent actions to make transparent and begin to do away with the use of off-budget borrowings. However, the Union and States need to take more action to close this form of data gap. Meanwhile, the Union should ensure the full reporting of these borrowings. This calls for an improvement in the coverage, timeliness, quality and integrity of fiscal reporting, in line with international standards. Eventually, that could be best achieved with a comprehensive and consolidated Public Financial Management (PFM) law for the Union and the States.

The post An Analysis of Off-Budget Borrowings by Indian Governments and their Legal Context first appeared on CSEP.

Abstract

This study focuses on three aspects of the association between human development and economic growth in India: (i) the pattern of the relationship between economic growth and human development in India at the national and state levels; (ii) whether economic growth was converging at the state level; and (iii) whether human development was converging at the state level. In the last two decades, India outperformed advanced and developing economies in per capita income growth and health and education indicators, propelling itself into the virtuous category or in other words, where Economic Growth (EG) and Human Development (HD) are mutually reinforcing (high-EG, high-HD). By employing data for 26 states and union territories (UTs) for three decades (1990–2019), a diverse pattern was observed in the relationship between economic growth and human development, with most of the states (16) in the virtuous category, and the others in three different categories. However, no clear pattern emerged from the dynamic movements in the last three decades, as there were cases of states moving from one category in one decade to another category in different decade. There was no evidence of economically weaker and low HD states catching up with economically well-off and high HD states, respectively. However, club convergence was occurring, i.e., economically weaker states were catching up with economically better-off states in the low-income, high-HD club. Economically weaker and low HD states can catch up with economically well-off and high HD states only if similar conditions are created.

The post Economic Growth and Human Development in India: Are States Converging? first appeared on CSEP.

Abstract:

We study the effect of a law mandating disclosure of litigation status of housing projects on house prices in India. Information asymmetries between developers and buyers result in overpricing of litigated houses (lemons). We find that the introduction of the disclosure law led to a 4-6% decline in the prices of lemons relative to non-lemons. Our data on unit-level transactions, project details, and buyer characteristics allowed us to separate out the price effects across housing sub-markets and income groups. Our paper demonstrates that a mandatory disclosure law can have important, pro-efficiency effects in a developing country, and suggests that such laws may be efficient in a regime of low-state capacity.

The post Do Mandatory Disclosures Squeeze the Lemons? The Case of Housing Markets in India first appeared on CSEP.

DOWNLOADS

• Download Working Paper
• Download Addendum: Mineral Factsheets

This study is the second edition of Part 1 of the earlier CSEP Working Paper – 19 titled  Critical Minerals for India: Assessing their Criticality and Projecting their Needs for Green Technologies. https://csep.org/working-paper/critical-minerals-for-india-assessing-their-criticality-and-projecting-their-needs-for-green-technologies/

Abstract:

Critical minerals refer to mineral resources, both primary and processed, which are essential inputs in the production process of an economy, and whose supplies are likely to be disrupted due to the risks of non-availability or unaffordable price spikes. This paper extends the earlier assessment of  23 minerals for India by assessing the criticality levels of 43 select minerals for India based on their economic importance and supply risks, which are determined through the evaluation of specific indicators. Minerals such as antimony, cobalt, gallium, graphite, lithium, nickel, niobium, and strontium, among others, are critical for India. Many of these are required to meet green technologies, high-tech equipment, aviation, and national defence manufacturing needs. However, while India has a significant mineral geological potential, many minerals are not readily available domestically. Hence, India needs to develop a national strategy to ensure resilient critical minerals supply chains, which focuses on minerals found to be critical in this study.

The post Assessing the Criticality of Minerals for India 2023 first appeared on CSEP.

There is near unanimity that India’s GDP growth had been slowing down, even before the pandemic struck. Per capita growth averaged 5.3% per annum during 2012-20, but slid to 3.8% between 2018 and 2020. Opinion is, however, divided on whether this is a structural or a cyclical decline, and whether it has been caused by domestic or external drivers. As we come out of the two ‘lost years’ caused by COVID-19 (FY21 and FY22), accelerating growth assumes pivotal importance since it helps improve people’s lives by creating gainful employment, alleviating poverty, and so on. Clarity is needed, therefore, on what drives India’s economic growth. We analyse its growth performance over a period of 26 years (1994-2020) to answer these questions.

We break down growth in terms of three indicators – share of export in GDP, formalisation (share of large firms in national output), and ratio of corporate-investment to corporate-sales. While the first two indicators are driven by domestic competitiveness and global trade growth and hence are structural in nature, the third one is cyclical. Per capita growth accelerated by 3% between 1994- 2004 and 2004-08: half of this was due to structural indicators and the rest due to an unprecedented business cycle upswing. Since the business cycle played a significant role, part of the acceleration had to be corrected sooner or later. Consequently, the decline in growth of 1.1% between 2004-08 and 2008-12 was largely due to a business cycle downturn, with marginal improvement in structural indicators. Finally, the slowing down of growth by 0.6% between 2008-12 and 2012-20 can be attributed equally to structural and cyclical indicators. In a nutshell, the structural indicators have worsened since 2012, and need to be addressed urgently and effectively to accelerate growth going forward.

The reforms of the 1990s ushered in a competitive economy, allowing large Indian firms to expand without requiring a license, enter industries hitherto reserved for MSMEs (micro, small and medium-sized enterprises), and opening Indian markets to competition from the external world. Since large firms are on average four to eight times more productive than smaller firms, this unshackling resulted in formalisation increasing from 35% in 1995 to 45% by 2012. Opening up the economy to external trade also led to India’s exports in GDP to increase from around 7% in 1991 to 25% by 2012. Increase in competitiveness helped steadily increase India’s share in global export from about 0.6% in 1991 to about 2.1% in 2012. The domestic reforms were coupled with unprecedented growth in global GDP of about 3.5% per annum during the first decade of the new millennium, against the long-term trend of 3%, giving further impetus to India’s growth.

India’s growth story has lost steam since 2012. Formalisation has been declining, falling to 37% by 2020, while India’s share in global export has remained flat at 2.1%. The decline in formalisation has been caused by the unprecedented build-up of non-performing assets (NPAs) in the economy, precipitated by falling corporate profitability, among other reasons. Macro factors like the appreciating real effective exchange rate (REER) played a significant role in the stagnant share of our exports in global export. Lastly, the global economic environment itself has deteriorated sharply since the North Atlantic Financial Crisis (NAFC). Annual world trade growth was 15% during 2004-08, but fell to just 4% during 2008-12 and a to a paltry 1.2% during 2012-20.

It must be pointed out in no uncertain terms that large firms have already played a pivotal role in India’s growth performance so far, since they are common to both the structural growth indicators: Formalisation and export to GDP ratio. Formalisation increase happens, definitionally, because of expansion of share of large firms. Large firms account for about 55%-60% of India’s exports and hence are important to drive growth through the export route as well. Having said this, large Indian firms are yet to become global champions: Only about 15% of their revenue comes from exports, the rest from domestic sales.

Given the global headwinds and the fact that formalisation has a natural ceiling to it – the manufacturing sector is already 60% formalised and the services sector is at around 25% – we will have to work harder to even repeat our historical growth performance of 5.2% per capita annual growth over the last 26 years (1994-2020). India may get some help from the changing geopolitics, where international companies are looking to diversify their footprints beyond China as part of ‘China +1’ strategy and we could emerge as an alternative. However, it is important to realise that while geopolitical considerations play a role, final investment decisions are generally made keeping economics in mind. Thus, we cannot get complacent and not focus on reforming the economy.

‘India’s New Growth Recipe’ should focus on improving the competitiveness of our large firms by making them global champions so that they can tap into the unlimited external markets far more than what they have managed to achieve so far. This will not only re-ignite the formalisation channel, but more importantly, help us compete in the vast global market.

We are at an inflection point in our economic journey. If India does not confront its challenges head on and improve its competitiveness, its annual per capita growth may slide-down further to around 4.5% over the medium term. However, if it manages to strategically focus on its priorities, it can sprint-ahead and grow at 6.5-7.0% per capita.

The post India’s New Growth Recipe: Globally Competitive Large Firms first appeared on CSEP.

India is a mineral-rich country. While mining is essential to the development of the Indian economy, it is associated with costs to the environment and the local communities. There are four major steps in the mining lifecycle – granting the mining lease; obtaining the relevant licences and permits; producing minerals; and end-of-life practices, such as mine closures. This paper focuses on the second stage of the mining process, that is, obtaining the relevant licences and permits. This stage also includes addressing the issues of displacement and rehabilitation of the local communities through public hearings. The paper discusses three case studies on Jharkhand, Odisha and Karnataka to highlight procedural problems with these regulations. Based on the observations related to the case studies and the procedural norms involved, several regulatory reforms including pre-embedded clearances, social impact assessment and single-window processes are suggested. These recommendations focus on bridging the gap between the regulatory policies and long-term sustainable mining practices.

The post Post-Lease Clearances: Streamlining the Time-Cost first appeared on CSEP.

The post Climate Change, Weather Anomalies, and Agriculture: Impact on Output of Major Crops in India first appeared on CSEP.

Health systems in Thailand have been frequently researched since its reforms in early 2000s, especially in the context of  health coverage (UHC). Globally, Thailand comes closest to having achieved UHC, adhering to the principles of universality, comprehensiveness, and equitable access. The country has followed the path to UHC since 2001, even before it became a global sustainable development goal. There was one major reform in Thailand that took place in 2001 that defined its journey to UHC. Minor reforms have been occurring in the development of infrastructure and expansion of human resources in health since the 1970s. Since 2002, the Universal Coverage Scheme has been the single defining and most significant driving force of the Thai healthcare system. Despite political disruptions, coups, and military rule, the UHC has been upheld. The system has institutionalised consensus building across stakeholders and interest groups, including citizen representatives, to provide universally accessible services. The health outcomes show that Thailand performs better than many upper-middle income countries and has among the lowest out-of-pocket expenditure (OOPE) in the world.

The post Health System in the Kingdom of Thailand: Reforms, Achievements and Challenges first appeared on CSEP.

This paper analyses the Brazilian health system in the backdrop of the country’s health system reform, Sistema Único de Saúde (SUS), implemented in the 1990s. The objective of this analysis is to draw lessons for health system strengthening aimed at access and equity in health services, financial protection and improved health outcomes for lower and upper middle income countries aspiring to achieve universal health coverage (UHC). The paper traces the trajectory of health system reform in Brazil, from 1990 to 2019, and analyses the contextual factors that drove the reform process.

Prior to SUS, the Brazilian health system experienced challenges ranging from centralization in financing and administration, a fragmented health delivery system with predominance of private sector, with low public spending in health causing inequities in the distribution of health resources. These led to high out of pocket expenditure on health, regional disparity in access and health outcome.  To address the gaps, SUS took several measures including the decentralization of the health system, strengthening  primary care services, constitution of health as a legal right, and leveraging private sector by applying contracting mechanism with effective regulation through the  establishment of  autonomous agencies.

These  interventions contributed to reducing regional disparity in health care access, outcome, and financing.  The inequity in maternal and child health outcomes witnessed considerable improvement, along with an increase in the coverage of preventive services. Through the Family Health program, th reform led to an increase in primary health care coverage  from 6.7 percent in 1998 to 75 percent in 2019. Out of pocket expenditure (as percentage of total health expenditure) reduced from 39 percent in 1995 to 28 percent in 2020. Despite these achievements, gaps remain in terms of the greater utilization of SUS linked hospitals instead of PHC, persistent utilization of private facilities (covering 25 percent of the population), rising disease burden due to non communicable disease, and relatively high out of pocket expenditure. This paper attempts to understand the key policy instruments that contributed to these positive shifts and the context within which they were successful.

The post Health System in Brazil: Reforms, Transformation and Challenges first appeared on CSEP.

Though Indonesia is categorised as a lower-middle-income country (LMIC), it has shown progress in strengthening its health systems since the 1950s. This paper studies Indonesia’s journey in transforming the provisioning and financing of its health services since President Soekarno’s regime in the 1950s and 1960s. The country has gone through several reforms in the past few decades. Indonesia began its development journey optimistically in the 1950s but was unable to progress towards universal, comprehensive, and equitable health services due to several barriers such as geographic constraints, political struggle and tensions between the centre and remote islands, and the privileging of civil servants and military personnel. The Suharto era (1966–98) was characterised by similar challenges, but it saw the development of health infrastructure at the primary level as well as the growth of the private sector. However, access to health services was still weak as the majority of the population lacked financial protection. The Asian financial crisis of 1997 led to a political
transformation towards democratisation as well as a significant move towards decentralisation. To appease the population in a context of economic instability leading to social unrest, health insurance schemes to cover the poor and near-poor populations were launched over the next few years. The 2004 Social Security Law was passed, but the mandate of providing universal coverage to the population was implemented only in 2014, when various insurance schemes were merged into a single pool and a Social Security Management Agency was created to administer the National Health Insurance. The health system in Indonesia is characterised by low funding for health but has been an ambitious plan to provide coverage to all through insurance mechanisms that include individual contributions and government subsidies. This paper analyses these transformations systemically and studies the achievements and challenges in reforming health services in Indonesia over the years to the present.

The post Health System in the Republic of Indonesia: Reforms, Transformations, and Challenges first appeared on CSEP.

This paper studies three of the many challenges that state governments will face as India transitions away from a fossil fuel–driven economy. We estimate that the current dependence on fossil fuel is by way of state government revenues from fossil fuels, ownership of thermal (coal) power units, and employment in coal mining. We also assess the expected time path of the various transition processes in each of these three areas. While the transitions will present challenges for each state, some will require greater efforts in managing the process smoothly. Budgetary revenues are likely to take a significant “hit” as fossil fuels currently account for a significant share of state government revenues, though there are significant state-level differences. Many states have significant ownership of coal power capacity, replacing which will impose an additional burden on the states. However, we find that direct employment in coal mining is limited or insignificant in most but a handful of states, and, therefore, the necessary protection and support required for the labour transition will present a high expenditure burden in only a handful of states.

The post Critical Challenges in Realising the Energy Transition: An Overview of Indian States first appeared on CSEP.

Understanding India’s progress on health requires an examination of such progress across different states. While many aspects, including fiscal health, governance, institutional capacity, and others influence health progress, the political priority accorded to health by a state’s leadership remains a key driver. This paper examines the socio-political determinants of attention to health in five Indian states.

The analysis surfaces four insights. One, political ideology plays a role in driving attention to health, but political legitimacy can be linked with healthcare to drive attention in the absence of an ideological driver. External stakeholders can create the environment where legitimacy is linked with healthcare. Two, sensitizing politicians to electorally rewarding policies elsewhere, and relevant to the state’s development journey , can motivate them to act. Three, state capacity is a key variable in the confidence to undertake reforms and the choice of reforms. Four, both the Central government and external stakeholders such as civil society can contribute to agenda setting at the state level.

Authors: Sandhya Venkateswaran, Mayank Mishra and Nikhil Iyer

The post The Political Journey of Healthcare in Select Indian States first appeared on CSEP.

The provision of international financial assistance to help developing countries undertake measures for climate change mitigation and adaptation is a fundamental element in the UN Framework Convention on Climate Change (UNFCCC) under which the negotiations on climate change are being conducted. This paper attempts to quantify the scale and possible composition of international financial assistance that might be required to help developing countries fulfil the commitments undertaken in COP26.

The paper is in four parts. Section I provides a brief historical review of how the commitment to provide financial assistance evolved since the start of the negotiations in 1992. Section II reviews estimates emerging from different studies of the additional investment that developing countries will have to make to meet the challenge of containing global warming to 1.5°C above preindustrial levels. Section III provides an assessment of the potential scale of international financial assistance that might be needed to make this investment possible. Section IV examines the role of multilateral development (MDBs) banks in raising the amount of financial flows to the required level.

The post Financing Climate Change Adaptation and Mitigation in Developing Countries first appeared on CSEP.

DOWNLOADS

• Download Working Paper
• Download Working Paper
• Download Working Paper
• Download Working Paper
• Download Working Paper
• Download Working Paper

The Health System Reforms and Transformation: Insights from Country Studies is a series of six case studies from China, Turkey, Mexico, Brazil, Indonesia, and Thailand that trace the trajectory of health reforms and draw lessons in understanding key instruments that led to these shifts.   The papers study the development of  each country health system over the past decades in the context of the country’s political, social and economic transitions. They seek to draw lessons for health system strengthening, access and equity in health services, financial protection and improved health outcomes for lower and upper middle income countries  following the path to universal health care.

The papers study the development of country health systems over the past decades in the context of the country’s political, social and economic transitions. They seek to draw lessons for health system strengthening, access and equity in health services, financial protection and improved health outcomes for lower and upper middle income countries following the path to universal health care.

Read the case studies:

• Health System in Turkey: Reforms, Transformation and Challenges
  Turkey has demonstrated progress on the three dimensions of universal health coverage (financial protection, improved health outcomes and citizen satisfaction) by addressing fragmentation in the financing and provision system, improving accountability by performance based incentives, expansion and balanced distribution of the health workforce, and a focus on primary healthcare.
    
• Health System in People’s Republic of China (PRC): Reforms, Transformation and Challenges
  China attained universal coverage by first addressing breath and then depth of coverage. They went through a path of course correction after acknowledging that financing and provisioning were intricately linked to address equity and efficiency. They still face challenges defined by regional disparities and a hospital centric system that has raised cost of care. China’s experience underlines the importance of an ongoing assessment of health systems and reforms as a continuing and evolving process.
    
• Health System in Mexico: Reforms, Transformation and Challenges
  The separation of financing from provisioning was a key element of Mexico’s structural reforms, but was not leveraged for improving performance as the absence of conditionality for fund flows, which remained de-linked from results, failed to improve accountability or efficiencies in services.
    
• Health System in the Republic of Indonesia: Reforms, Transformations, and Challenges
  Indonesia’s journey towards universal health coverage has been defined by expanding the breadth and depth of coverage through insurance schemes. While there is an adequate presence of primary health services, barriers towards successful UHC and increasing deficits can be attributed to a large private sector, the voluntary nature of insurance for the informal sector and disparities in distribution of resources between the main and remote islands.
    
• Health System in Brazil: Reforms, Transformation and Challenges
  Brazil has made consistent progress in achieving UHC through decentralisation; integration of healthcare activities under the stewardship of the MoH, thereby regulating the private sector; and a greater emphasis on primary care (constituting family health team). However, challenges remain in terms of inequitable distribution of resources and persistent utilization of private facilities.
   
• Health System in the Kingdom of Thailand: Reforms, Acheivements and Challenges
  When Thailand made a political and policy decision to universalise health care in 2002, it had already created a strong base of primary health services and human resources over which they expanded financial protection to cover the entire population. Involving multiple stakeholders, including citizen groups, in designing health systems; purchaser-provider split; comprehensive benefits from preventive to curative services and; institutionalising monitoring and accountability mechanisms have been critical to achieving universal access. 

The post Health Systems Reforms and Transformations: Insights from Country Studies first appeared on CSEP.

The Government of India introduced the Clean Environment Cess (CEC), to be levied on the total sales (including imports and exports) of all types of coal in India, in 2010 to reduce emissions and tackle climate change. This paper seeks to measure the impact of this cess on greenhouse gas (GHG) emissions and the gross domestic product (GDP) at both the sectoral and national levels. It examines these questions by modelling the impact of the CEC using a hybrid Energy Input–Output (EIO) framework. The EIO for India for 2015–16, published by the Centre for Social and Economic Progress (CSEP), is the major data source for this study. The rate of the CEC was Rs 200/tonne in 2015–16. It was increased to Rs 400/tonne in 2016–17. However, the actual collection rate of this levy was Rs 144/tonne and Rs 324/tonne, respectively. This increase of Rs 180/tonne in the actual tax levied resulted in around 0.09% reduction in the GDP, while emissions from coal and petroleum products reduced by only 1.06% and 0.23%, respectively. The sector most affected by this cess was the coal electricity sector, with a potential reduction of around 1.5% in its proportion of gross value added. This was followed by a 0.47–1.2% reduction in the proportion of gross value added of the coal and lignite, cement, crude petroleum, and iron and steel sectors. The reduction in emissions across sectors also followed the same order, as the decrease in output led to lesser emissions. Thus, the CEC alone is not a useful tool for meeting India’s climate change targets. However, a similar cess on the production of other high-emitting sectors—such as fertilisers, iron and steel, non-ferrous basic metals, paper and paper products, and textile and leather—may help.

The post Modelling the Impact of the Clean Environment Cess: A Hybrid Energy Input-Output Approach first appeared on CSEP.

The Indian banking system faced a significant challenge after 2011 with an increasing quantum of non-performing assets (NPAs). By the late 2000s, NPAs (as a percentage of gross advances) had decreased to less than 3.5 per cent. The downward trend in NPAs did not continue as NPAs began to rise in 2011 and peaked at 11.18 per cent in the fiscal year ended in 2018. As expected, the rise in NPAs occurred with the deterioration of the balance sheets of non-financial firms, and this twin balance sheet crisis contributed significantly to the deceleration of growth in the late 2010s.

The problem of NPAs has been argued as a problem of public sector banks due to the disproportionate share of non-performing assets with them. Poor management and governance issues in public sector banks have been cited as the major reasons for this. In fact, these governance issues have been the main argument in support of the privatization of these banks. But this poor governance does not explain the improvement in performance that public sector banks saw throughout the 2000s, a run that was followed by a sudden deterioration post-2010. It is improbable that governance suddenly improved and subsequently dwindled. Moreover, most of these NPAs arose due to defaults by private sector non-financial firms, making it more difficult to accept governance issues as a prominent reason for increasing NPAs. Since this narrative is simple and easier to communicate, it has stymied systematic scientific research in the area. This is a serious gap, as the economic factors, if any, influencing defaults by non-financial firms need to be understood to formulate effective policy at present, and to build a resilient financial system in the future.

A careful examination of the data reveals genuine economic reasons for the increase in NPAs. The rise in NPAs from 2011 onwards coincides with the fall in international commodity prices. This is not the first time we observe this co-movement of global commodity prices and NPAs. Even in 2008, a fall in commodity prices led to a rise in NPAs, and the decline in commodity prices in the late 1990s too strained the balance sheets of banks in India. As commodity prices recovered, NPAs also reduced in these episodes. These two previous downturns in the commodity market were not as prolonged and severe as the one between 2011 -16, thus, the latter was expected to strain the balance sheets of banks. This close link between commodity prices and non-performing assets has stood the test of time and is a causal relationship working via the worsening of profitability of non-financial firms which leads to defaults by them, and in turn, creates non-performing assets for banks.

A study of balance sheets of non-financial firms in India shows that the profitability of firms and international commodity prices are tightly linked. A decline in international commodity prices leads to a decline in raw material costs but it also leads to a more than a proportionate decline in sales revenue, and that combined with fixed labour costs crunches the margins of these firms. The persistent fall in commodity prices during the 2010s added pressure to these margins, rendering many firms unable to sustain their debt burdens. In other words, large adverse movements in prices, compared to the projected prices in 2010 and before on which business decisions were made, caused higher corporate default. Hence, we find that banks that were more exposed to sectors that experienced a large decline in prices had higher non-performing assets than other banks which were not exposed to such price changes.

However, banks lend to a large number of sectors with heterogenous price movements and that makes the estimation of the effect of movements in prices on non-performing assets difficult. To overcome this, we create a nominal price index for banks using novel data on banks’ sectoral exposure and commodity prices. We multiply the percentage of loans to a sector with sectoral price in the year and sum it over all the sectors for a bank to obtain the nominal price index. This captures the bank-wise heterogeneity in exposure to income shocks caused by a decline in commodity prices. Results suggest that a decline in exposure caused by an exogenous decline in prices leads to a significant increase in non-performing assets, and these models explain ~30% of the increase in non-performing assets. Since public sector banks in general had higher exposure to commodity-sensitive sectors, they experienced a relatively higher decline in the nominal price index and a bigger rise in non-performing assets after the price crash of the 2010s.

The ramifications of the aforementioned findings are critical. First, it helps us decipher the twin balance sheet crisis of the 2010s which affected growth adversely and has not been understood so far. Second, the NPAs argument has spawned a larger debate about privatising public sector banks as higher NPAs have been attributed to poor governance and management practices in public sector banks. However, to blame bad governance as the only reason for non-performing assets is too simplistic.

Downward movement in commodity prices played a significant role in causing non-performing assets to increase post -2011, as in the past. This is the reason that in the last two years, despite the worst kind of economic crisis due to COVID-19, we have hardly heard about any stress in the banking sector and this is partly because COVID-19 brought higher commodity prices with itself.

Keywords: Non-performing Assets; Commodity Prices; Sectoral Exposure; Sectoral Prices

The post Commodity Price Shocks and Non-Performing Assets in the Indian Banking Sector first appeared on CSEP.

Abstract:

This paper analyses the health systems in Mexico in the backdrop of the Seguro Popular (SP) reform implemented in the early 2000s. The objective of this analysis is to draw lessons for health system strengthening aimed at access and equity in health services, financial protection and improved health outcomes for lower and upper middle income countries aspiring to achieve universal health coverage (UHC). The paper traces the trajectory of health system reforms, including and prior to SP, from 2003 until 2019, and analyses the contextual factors that were instrumental in the reform process.

Mexico introduced several initiatives in the decades before the SP reforms in the form of decentralization, conditional cash transfers, targeted medical interventions, leveraging the private sector, and improving primary care coverage. These contributed to improved outcomes but inequities in access to health services and outcomes persisted. Government spending on health remained low in this period and household expenditure on health was high. To the address the gaps, SP applied three key policy levers; 1) introduction of a purchaser–provider split and the creation of an autonomous decentralized agency to allocate and oversee the expenditure of funds at the provider level; 2) allowing greater participation of private providers through contracts to increase patient choice and subsequently coverage; 3) an increase in public expenditure.

SP extended coverage for both basic illness and complex procedures to the uninsured population.  The reforms led to the provision of health insurance to 43.5 percent of the total population which were previously uninsured. Out of pocket expenditure (as percent of total health expenditure) reduced from 52 percent in 2000 to 42 percent in 2018. SP reduced child mortality and increased coverage among the urban poor. Despite these achievements, gaps remain in the form of inequity in access to health services, financing, rising disease burden due to non communicable disease, and high out of pocket expenditure. This paper attempts to understand the key policy instruments that contributed to these positive shifts and the context within which they were successful.

The post Health System in Mexico: Reforms, Transformation and Challenges first appeared on CSEP.

DOWNLOADS

• Download Working Paper

Abstract:

This paper analyses the Turkish health system in the backdrop of the Health Transformation Program (HTP) implemented in the early 2000s. The objective of this analysis is to draw lessons for health system strengthening aimed at access and equity in health services, financial protection and improved health outcomes for lower and upper middle income countries aspiring to achieve universal health coverage (UHC). The paper traces the trajectory of health system reform in Turkey, from 2003 to 2019, and analyses the contextual factors that drove the reform process.

Prior to HTP, the Turkish health system experienced challenges ranging from fragmentation in health financing and provisioning, gaps in the availability of health workforce and infrastructure, and a lack of accountability in service provision. These led to high out of pocket expenditure on health, inequities in access and health outcome, and consequently patient dissatisfaction. HTP took several measures including the integration of five insurance schemes, separation of purchasing from provisioning, constitution of health as a legal right, expansion of the autonomy of public hospitals, strengthening primary care, and the implementation of universal health insurance scheme.

These reform interventions contributed to reducing regional disparity in health care access, outcome, and financing, with increased patient satisfaction.  The inequity in maternal and child health outcomes witnessed considerable improvement, along with an increase in the coverage of preventive services. The reform led to increase in health insurance coverage from 70 percent in 2002 to 99 percent in 2019. Out of pocket expenditure (percentage of total health expenditure) reduced from 19.8 percent in 2002 to 16 percent in 2020. Despite these achievements, gaps remain in the form of continuing secondary care focus, rising disease burden due to non communicable disease, and catastrophic expenditures. This paper attempts to understand the key policy instruments that contributed to these positive shifts and the context within which they were successful.

The post Health System in Turkey: Reforms, Transformation and Challenges first appeared on CSEP.

Abstract:

This paper studies the development of the Chinese health system over the past several decades given its political, social and economic context. The objective of conducting this review is to draw lessons for health system strengthening, access and equity for countries who are following the path to universal health care. The health services in China have gone through several phases of reforms – in financing, provisioning and governance – and the paper outlines the salient features of these reforms and their impact in terms of access, utilisation and equity through a systems framework. It then looks at the achievements and challenges that still exist and highlights the lessons that would be imperative for other lower-middle and upper-middle income countries. This paper traces the development of the Chinese health system from the Mao era (1950-1980) to the present. In the Mao years, health of the population was central to the development process and health outcomes significantly improved due to universal access to food, preventive and promotive services and basic medical care. The focus was on rural development and communes were central to the process of social and economic development. China moved from a socialist economy to a “market economy with socialist characteristics” (market socialism) in 1978. This dramatic shift led to dismantling of the collectives and subsequent breakdown of health services which were managed by the collectives. The central government subsidies to health services came down dramatically and the responsibility of generating funds for health services transferred to local governments and public health facilities. The public health facilities started behaving like commercial enterprises in order to survive. This saw an increase in out-of-pocket (OOP) expenditure that reached a peak of 61 percent in 2001. The public discontentment followed by the SARS epidemic of 2003 put the Communist Party of China (CPC) on the backfoot and they introduced a series of reforms in financing in early 2000s–this included launching insurance schemes (for rural residents, urban employees and urban residents). These reforms were still unable to improve access due to shallow coverage and benefits as well as the lack of focus on supply-side issues. The 2009 reforms thereafter, were a watershed in terms of course corrections. Since 2009, reforms have been undertaken to universalise insurance coverage with considerable increase in contribution from the government; strengthen primary care services (including preventive services) and to create a referral system; develop an essential medicine list; make public hospitals more efficient; and give more space to private sector investments in provisioning and financing. The outcomes have resulted in reduced OOP and significant improvements in some key health indicators but despite these progressive reforms and reduced OOP, the Chinese health system faces challenges of access, equity and high costs. This paper tries to unravel the complex health system that has emerged over the years and lessons that can be drawn from the Chinese experience.

The post Health System in People’s Republic of China (PRC): Reforms, Transformation and Challenges first appeared on CSEP.

Executive Summary:

This paper looks at India’s expected energy transition towards a low-carbon future, and studies how government revenues from fossil fuels will be affected over the next two decades. It takes the International Energy Association (IEA 2021) scenarios for India and studies how both tax revenues and non-tax revenues for national (Central) and sub-national (State) governments would be affected. The study finds that under fairly standard assumptions on growth, prices and taxes, there would be continued growth in revenues from fossil fuels till 2040. However, revenues would fall significantly as a share of the gross domestic product (GDP) and overall government budget, and this would impose challenges for both the Central and State governments in India. Moreover, since the Central government is the greatest beneficiary of fossil fuels, it would face the brunt of the pressure. The paper also briefly discusses the possible impact of net zero and carbon taxes were India to take that route, as well as how subsidies are expected to impact and be impacted by such considerations.

The post India’s Energy and Fiscal Transition first appeared on CSEP.

This paper was originally published on July 6, 2022. An updated version of this paper was published on September 13, 2022.
Executive Summary:

The Glasgow Climate Summit (COP26) deserves credit for getting many developing countries to accept, for the first time ever, a long-term commitment to reduce the level of carbon emissions to net zero. This is a major break from their position in Paris 2015, where they only committed to reducing the emissions intensity of their gross domestic product (GDP). The new position reflected an acknowledgment of the seriousness of the problem of global warming and of the opportunities presented by new technology.

The seriousness was highlighted by the Inter-governmental Panel on Climate Change (IPCC), which warned that if nothing is done global warming is likely to reach at least +2.8°C by the end of the century and this would have very negative effects on all countries with the developing countries being the worst affected (IPCC, 2021; 2022a). Meanwhile, developments in the technology presented new opportunities making it possible to meet the energy demand from renewables, thus effectively decoupling emissions and economic growth.

Most advanced countries, including some developing countries like South Africa, Vietnam, Thailand, etc., announced 2050 as their net zero date. China, Russia, Saudi Arabia, Indonesia, Nigeria and others committed to reach net zero by 2060, and India by 2070.

This paper examines the challenges India will face in implementing its commitments. Section I summarises India’s COP26 targets and outlines the broad strategy we must follow to achieve them. Sections II to V focus on what can be done to reduce emissions in sectors which account for almost all of the country’s carbon dioxide (CO2) emissions, viz: power generation (50% of emissions in 2019), industries (32%), transport (13%), and buildings (5%). Section VI discusses afforestation and carbon capture, utilisation and storage (CCUS) as ways of dealing with residual emissions. Section VII presents an assessment of the likely investment requirements of this transition. Section VIII presents the main conclusions.

The post Managing Climate Change: A Strategy for India first appeared on CSEP.

DOWNLOADS

• Download Working Paper

Abstract:

A robust Public Financial Management (PFM) system contributes to enhanced accountability and transparency in governance, and is associated with efficient and equitable public service delivery, poverty reduction, and economic growth. India’s existing PFM framework is scattered across a wide range of provisions and is riddled with inconsistencies. There is a need to bridge the gap between the high-level PFM structure contained in the Constitution, and the operational details found across guidelines, rules, regulations, and manuals at the Union and State levels. In this context, this paper looks at the key areas in which India needs PFM reforms, building on the provisions of a draft PFM law prepared by an expert group and cited by the Fifteenth Finance Commission. These include fiscal responsibility, the Annual Budget, financial management, reporting and accounting, and legislative and executive oversight. We study the existing frameworks in these areas and propose reforms, drawing from international experience and best practices, with the aim of charting a comprehensive way forward for PFM in India.

The post Reforming the Public Financial Management System in India first appeared on CSEP.

DOWNLOADS

• Download Working Paper

Executive Summary

This working paper assesses the level of criticality of 23 select minerals for India’s manufacturing sector. Various indicators quantify the criticality along the dimensions of economic importance and supply risk. The paper projects India’s mineral needs for green technologies, including renewable electricity generation and electric vehicle manufacturing, in line with the country’s various climate change mitigation objectives over the next two decades.

Lithium, strontium, and niobium have relatively high economic importance, and heavy rare earth elements, niobium, and silicon have relatively high supply risks. The results of this projection exercise indicate that India is not equipped to meet its green technology requirements through domestic mining alone. Imports of minerals for domestic manufacturing or imports of the final product (embedded in these minerals) will be needed to meet its policy agenda on climate change mitigation.

While India would need to rely on imports for these technologies over the next two decades, further work must be done to better utilise the available minerals within the country for its longer-term needs. Newly installed renewable capacity today will require replacement after two to three decades. India can be better prepared for the next stage of green technology utilisation by laying the groundwork for exploring and mining. The country has resources of nickel, cobalt, molybdenum, and heavy rare earth elements, but further exploration would be needed to evaluate the quantities of their reserves. Part 1 of this study shows that this is particularly important for heavy rare earths and cobalt due to their high supply risks. While nickel currently has a lower supply risk than the other minerals in this study, it has high economic importance, and an assured domestic source would help lower the supply risk.

There are some minerals where India has no known resources, such as lithium and indium, and here the country must focus on securing supply chains for these minerals and acquiring foreign mineral assets to ensure their continuous supply.

The study results point to policy recommendations for ensuring uninterrupted supplies of critical minerals through enhanced domestic mineral exploration and extraction, along with assured sources elsewhere. The import risks of critical minerals may be reduced by developing resilient supply chains, signing trade agreements, and acquiring mining assets abroad. In addition, government-to-government engagement efforts through KABIL need to be supplemented with the acquisition of private mines.

The post Critical Minerals for India: Assessing their Criticality and Projecting their Needs for Green Technologies first appeared on CSEP.

Fiscal marksmanship examines the degree of correspondence between budgeted projections of revenue and expenditure, and actual receipts and spending. Assessing budget credibility through fiscal marksmanship analysis is critical in light of the COVID-19 pandemic, which has affected the revenue-raising capacity of states. This paper aims to comprehensively analyse and understand sub-national fiscal marksmanship, with a particular focus on capital expenditure in the social sector. It covers the period of 2010-2018, and looks at marksmanship ratios and forecast errors across those years for 15 major states, selected based on the magnitude of their capital expenditures. It also carries out an assessment using the Public Expenditure and Financial Accountability (PEFA) framework, and ranks states accordingly. Further, it attempts to understand the sources of the forecast errors, using Theil’s coefficient and by partitioning the errors, to ascertain whether the observed errors in the budget can be improved upon or not. It finally makes an attempt to contextualise and understand some of the causes behind the observed trends in sub-national fiscal marksmanship.

The post A Study of the Fiscal Marksmanship of Capital Expenditure Among Indian State Governments first appeared on CSEP.

There are vast variations across countries in terms of public investments in health, health outcomes, and progress towards universal health coverage. However, neither economic status nor knowledge of solutions has borne out to be binding constraints to health improvements. The drivers of universal health coverage surpass the macro-economic context of a nation, and as pointed out by scholars (Atun et. al., 2013; Yilmaz 2017), are deeply linked with the extent of political prioritisation of healthcare. Low public investments in health in India, and the slow movement towards universal health coverage, underline the need for greater political prioritisation of health in the country.

While the role of politics in policy reforms has been established by several scholars (Reich 1995; Walt 1994; Bambra et al 2005), this paper seeks to identify the intrinsic motivations or incentives that drive political priorities. Drawing on the experience of nine countries, this paper seeks to contribute to the discussion on the political incentives for prioritisation of healthcare in countries like India and how these may be shaped or strengthened.

The paper finds that healthcare reforms happen in (at least) two stages: the existence and recognition of a national context and a problem, followed by the emergence of political opportunities and motivations that lead political leaders to address the identified problem. This paper distinguishes motivation as a crucial factor for analysis because, in the absence of strong incentives, not every political opportunity leads to an issue receiving attention. Our paper also finds that reforms are motivated by an incoming regime’s need to gain political legitimacy, its political ideology, or a combination of the two.

Importantly, political motivation does not always arise by itself, but it is often driven by external factors and stakeholders who contribute to creating or strengthening incentives for political attention. A more proactive role played by citizens and other actors who question the status quo and highlight the schisms in the social contract between a political regime and citizens may contribute to shifting the source of legitimacy for leaders.

The post Political Motivation as a Key Driver for Universal Health Coverage first appeared on CSEP.

Executive Summary:

This study compares electricity prices across countries in an attempt to understand whether electricity is cheap (or expensive) in India. Electricity prices vary across the globe. However, a simple comparison can be misleading, as prices include a number of components, vary across consumer types, and levels of consumption. This paper aims to draw lessons for India and its electricity pricing structure by comparing prices in a granular fashion, across a sample of both developed and developing countries.

While a range of factors—including taxation structures and the degree of market competition—explain why electricity prices vary by market, it is clear that cost-reflective pricing (on a number of quality indicators) is crucial for the proper functioning of the electricity sector. Effective pricing is key to the efficient overall functioning of the electricity sector. However, pricing must also be balanced with affordability concerns, for which options other than cross-subsidies can be considered. Effective pricing is especially urgent, given the financial state of India’s electricity distribution companies (DisComs), and the scale of transformation and investment required for India’s electricity sector to meet its climate mitigation and renewable energy targets.

While India has low electricity prices on average, the poor quality of supply adds a cost for consumers, especially for those consumers who rely on back-up power. Indian electricity is amongst the most expensive in the world, when measured on the basis of purchasing power parity (PPP). The spread in prices by consumer type—residential, commercial, industrial, and agricultural—is also amongst the highest in the world. Commercial users and industrial users pay high prices (industrial users especially so), because of social welfare redistribution norms and attendant cross-subsidies. Users in these two categories pay high prices not just in relative terms but even in absolute terms (using market exchange rate comparisons).

Electricity prices are a balance between affordability and viability of the supplier. A number of case studies point to the tools available to tackle issues such as affordability and competitiveness. These tools include tax exemptions for certain large consumers (in Germany); a subsidy regime (in Indonesia); and varying ownership structures (in the USA). There are also disparities between the ‘developing’ countries selected for the present study, and they cannot always be clubbed together. Given that Indian DisComs lose money on average, consumer prices will need to rise even after achieving maximum efficiency gains (improving losses). This analysis shows that such price rise should not be spread across consumer categories but should focus on selected consumer types.

Selected highlights from the paper:

Electricity retail (consumer) prices are meant to cover costs, but most countries have differential pricing for different types of consumers. India is relatively unique amongst larger nations where the majority of differential is based on social welfare redistribution, as opposed to supply marginal cost efficiency.

We see below the split by consumer type across major nations. While it is well known agricultural and household consumers under pay, what is important is that C&I users don’t just overpay, in other countries, their retail tariffs are also much lower than average, to the extent that India’s absolute commercial pricing is often higher than some other countries. This is before accounting for affordability (PPP methods) or quality of supply.

Figure 1: Consumption Category-wise Electricity Prices (FY19)

1. Retail Electricity Pricing

Making retail tariffs reflect costs for end-users would mean lowering of C&I tariffs in India, not merely because of the cross-subsidy, but also because the cost-to-serve such users especially bulk users is lower than average. Hence, voltage level pricing would further increase the discrepancy between India and many of its peers.

As Figure 2 shows, the actual price paid by many large industrial users is much lower than the notified or average price for that segment. Regulators or policy-makers explicitly reduce their charges through tax or surcharge waivers/reductions.

Figure 2: Reduced Effective Price for Large Industrial Consumers in Germany (2017)

Lowering bulk consumer prices is important not just for global competitiveness, but also because such users will otherwise exit the grid though RE generation or 3rd party procurement.

1.1 Heterogenity

• India shows huge heterogeneity at sub-national level. Countries like the US also have similar heterogeneity, but the US relative spread by categories is more consistent by category (see Figure 3).
• The Indian electricity pricing spread is much more distorted, which suggests that impact of political economy matters more than underlying economics when setting retail tariffs.
• In the US the average spread (category average price to total average price) ranges from 1.2 for domestic consumers, 1.0 for commercial users, and 0.66 for industrial users (Figure 3).

Figure 3: Spread of Prices by category for the US and India (FY19)

2. Cost Coverage of Electricity

• While a few countries operate under markets, many regions, including India, operate on cost-plus regulation, covering all the cost incurred. However, Indian cost recovery is less than costs, leading to a low or negative rate of return.
• While efficiency (reducing AT&C losses) can help reduce costs, adding in a proper rate of return would raise costs. Notional India Return on Equity is 14-15.5%, but these are rarely achieved.
• There are several reasons for the low RoE, including mis-valued asset bases, lack of payments received and so on. This further shifts the burden on to lending institutions and governments as DisComs attempt to make up shortfalls.
• There is no single market system or structure that inherently has lower costs – factors like fuel supply, consumer mix, legacy issues, etc. all play a strong role in setting costs, which vary within countries as well.

Figure 4: Average Cost of Supply and Average Revenue for Energy Sold (2018)

Even if Germany, UK, and US are expensive per unit electricity, they are commensurately high in quality of service and affordability. India’s T&D losses (distinct from AT&C) are 20.6 %, worse than peers like Brazil and South Africa. SAIDI and SAIFI are on the poor extremes too. In terms of affordability, India’s household expenditure on electricity is 1.53% of total income, which is low only due to low levels of consumption, but consumption is only expected to grow. If household prices continue to stay artificially low, the burden on DisComs will only continue to increase, which highlights the urgency of the issue.

In addition to pricing improvements by the regulators, increasing use of market mechanisms can also bring in wholesale (procurement) pricing efficiency.

The post A Granular Comparison of International Electricity Prices and Implications for India first appeared on CSEP.

In this paper, India’s 131-sector Input-Output Table 2015–16 is used to compute the direct and indirect energy consumed and emissions produced by the intermediate production and final-use sectors of the economy through the construction of a 34-sector hybrid Energy Input-Output Table (EIOT). The EIOT contains ten energy sectors: coal and lignite, biomass, crude petroleum, natural gas, combustible petroleum products, non-combustible petroleum products, coal electricity, other thermal (natural gas and petroleum products) electricity, large-scale hydro-electricity, and renewable energy sources & nuclear electricity. Of these ten sectors, three produce emissions when burnt: coal and lignite, biomass, and combustible petroleum products. While the input-output transaction flows are expressed in monetary terms, the flows of energy have been expressed in kilotonnes of oil equivalent (ktoe), and the flows of emissions have been expressed in tonnes of carbon dioxide equivalent (tCO2e). A hybrid unit approach is used by taking the constructed 34-sector EIOT to compute the Leontief inverse matrix in ktoe and tCO2e terms, which provides the coefficients indicating each sector’s direct and indirect energy requirements and emissions per rupee of final demand. The data for this research has been sourced from India’s Supply and Use Tables, Energy Statistics, Coal Directory, Petroleum & Natural Gas Statistics, Electricity Statistics, Biennial Update Report and IPCC Guidelines for National Greenhouse Gas Inventories. The results of the emissions analysis show that sectors have embedded emissions from their consumption from upstream industries. When making projections for the future growth of these sectors, these should also be considered. Low-emission technologies in the upstream sectors will reduce indirect emissions from downstream sectors – for example, increasing the share of renewable electricity generation will reduce indirect emissions from electricity-intensive sectors. Policies are needed to reduce emissions by adopting more-efficient production technologies and conserving the use of coal and petroleum products.

The post A Hybrid Energy Input-Output Table for India first appeared on CSEP.

Land and property has been governed by the Indian state in rather conflicting ways in the past. While the first amendments to the Indian Constitution were purportedly to enable the State to redistribute land more equitably, this was followed by land acquisition that displaced Adivasis, Dalits and other vulnerable groups for developmental projects. Recently, the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Rehabilitation Act, 2013 was enacted to restrain this power of eminent domain.However, this law has been amended and subverted as land acquisitions continue unabated. In stark contrast to this image of the powerful State, that can take away its citizens’ rights to property through acquisition, are the routine contraventions of property laws, that has resulted in the chaotic Indian city, replete with unauthorized constructions and occupations that some propose is due to the failure of urban planning. If the State is as powerful as it appears to be, how do we explain these everyday contraventions of property laws? This paper examines these two sets of evidence available in the vast literature on property rights, acquisition and urban planning, to decrypt the stance of the Indian State vis-a-vis land and property within its territory. Our quest is to understand how the State postures itself with respect to the property rights of its citizens, by examining the property laws and practices of the Indian State as well as the practices of Indian citizens, that shape laws and their implementation. The first part of this paper engages with the literature and case law on the State’s power of eminent domain under land reform laws, general land acquisition laws and laws pertaining to common property resources. The second part of this paper looks at evidence on the implementation of property laws in urban governance, widening the debate on property rights from the narrow confines of eminent domain, land acquisition, displacement and resettlement. In this part we examine the everyday subversion of municipal laws on building and construction and planning laws that govern land use, by citizens and the State’s response to these subversions. We propose that a closer look at the State’s own practices in both these fields of praxis—eminent domain and urban governance, reveals a complex terrain of land and property governance in India, with the State positioning itself as a patron, thus relegating property rights to a field of negotiations.

The paper has also been published in:

World Economic Forum

Centre for Policy Research – India Housing Report

The post Property Laws and Property Practices in India first appeared on CSEP.

The Survey of Villages and Mapping with Improvised Technology in Village Areas (SVAMITVA), is a Central Government scheme, currently underway in 6 Indian states to provide property rights to rural home owners residing in abadi areas, set aside by gram panchayats for residential purposes.

The paper delves into the legal implications of the implementation of the scheme. It also brings forth how the scheme will affect the ownership rights of women as well as the access to land and property for socio-economically weaker groups. It is likely that the lack of community participation in the implementation of the scheme will reinforce existing social hierarchies.

The paper highlights the gaps in the scheme and suggests ways to address them along with proposing an evaluation system to be set in place.

Read the Working Paper

The post SVAMITVA: A socio-legal analysis first appeared on CSEP.

DOWNLOADS

• Download Working Paper

Executive Summary:

India has experienced considerable progress in health, in outcomes as also infrastructure. However, the task of addressing the health of India’s citizens remains an unfinished task.
This paper outlines some of the key challenges currently experienced in improving health outcomes in India, and opportunities to address them. This acknowledges the progress that has been made, but identifies what needs further attention. The paper takes a holistic view of health delivery in all its aspects; those in the purview of institutions dedicated to addressing health as well as aspects that go beyond the health sector, to broader structural issues that impact the effectiveness of health delivery. The paper is based on secondary analysis, and is a summary consolidation of various diagnostics and analytical work undertaken, and does not include any recommendations. This will serve as the base on which deeper insights—in terms of further questions, additional diagnostics, and suggested pathways—will be developed.
The paper is divided into three broad sections. The first outlines the health status in terms of India’s health outcomes, with a disaggregation across states, geography and identity, and comparison with other countries. The second outlines the architecture of the system that finances and delivers health. The third summarises the key challenges in the health system, across both public and private. It covers promotive, preventive and curative aspects, and begins with a discussion on public health (focused on health promotive and disease prevention) and primary healthcare (which includes elements of both public health and curative health). This is followed by a focus on curative healthcare in terms of the challenges in financing and provisioning. Beyond the specifics of health financing and provision, there are three additional overarching aspects that have a bearing on the financing and delivery of health services and consequently health outcomes. Of these, we discuss the governance of health, especially in terms of the capacity and accountability within the system and with respect to India’s federal structure. The last element focuses on the political economy of health which drives the priority to the health sector, the expenditure and the extent and nature of reforms.

The post Health Status in India: Challenges and Opportunities first appeared on CSEP.

DOWNLOADS

• Download Working Paper
• Download Presentation

Executive Summary:

Media plays an important role in informing and shaping public opinion around major issues. Amartya Sen has argued that “it is not likely that India can have a famine even in years of great food problems. The government cannot afford to fail to take prompt action when large-scale starvation threatens. Newspapers play an important part in this, in making the facts known and forcing the challenge to be faced” (Sen, 1981, p.84, as cited in Besley & Burgess, 2002, p.24). Besley & Burgess (2002) further put forth that Indian states that have a higher newspaper circulation perform better in terms of providing calamity relief and distributing food under the Public Distribution System. Media, thus, has the ability to impact large-scale outcomes through its reportage. This, then, begs the question: how does the media decide which issues to raise?

The answer commonly veers from the media picking sensational topics to ideological inclinations of the media houses to covert or overt pressure from stakeholders like the government, businesses, and communities. The demand side—what the readers prefer and want to read—is largely missing in this narrative. Being a competitive and profit-making industry, the demand dynamics play a pivotal role in deciding what gets covered by the media, and what issues get more space than others.

There is a significant and persistent trust deficit between the people and the media in India; only 38% Indians trust most news, compared to 65% in Finland, 54% in Brazil, 50% in Thailand, and 43% in Australia (Aneez, Neyazi, Kalogeropoulos, & Nielsen, 2021). Low trust is usually ascribed to media bias. This conclusion comes naturally for a country where close to 70% of media revenue comes from advertisements and 30% from reader subscriptions (The Hindu, 2021).

Focussing on the English media, using land conflicts involving communities as the focal point, and comparing the occurrence of conflicts vis-à-vis coverage, we argue that media reporting is linked to reader interest. Reader interest, in turn, is driven by the location of the conflict and of the reader, the intensity of the conflict, and the involvement of a known entity (person, corporation, etc).

Focussing on the English media, using land conflicts involving communities as the focal point, and comparing the occurrence of conflicts vis-à-vis coverage, we argue that media reporting is linked to reader interest. Reader interest, in turn, is driven by the location of the conflict and of the reader, the intensity of the conflict, and the involvement of a known entity (person, corporation, etc). The argument is not that reporting may not be ‘influenced’ or ‘sensationalised’, but instead that there are other, more objective reasons as well which play a key role in deciding coverage. This is a crucial finding, helping reinforce faith in the institution of the fourth estate which is critical for a well-functioning democracy, while at the same time highlighting the need for introspection and caution.

We gauge the location of 714 ongoing land conflicts involving communities tracked by Land Conflict Watch (2021). We find that conflicts occurring in rural areas account for more than two-thirds of the total. This seems intuitive, since larger conflicts involving communities most likely pertain to issues such as land acquisition, and these are more likely to occur in rural areas than in areas that are already urbanised. However, when we turn our gaze to the location of the conflicts reported in the media, we see the opposite. Leveraging arguably the world’s most comprehensive database monitoring news media, we derive a list of 58 land conflicts that are covered by the media and find that 39 of these 58 conflicts are located in urban areas. Thus, while rural areas account for 70% of the actual occurrence of land conflicts, the media reports nearly 67% of such conflicts from urban centres.

We deep-dive into seven of the 58 conflicts and find that the four rural conflicts in our sample are about 15-20 times as large as the three urban conflicts in terms of the number of people affected, and yet, they garner about 20% less media attention as compared to the latter.

Not only is the frequency of media reporting on urban conflicts greater, but each urban conflict is also covered much more extensively than those in rural areas; this is despite the fact that a much larger number of people are potentially impacted in the latter. We deep-dive into seven of the 58 conflicts and find that the four rural conflicts in our sample are about 15-20 times as large as the three urban conflicts in terms of the number of people affected, and yet, they garner about 20% less media attention as compared to the latter.

It is natural to question the reasons for this apparent disconnect. We argue that this may be happening since a majority of the 40 million English newspaper readers reside in metropolitan centres, whereas the 470 million readers of regional newspapers are largely concentrated in smaller towns and rural areas (Kumar & Sarma, 2015). For example, The Times of India, Hindustan Times, and The Mumbai Mirror are the three most widely read dailies in Mumbai; however, the most widely read dailies in all of Maharashtra are three regional newspapers, Lokmat, Daily Sakal, and Pudhari (Media Research Users Council India, 2019). Since a majority of the readership of the Englishlanguage media is centred in and around urban areas, covering issues occurring in close proximity to the readers’ surroundings is of more importance to them than conflicts that may be much bigger in scale, but unfolding in a distant, rural setting.

We go on to test our framework of reader interest driving coverage by applying it to other platforms and issues and find that the framework holds up to the test. We scrape data from the Twitter handles of nine prominent media houses for two recent crises, the COVID-19 oxygen crisis and the protests in response to the passing of the three ‘Farm Bills’. During the second wave of the pandemic in India from March to July, 2021, several fault lines such as inadequate provisions of medical-grade oxygen came to light. We find that of all the scraped tweets mentioning ‘oxygen’ during this time, Delhi’s share was about 30%. Considering that Delhi accounts for about 1% of India’s population (Office of the Registrar General & Census Commissioner, 2011), a 30% share seems inordinately high.

The paper has two main conclusions. First, reader interest plays a key role in shaping coverage. Second, what readers want to consume may or may not be in consonance with reality and with what needs more urgent redressal from a larger, country-wide perspective. For example, by highlighting Delhi’s oxygen shortage, the media exerted its influence and pressure to force a response from policymakers. However, an improvement in Delhi’s oxygen situation may not necessarily have reflected a pan-India improvement of the crisis, which is what the tweeting pattern would appear to suggest. In a sense, the system was let off the hook by the media once the crisis neared resolution in Delhi, even though scrutiny of public health management should have continued until the problem was fully addressed for the entire country. This may have been sub-optimal from a societal perspective. It is, thus, a tough balancing act for the media industry—how to stay profitable by giving people what they demand, while simultaneously covering information that people ought to know.

These findings serve as a timely wake-up call for policymakers not to rely only on English-media coverage as a means of staying informed about the key issues facing the country, given its urban skew. How and what the media reports have a significant bearing on how people perceive the world around them. More research and deliberation are, thus, required to understand media reporting and assess its potential impact in order for policy discourse to thrive. Strengthening this key pillar of accountability that upholds the fundamentals of democracy is all the more vital in the present age.

The post What Drives Media Reporting? first appeared on CSEP.

Executive Summary:

This paper narrates the story of the roller coaster ride of non-performing assets (NPA) of the Indian banking sector. Three distinct phases of intertemporal broad trends can be discerned in NPAs of the Indian banking sector. First, since the initiation of financial sector reforms till about the beginning of the North Atlantic Financial Crisis (NAFC), NPAs showed a consistent downward trajectory. Second, during 2008-09 through to 2017-18, they showed a distinct spurt. Third, since 2017-18, NPAs have been on a downward trend till 2019-20, until the economic disruptions caused by Covid 19. In contrast to the popular practice of treating the second phase of rising NPAs as emanating exclusively from governance issues in public sector banks (PSBs), four factors have been identified: (a) falling commodity prices; (b) regulatory forbearance; (c) initial exuberance in infrastructure projects punctured by a downward phase in business cycles (leading to substantial debt accumulation of select big corporates); and (d) governance failure in select PSBs. Moving forward, while the pandemic and some of the associated policy measures could reverse the recent downward trends in NPAs temporarily, more durable policy initiatives like bankruptcy reforms are expected to make significant positive changes in the NPA situation of Indian banks.

Unlike a real sector corporate firm, a commercial bank is a highly leveraged business entity. Being primarily funded from deposits, the extent of leverage in a bank works in opposing ways – on the one hand, higher leverage makes the bank more profitable, and on the other it makes the bank more vulnerable to bankruptcy risks. Impairment of, say, 10 percent of a bank’s assets can significantly erode its net worth. Thus, the quality of a bank’s assets (comprising primarily of loans
and investments) is of utmost importance from the standpoint of the health of the bank and of the aggregate financial sector. Non-performing assets of banks reflect the quality of their respective loan portfolios, and of the banking sector in the aggregate, thereby constituting one of the critical indicators of financial stability.

Thus, high leverage is crucial to bank’s business. In undertaking its core functions, a bank offers intermediary and liquidity services, in which one of its key activities is its capacity to do maturity transformation. Banks often invest in longer-term assets that are funded by short-term liabilities. Thus, they are exposed to various risks – credit, operational, market, and liquidity. In an economy where the banking sector is dominated by public sector banks, credit risks are of critical significance: these risks often get transformed into fiscal risks. Moreover, if key segments of the portfolio of a bank turn bad, its high leverage can lead to effective insolvency or bankruptcy. Finally, in the case of interlinked lending, the presence of non-performing assets (NPAs) in a bank’s portfolio can have economy-wide repercussions.

While the health code system of classifying banks’ assets was introduced by the RBI as early as November 1985, the issue of NPAs came into the limelight after the publication of the Narasimham Committee Report- I (1991). The Committee noted that the classification of assets according to the existing health code was not in accordance with international standards. Accordingly, a prudential system which included the recognition of income, classification of assets, and provisioning for bad
debts was introduced in financial year 1992-93 (RBI, 1993). It revealed that the NPA position of commercial banks in the early 1990s was actually far worse than it is today: as on March 31, 1994, the gross NPA-assets ratio of all public sector banks was as high as 25 percent, compared with 7.5 percent at the end of March 2021. Improvements in NPAs had clearly taken place at a slow and steady pace starting in the mid-1990s.

The inter-temporal trajectory of NPAs in Indian banking during 1992-2018 followed a distinct three-phase pattern. Data on the extent of NPAs in Indian banking are meagre before the mid1990s, as there was no appropriate classifications of NPAs at the time. Following the economic reform measures of the 1990s, in which financial sector reforms occupied a key position, there was a significant improvement in the extent of NPAs in Indian banking. This falling trend in NPAs continued till around 2009, after the advent of the North-Atlantic financial crisis (NAFC) of 2008. NPAs started rising after that, initially at a slow pace (perhaps reflecting several measures of regulatory forbearance), and at a faster rate from 2014 till about 2018. Various factors were responsible for the unabated rise in NPAs during 2010-18, prominent among which were: (a) the fall in commodity prices; (b) prolonged regulatory forbearance; (c) failure of public-private partnership projects in some key infrastructure areas; and (d) governance issues in commercial banks (Mohan & Ray, 2019). Later, from 2018, coinciding with the initiation of progressive bankruptcy measures, the trend in NPAs improved once again, until the Covid 19 pandemic hit in 2020.

A popular narrative about the sharp rise in NPAs during 2010-18 is that banks suffered due to bad governance in public sector banks (PSBs). However, the issue with this narrative is that it is not consistent with the sharp fall of NPAs recorded by the same banks during the period 1996-2010. How could such an improvement take place in the NPAs of PSBs over a decade and a half? What changed in the governance of PSBs over that period? Did the governance of PSBs change drastically after around 2010? Was it accidental that PSBs did well for so many years?

It is here that the role of two specific factors needs to be highlighted. First, there was a significant expansion of large corporate sector lending after the late 2000s, including for lumpy infrastructure projects under public-private-partnerships (PPPs) as a matter of public policy. Such lending could have led to unforeseen problems with the slowing down of the economy and fall in some key commodity prices. Second, the phenomenon of regulatory forbearance from 2008, in the wake of the North Atlantic Financial Crisis (NAFC), camouflaged the real dimension of the problem and could have engendered a false sense of complacency and the related low measurement of NPAs. Later, credit growth started slowing down along with a deceleration of the GDP growth rate.

Against this context, the present paper looks into the intertemporal behaviour of NPAs over the period, 1992-2020. For expository convenience, the structure of the paper is as follows. First introduces the paper, while second discusses the broad trends in NPAs over time and identifies the twists and turns. There is a short discussion of the improving trends in NPAs during 1992-93 to 2008-09; followed by enumerating the major reasons for the emergence of NPAs in Indian banking during 2008-09 to 2017-18. The authors discuss the recent improving…., and conclude with the way ahead.

The post The Roller Coaster Ride of Non-performing Assets in Indian Banking first appeared on CSEP.

DOWNLOADS

• Download Working Paper

The paper attempts to take stock of what has been achieved in the COP-26 meetings held in Glasgow in November 2021 and suggest the course of action that developing countries should follow in subsequent negotiations. The authors assess that there was progress in several areas, but many critical issues remain unresolved. Developing countries need to evolve a constructive approach that can carry the dialogue further and fill in the remaining critical gaps.

The paper is organised as follows:
Section 1 presents a brief review of climate change negotiations to show that despite apparently irreconcilable differences between the developed and developing countries in the early stages, the negotiations were successful in narrowing these differences very considerably over time.
Section 2 summarises the findings of the IPCC on the impacts of a rise in global temperature of 2°C and above, which was a critical input into COP-26.
Section 3 reviews the outcomes of COP-26 and indicates the areas where more remains to be done.
Section 4 presents the authors’ assessment of what developing countries have to do to implement their COP-26 commitments.
Section 5 discusses the scale of financial support developing countries will need to achieve climate-related goals.
Section 6 gives recommendations on how developing countries should now proceed.

The post Climate Change Policy for Developing Countries first appeared on CSEP.

Setting up Development Finance Institutions (DFIs) was and remains one of the ways that the central government has promoted financing of long-term projects. These attempts have included establishing a range of DFIs, including the National Bank for Financing Infrastructure and Development (NaBFID) in 2021 and an Asset Reconstruction Company (ARC) to hive off bad debts from the balance sheets of banks to help them resume long-term lending. The NaBFID has been set up as an unlisted government corporation. Consequently, it will be outside the regulatory purview of the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI).

Long-term lending in India has been shouldered mostly by banks and large non-deposit taking non banking finance company (NBFCs). Within the banking sector, it is public sector banks which provide a bulk of the loans with longer term maturities, invariably via consortium lending to share unquantifiable credit risk. For the past several decades, some private sector borrowers of large volumes of loans have taken advantage of the interminable delays in resolving debt defaults. Such defaulting borrowers have either stripped assets from their bankrupt firms or used India’s labyrinthine legal processes to wrest back control after obtaining substantial haircuts on the amounts owed by them.

The paper examines the effectiveness of the 2016 Insolvency and Bankruptcy Act (IBC) as the most recent legislation to enable quicker resolution of disputes between borrowers and lenders thus encouraging higher volumes of long-term lending. The Sick Industrial Companies (Special Provisions) Act (SICA) and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) were passed by parliament in 1985 and 2002, respectively.

In practice, the mechanisms set up under these two Acts including Debt Recovery Tribunals (DRTs), took a long time, even decades to resolve cases involving bankruptcies and liquidation. The initial sections of the paper provide the context of long-term domestic credit in India and in other large economies, the relative size of the Indian equity market and investments made by institutional long-term investors such as insurance companies.

The overall efficacy of the IBC is examined including whether the time taken to resolve disputes between lenders and borrowers has shortened significantly. The role of the Insolvency and Bankruptcy Board of India (IBBI), set up under the IBC, is reviewed as also that of Insolvency Professionals (IPs) and Committees of Creditors (CoCs).

Between 2010- 2019, the Reserve Bank of India modified its regulations several times to address difficulties faced by banks and other lenders. Despite the continuing efforts of financial sector regulators, it is taking longer than anticipated to arrive at IBC driven court judgements. Delayed court judgements have occasionally resulted from legal stratagems used by borrowers to avoid meeting their contractual obligations even as they resort to asset stripping. Vacancies on the benches of the National Company Law Tribunals (NCLTs) & National Company Law Appellate Tribunals (NCLATs)1 and at times lack of domain knowledge have contributed to delays in resolutions of bankruptcies. Systemic delays in addressing large volume bankruptcies reduces the appetite for term lending, resulting in shortages of funding for infrastructure and other long gestation projects.

This paper suggests that in addition to tightening of banking sector regulations for defaults, court processes need to be expedited since such delays can overwhelm all other efforts to conclude timely resolution of bankruptcies. Lengthy bankruptcy resolution makes bulk long-term project financing unviable for lenders and the Indian economy pays a significant price in terms of foregone growth.

Download the Working Paper

The post Insolvency and Bankruptcy Code (IBC) and Long-Term Bulk Lending in India first appeared on CSEP.

Abstract

While external factors are useful in understanding a country’s behaviour, they are not sufficient to account for many foreign policy decisions made by China’s leaders. Domestic politics have played a profound role in shaping China’s behaviour in the domestic and international realms. This paper suggests four crucial domestic factors which have driven China’s path: geography, internal stability, rising nationalism built on China’s imagined past, and China’s maritime concerns. Together with external drivers, these help to explain why China has chosen certain initiatives and actions. The paper then examines some implications of the role of domestic factors in shaping China’s policy choices.

Keywords

China’s Behaviour, China’s Rejuvenation, Global Order, Chinese Domestic Politics, Geopolitics

For a decade or so, China’s foreign behaviour has alienated or worsened relations with most of its neighbours, with the exception of Pakistan, Cambodia, and possibly Russia. Embarking on a nuclear arms race, “wolf warrior” diplomacy, and pressing hard on territorial disputes by changing the status quo hardly seem likely to serve China in her rivalry with the US or to improve her relations with neighbours. Why has China recently followed a foreign policy course with predictable negative outcomes?

Traditional explanations external to China—the changing international situation, shifts in the balance of power, China’s growing global interests, or great power rivalry and US pushback—seem insufficient to explain the choice of course or its timing. It may therefore be worth looking more closely at domestic factors that could be driving China’s foreign policy, since these tend to be more distinctly ‘Chinese.’

Today, China’s foreign policy behaviour extends to seeking “discourse power” internationally, a desire to control the narrative on China, both in China, and on the international stage.

Today, China’s foreign policy behaviour extends to seeking “discourse power” internationally, a desire to control the narrative on China, both in China, and on the international stage, to the point that the Chinese Embassy in New Delhi tells the Indian media what they should and should not write on China, tweets by US basketball players are penalised and there are no Chinese villains in Hollywood movies. China now demands loyalty not only from its own citizens but also from Chinese-origin citizens of other countries in the diaspora. The China Dream is for the Chinese race (zhonghua minzu 中華民族) which is translated and equated with the nation, not just for citizens (gong min 公民), or in China itself.

It also extends to global order building through new institutions (like the Asian Infrastructure and Investment Bank), China-centred global physical and digital connectivity (through the Belt and Road Initiative), and agenda-setting in international and multilateral organisations (with 4 out of 15 UN specialised agencies now headed by PRC nationals ^[1] ).This includes a growing military presence abroad and military bases (in Djibouti, Sihanoukville, and potentially Gwadar and elsewhere in the Indian Ocean region) to create a power projection capability first in Asia and Asian waters or maritime Asia, and then globally.

China has weaponised economic, trade and other levers, to the extent of hostage-taking in response to the arrest in Canada of Meng Wanzhou, the CFO of Huawei and daughter of its founder Ren Zhengfei. In the last few years, she has imposed economic costs and trade boycotts on countries like Australia, Canada, South Korea, the Philippines, Norway, and Sweden—the list is long. It remains to be proved that these actions did anything more than make China distrusted as a partner, or whether they actually changed the behaviour of the targeted country in a positive direction from China’s point of view.

Significantly for China’s many neighbours, China has chosen since 2008 to assert itself in disputes in its periphery and to use her power to change facts on the ground and at sea. As a consequence, she is ringed in maritime Asia by disputes and hotspots which have flared up in the last decade or so, from the Senkaku/Diaoyu islands in the East China Sea, to Taiwan, to Hongkong, to the South China Sea, to the India-China border, and to new Chinese territorial claims on Bhutan.

Some of this assertiveness can be explained as a direct response to the new security demands created by China’s integration into the global economy and her export-led growth. Her turn to the oceans, and her desire to secure the near seas are logical when, for the first time in history, she faces no threat on her Eurasian land frontiers. She now has assets abroad to protect, and depends on the sea-lanes for her food, energy, commodities, and exports essential to her economic well-being. It is natural for her to seek to transition to becoming a maritime power for the first time in her history. But her choice of how to go about this task is still hard to explain. For instance, rather than territorialising the South China Sea and declaring it a “core interest” and a matter of sovereignty, thus making it a zero-sum issue, why did not China choose to work cooperatively with other powers and claimant states to ensure freedom of navigation and the safety and security of these sea-lanes which are now of global significance?

To be clear, it is not that domestic factors do not drive other or even all countries’ foreign policies. But in China’s case, they seem to have recently led China to follow external policies that no longer serve the goals that China claims to have set her foreign policy such as a Community of Common Destiny or being centre-stage in the world. One wonders whether the current situation is one where, as in the GPCR years, domestic politics override other external considerations in determining her foreign policy through a shifted frame of reference. But mono-causal explanations seldom survive contact with the complexity of reality.

In China, regime survival and calculations of internal stability and economic growth seem to count for more in determining her external behaviour.

The proposition in this paper is as follows: In other powers, apart from rational calculations interest, public opinion and populist politics drive external behaviour to a greater or lesser extent. In China, regime survival and calculations of internal stability and economic growth seem to count for more in determining her external behaviour. It is not that China does not respond to domestic opinion or that Chinese leaders do not pursue populist policies, like other powers. They do. But the pattern of China’s internal politics and development has given a particular cast or shape to China’s external behaviour in the last decade.

Four factors seem to shape China’s recent external behaviour and to make it different from that of other powers.

Geography

China’s geography means that China cannot distinguish between internal and external issues as did previous global hegemons, Great Britain and the USA. When Xi Jinping announced the formation of a new National Security Council in 2013, it was assumed that it would be like the US NSC, but there was a crucial difference. The US NSC was formed to deal with an external threat, the Soviet Union. Rich, secure, surrounded by oceans and two harmless neighbours, the US could separate internal and external problems. China does not have that luxury, for it lives in a crowded neighbourhood. China has never taken its integrity for granted, and feels ringed by potential foes. China’s concept of national security therefore includes both internal and external threats and the ways the two can coalesce to bring down great China — which in the official telling has only recently been put together again by Mao and the CCP. In his first speech to the NSC— which the Chinese now translate as the National Security Commission to distinguish it from its foreign counterparts— Xi Jinping said that the internal and external factors affecting national security had become far more complicated. There must be security of sovereign territory, military affairs, economics, information, and environment when pursuing national security with Chinese characteristics. Keeping track of all these requires centralised decision-making, with Xi firmly in charge.

China’s National Security Law, enacted in July 2015, helped clarify what China means by its “core interests.” It boils down to the principle of sovereignty and defending territorial integrity. In addition to Taiwan, Tibet and Xinjiang, foreign policy officials have made it clear that Beijing now regards the South China Sea and the Japanese-held Senkaku islands as core interests. Arunachal Pradesh, which Chinese state media call “southern Tibet” now, may also be added to this category.

Internal stability

 As China has become more complex to govern, and CCP legitimacy is increasingly dependent on nationalism, China’s new authoritarian leadership is pushed to ultranationalist assertion abroad.

As China has become more complex to govern, and CCP legitimacy is increasingly dependent on nationalism, China’s new authoritarian leadership is pushed to ultranationalist assertion abroad. From the Senkakus/Diaoyu islands to Taiwan to South China Sea to the India-China border, flash-points and hotspots are live all along China’s periphery as a result of stronger assertions of Chinese sovereignty. To cope with internal stresses caused by China’s pattern of development, ever since the 1989 Tiananmen killings, the Chinese state has explicitly prioritised “stability above all else” (wending yadao yiqie, 溫定雅到一切). Since 2012 under Xi Jinping, CCP command and control has been tightened with a drastic recentralisation. The security state has been strengthened, concentrating on internal security, and creating an unprecedented surveillance regime. China’s expenditure on internal security is more than that on national defence since 2011—roughly the same time that mass incidents (defined as protests involving more than 100 persons) crossed 200,000 a year and the regime stopped publishing their numbers.

China faces what Overholt (2018) and Mohanty (2018) have separately called a crisis of success. Her rapid growth, and the manner in which it was achieved by high investment rates and rapid industrialisation and urbanisation have created economic overcapacity, financial bubbles in property and the stock market, inefficient state-owned enterprises (SOEs), and high and rising debt and non-performing bank assets. These are the short-term problems which may well be within the capacity of the CCP and its leadership to address. In the longer term, however, China has to repair major ecological damage to her environment, and address income and other inequality which has grown. China’s society and economy are less responsive to government, and the polity now apparently displays a systemic inability to undertake necessary and announced reforms. Add to this cocktail the effects of China’s demography which is closing her window of opportunity. China seems to see innovation and technology as a way around the problem of an ageing population. China is in a hurry, and this has several consequences for Chinese behaviour abroad. One consequence might be a heightened incentive to seek the early integration of Taiwan with the mainland.

Much of what the Chinese leadership is promising in 2021 under the slogan of Common Prosperity is designed to address the longer-term issues which threaten China’s continued rise. The rise of China’s middle class, a product of globalisation, has made China harder to govern. The new middle class makes a different set of demands of its government, and votes with its feet or its money when dissatisfied, as was seen when US$ 1 trillion left China in 2015-16. Social change is also evident in the return of popular religion and superstition in China, and the rise of proselytising faiths like Christianity. These seem to reflect a sense of spiritual emptiness and a revulsion among the middle class against the lack of morality and the get-rich-quick mentality spawned in a globalising China. The CCP has attempted to co-opt Buddhism, which is seen as indigenous and less threatening in not having an external focus of loyalty like Islam or Christianity (Johnson, 2017). The exception is Tibetan Buddhism. China has, in effect, told the Dalai Lama by law that he will reincarnate with the approval of the Chinese Communist Party — a peculiar demand from a party of professed atheists. All priests in China—Christian, Muslim, Buddhist or Taoist—are civil servants appointed and paid by the state. The rise of large, powerful business interests, some of whom the regime is now acting against, adds to social complexity. Chinese society has thus grown considerably more complex and less malleable than before.

The Chinese Communist Party faces the effects of rapid social change every day, and has therefore acquiesced since 2012 in a centralisation of power and personality cult of Xi Jinping, while suppressing signs of dissatisfaction.

The Chinese Communist Party faces the effects of rapid social change every day, and has therefore acquiesced since 2012 in a centralisation of power and personality cult of Xi Jinping, while suppressing signs of dissatisfaction among the public and intelligentsia with both. In the name of strengthening communist party command and control, CCP control of the PLA has been tightened, and term and other limits on individual leaders have been removed. These had been put in place in Deng’s time to prevent the emergence of another Mao or a Gorbachev. Ideological conformity and suppression of dissent, and the integration of minorities into the Han mainstream are at levels last seen in Mao’s later years.

As the state is further securitised, the role of the PLA in China’s foreign policy has grown considerably, and that could explain some recent Chinese decisions including those on the India-China border.

Xi Jinping is now described in propaganda as the “core, backbone and anchor” of the CCP and a personality cult is evident. This has created a single point of responsibility and of failure, as Bilahari Kausikan^[2] reminds us, in turn encouraging all or nothing approaches which view policy choices in zero sum terms and make the admission of failure or mistakes almost impossible. This can be seen in the framing by China of the border situation with India since 2020 in terms of sovereignty. Sovereignty is inflexible and sacred and must be defended with the use of force. China no longer describes the situation on the India-China border as a dispute left over by history which, by definition, requires give and take and mutual concessions to be resolved through negotiation. By assigning it to history, the responsibility for the problem was removed from the Republic of India and People’s Republic of China to imperialism. Today, on the other hand, it is presented as a straight forward sovereignty dispute between the two nations.

In Xi Jinping’s defence, the Chinese Communist Party had been considerably weakened by patronage networks and systemic corruption before he took over in 2012. Corruption was a consequence of a pell-mell dash to prosperity and a mono-focus on output and the economy. Xi’s anti-corruption campaign, and the elimination of opponents through that campaign, has been popular in China. While popular faith in authority remains, as does the party’s core legitimacy (Dickson, 2016), it could be lower than in Deng’s time. Paradoxically, the anti-corruption campaign makes real reform—particularly unpopular reform like that of the state-owned enterprises—less likely as it scares officials into inactivity or passive resistance.

All in all, the legitimacy of Chinese Communist Party rule has shifted over time — from ideology to economic growth, and now increasingly to nationalism, ultra-nationalism, or nativism.

All in all, the legitimacy of Chinese Communist Party rule has shifted over time — from ideology to economic growth, and now increasingly to nationalism, ultra-nationalism, or nativism^[3]. Performance legitimacy, which has traditionally played such an important role in China, may have weakened in the face of a slowing economy and social inequality. In this situation, external pressure plays into the regime’s need for an external focus to consolidate domestic support for the regime.

Rising Nationalism & China’s Imagined Past

The historical memory that the Chinese have constructed for themselves in the last century is a master narrative of “national humiliation.” Beginning with the Sino-Japanese war of 1895, when Japan defeated Qing China and took Korea, the slogan “never forget national humiliation” (wuwang guochi, 無望國恥) has been used by successive Chinese leaders. Every day for two decades after the Jinan incident on 3 May 1928, Chiang Kai-shek wrote “xuechi” (雪恥, “avenge humiliation” or “wipe clean humiliation”) and a method to avenge humiliation in the top right-hand corner of his diary as a constant reminder to himself.

The exception was Mao Zedong. The records of the National Library of China show that there were no books on the subject of “national humiliation” published in China between 1947 and 1990. For Mao, the People’s Republic was the result of the Chinese people’s heroic struggle.

He made class struggle rather than ethnicity the foundation of political identity. The CCP for Mao was a revolutionary rather than a nationalist party. Nationalist claims might have contradicted Mao’s “internationalism” and his attempt to lead the international communist movement and export revolution. Mao was a master of “hero” or “victor” meta-narratives intended to mobilise popular support. And they worked. If there had been a free election in China during his lifetime, Mao would have probably won it.

It was with Deng’s call for a patriotic education campaign in 1992, after the Tiananmen incident and the collapse of the Soviet Union, when it became clear that Chinese youth did not know or appreciate the CCP’s self-proclaimed contribution to freeing China from semi-colonial status and from foreign oppression and humiliation, that the narrative of victimhood, of the “century of humiliation” took hold again. History textbooks were revised, “dark anniversaries” began to be celebrated, and museums and memorials were built to house regular commemorations of China’s victimhood. The intent, after students demanded Western-style democracy at Tiananmen, was clearly to change the younger generation’s attitude to Western powers and the party itself. Two corollaries to the shift from victor to victim narrative can be identified: ultra-nationalism was officially sanctioned; and old China and Confucius, blamed by Mao for China’s wretched condition, were idealised and valorised.

Xi Jinping has adopted this meta-narrative as his own, linking it to “China’s Rejuvenation” or his “China Dream”. One of his first acts as General Secretary was to visit the revamped National History Museum on Tiananmen Square with all the other members of the Politbureau Standing Committee^[4]. The official account said: “Xi stopped in front of some exhibits on major historical events in the 19th century, including charts illustrating how the West had occupied China’s territories, established concessions and drew up spheres of influence; the cannons installed at the fortifications of Humen in Guangdong during the Opium Wars; materials and pictures on the 1911 Revolution that overthrew China’s last feudalistic regime of the Qing Dynasty (1644-1911).”

Wang Gungwu and Zheng Yongnian have pointed out that today’s leaders are guided by their understanding of historical experience and long-standing Chinese political thinking, and consequently regard the state’s security and its place in the international order to be intimately related to their capacity to maintain internal stability. Projecting power in the region and beyond is thus tied to their legitimacy at home. Economic performance is no longer enough to generate regime legitimacy: the PRC now asserts its stature in the region and the world, gesturing towards a restoration of past greatness (Wu and Yongnian, 2009).

In the longer run, the core political issue is whether a sense of opportunity and fairness will sustain the legitimacy of the CCP. This requires fundamental economic and political change, for which there was little appetite in the CCP leadership in the national mood of hubris after 2008, and opposition from power holders in the system. The deep reforms planned and announced at the third plenum of the 18th central committee in 2013 remained conspicuously unimplemented. The risk to China was that she becomes like Japan, stagnant economically, but at a lower level of prosperity, and less socially stable, and therefore likely to behave erratically abroad. This (along with the less supportive external environment) explains many of the new economic policies announced by Xi Jinping in 2021 spring—the turn to the “left” expressed as Common Prosperity, a dual circulation economy, a stress on self-reliance, and so on.

Expanding Interests

China is more powerful than ever before but is also more dependent on the world. This is an unprecedented combination, not known in Chinese history.

Today, China faces an unprecedented situation at home and abroad and is therefore reacting in new ways. China is more powerful than ever before but is also more dependent on the world. This is an unprecedented combination, not known in Chinese history—not in the Han when she had to ‘buy’ off the Xiongnu by marrying Han princesses off to steppe leaders; nor in the Song when she was one and sometimes the weakest power in a world of equals; nor in the high Qing when she was powerful but independent of the external world, as the Qian Long emperor reminded George III in writing.

International primacy is now necessary to secure China’s rise or China’s rejuvenation. But it is worth considering that relationship a little more closely to understand the international role that China will seek to play, and might play, as her definition of her interests grows and she tries to manage and mitigate her dependence on the world for energy, commodities, markets, and technology.

The Chinese leadership sees the situation as having evolved negatively in the last decade. On April 15, 2021, which is China’s ‘National Security Education Day,’ the People’s Daily front page carried a listing of statements by Xi Jinping over the years about managing risks divided into different categories—the external situation, political and ideological security, technological development, financial security, social and political stability, the pandemic, and so on. Xi’s description of the external situation has evolved from “changing” in 2012-13 to “unprecedented” in 2016-17 to eventually becoming “profound” in terms of the adjustment of the global balance of power by around 2019. Very early on, the Chinese leadership understood that pushback to China’s rise was underway and believed that it was inevitable. The article said: “During the National Two Sessions in 2013, General Secretary Xi Jinping emphasised: The great rejuvenation of the Chinese nation can never be achieved easily and smoothly. The more we develop and grow, the greater the resistance and pressure we will encounter and the external risks we face. There will be more. This is an unavoidable challenge in the development of our country from large to strong, and it is a threshold that cannot be bypassed in achieving the great rejuvenation of the Chinese nation’.” 

The instability and hostility in China’s immediate periphery which worried Mao from the fifties still exists on China’s eastern front. There are US forces in Japan, South Korea, and the Philippines. Taiwan may be free of US troops for now but US policy on Taiwan is evolving, and the US is closer than ever before to Vietnam and India. The US “pivot” to Asia announced by President Obama was the beginning of what is seen by China as a tightening US attempt to contain her. Looking at the map from Beijing there is a sense of being locked in, with hostile forces ranged against her. Xi’s China is not just a rising power inspiring fear in an established one and seeking to restore lost glory. It is also a country uncertain of its power and integrity. The grand strategy it pursues is, from Beijing’s point of view, defensive, and all the more implacable because of that. And because of China’s scale, its defence looks offensive to its neighbours, creating classic security dilemmas in its relations with Japan, India, Vietnam and others.

China chose to leverage her financial, manufacturing and trading strengths once the 2008 crisis demonstrated the limits of US economic power. A set of measures accelerated China’s economic order building in Asia through the Asian Investment and Infrastructure Bank, the BRICS New Development Bank, the Belt and Road Initiative, and Chinese investment and acquisitions abroad. Trump’s decision in 2017 to exit the Trans-Pacific Partnership made it easier for China as the largest economy to shape the regional trading environment. The Regional Comprehensive Economic Partnership can now serve as an instrument to further integrate Asia-Pacific economies with China’s and to build up global value-add and manufacturing chains centred on China. The physical infrastructure for this China-centric economic order is being created by the Belt and Road Initiative. When offers of cheap finance and infrastructure building are allied with a comprehensive security package — including “safe cities”, cyber security, personal security for leaders, and total surveillance on the Chinese model — we are witnessing a new type of preeminence, a “China model” that is attractive to developing country leaders and aspiring autocrats around the world, if not always to their peoples.

Today, China is no longer isolated or irrelevant to the world. The country manufactures one-fourth of global industrial production and is the largest consumer of several commodities and products, consuming one-fourth of the world’s energy, 59% of the world’s cement, 50% of the copper and steel, 31% of the rice and one-third of the semiconductors.^[5] A two-way dependence drives China to try consolidating Eurasia while also attempting the transition to becoming a maritime power for the first time in her history so as to defend her sea-lanes and overseas interests. These new orientations compete with internal priorities and traditional mindsets of China as a continental Asian power, and with the realities of China’s situation.

China is a global power in scale. But, not all dimensions of China’s scale have translated into global integration. The McKinsey Global Institute China-World Exposure Index shows that China’s exposure to the world in trade, technology, and capital has fallen in relative terms since 2009. Conversely, the world’s exposure to China has increased. This reflects the rebalancing of the Chinese economy toward domestic consumption. At the same time China’s technology value chains are highly integrated globally. Analysis of 81 technologies in 11 categories found that more than 90 percent of technologies used in China follow global standards. Study of value chains suggests that Chinese players have grown rapidly, but they still import critical components such as reduction gears (robotics), power electronics (electric vehicles), and equipment (semiconductors). China’s IP imports in 2019 were six times her IP exports (Woetzel, et al., 2019), with some of its most significant external dependencies being energy, food, markets, commodities, and technology. A globalised China’s internal needs today give her several reasons to push out beyond her borders.

Maritime Interests

Her internal needs mean that China must today attempt a double transition: to becoming an externally engaged but internally driven economy, and to becoming a maritime power after being a continental power for all of its history. China is able to act assertively in its adjacent seas because she is now, for the present, secure on land to a degree that she has never been before, a significant change from the situation in the sixties and seventies, or in history, when the people of the steppe threatened her continually and ruled her sporadically. Globalisation with its emphasis on sea lanes of communication has necessitated Chinese power projection into the blue-water oceans around her. Hence the Belt and Road Initiative, naval buildup, and attraction to China of ports around the world. Hence also the heightened Chinese sensitivity about potential threats to her permanent hold over Tibet and Xinjiang, which could be used to destabilise her.

For the first time in centuries, China is comfortable enough on land to consolidate the Eurasian Heartland. She can now turn her attention to imposing her power on the seas surrounding the Eurasian littoral. Her long preoccupation through history was with defending a geographically open inner Asian frontier against the nomadic northern and north-western steppe belt which spawned several dynasties that ruled China, like the Mongols/Yuan, Manchu/Qing, Jin, Liao and Tang. That is now changed.

China’s task in building a continental order has been eased by the division of Turan into smaller and weaker states where her economic power can be exercised, and by the retreat and diminution of Russia after the collapse of the Soviet Union. For the most part, Chinese power has been pushing at an open door on land, with the exception of South Asia, where India too is rising and expanding her definition of her interests, and in Korea, where partition of the peninsula and a US military presence limit China’s ability to shape outcomes. Overall, China is in a more comfortable geopolitical position on land than she has been since the high Qing conquest of the Dzungars at the end of the eighteenth century.

China’s turn to the sea is a consequence of the pattern of her development. Initially relying on export-led growth to build her own manufacturing, China’s continued growth now requires access to the world’s energy, essential raw materials, food, markets, technology and capital. This is a historic shift in Chinese thinking.

Like India, a sizeable proportion of China’s GDP is accounted for by external merchandise trade—31.6% in 2020. Her maritime quest is to defend these interests. But in seeking to transition to becoming a maritime power, China faces more difficulty at sea than on land. What is new for China is the fact that she now has to think as a maritime power, something she has never done for any extended period of time, if at all (Beng, 2014). Zheng He (鄭和, 1371-1433) is often cited as the exception for his voyages in the Indian Ocean during the early Ming with a large “treasure fleet.” But it could equally be argued from his conduct and Chinese records themselves that these voyages were a maritime variant of the overland expeditions to barbarian lands in central Asia that the Ming and other Chinese dynasties undertook to obtain control of trade routes, receive submissions and bring back treasure, and that they do not provide a guide to how China will act as a maritime power at this very different stage of its history.^[6]

Can China transition to being a maritime power? That it is unprecedented doesn’t mean that she cannot succeed. She has already shown the desire and built considerable capability. Her navy is the largest in the world in terms of number of ships. But whether she succeeds will depend not just upon her effort, which one can count on, but on what other powers do. We have argued that objectively, China is a hemmed-in power in a crowded neighbourhood and there are limits to its power. China’s domestic preoccupations and situation do not permit her to draw a line between internal and external security. It is hard to see how China will overcome these constraints, without a technological revolution and a change in tack, working with others abroad. There are therefore good reasons to test the hypothesis that China has overreached with the BRI and her present policies. Given her dependence on the world and the vulnerabilities her leadership perceives, she is unlikely to be able to change course significantly under the present leadership.

China may thus be domestically preoccupied, but with an expeditionary capability that would be used. She will continue to play in the space between maintaining the status quo and war to further her interests as she has done so well since 2008 in the South China Sea and on the India-China border.

What we have seen recently inside China—the turn to the “left” of Common Prosperity, the dual-circulation economy and other initiatives—suggest a further turning inward by China, and a return to earlier ways of mobilising the party and society and of managing a market economy. Xi Jinping’s “China Dream” is a parochial vision. What about the “China model” that he speaks of? China was a success when she was flexible and experimental, when she “crossed the river feeling the stones underfoot” in the phrase Deng used, not when she followed a set model as Mao and Xi seem to.

China’s ethnic nationalism and authoritarianism are both a strength and a weakness. Lee Kuan Yew once said that he thought China would not achieve its goal of surpassing the US as a global power because the US can draw on the talents of the entire world and recombine them in diversity and creativity. That is not possible with China’s ethnic nationalism.

China is betting on a model of innovation that is different from that which has succeeded so spectacularly in the West, relying not so much on rule of law as on very high incentives and rewards for successful innovation.

Instead, in the foreseeable future, it seems likely that China will become technologically dominant in some critical advanced fields, and will revert to her historical role as the greatest producer and provider of knowledge in human history — a role that, incidentally, was independent of her domestic or international politics and position. The Song, the most internally weak and externally challenged of China’s major dynasties did the most in terms of innovation and invention and in spreading it. China’s role in global technology chains will change, and is changing fast. I believe that we will see China return to her historical role as a net provider of knowledge much sooner than the West expects. Restrictions on technology transfers to China imposed by the Trump administration will force China to indigenise more rapidly. China’s own history of great innovation during politically troubled times like the Song or under autocratic regimes such as the Sui and Ming shows that neither the nature nor structure of her politics has prevented China from leading global innovation in history. Those who argue that only an open “democratic” China will be able to innovate are wrong, ahistorical and ignore the tremendous effort that China is putting into cutting edge technologies that she believes will determine her future. China is betting on a model of innovation that is different from that which has succeeded so spectacularly in the West, relying not so much on rule of law as on very high incentives and rewards for successful innovation, whether in private or state entities.

In the case of the India-China border crisis since 2020, China’s actions of changing the situation on the ground, shifting the LAC, and preventing Indian patrols on territory hitherto controlled by India were a fundamental and consequential shift in behaviour- a successful salami-slicing manoeuvre. Because the initial response was non-strategic, India was forced to cede ground, and now faces a fait accompli. By occupying territory on the Indian side, China put the onus of escalation on India if it wishes to restore the status quo. India considerably increased her deployment along the LAC in response to the Chinese military moves. In a partial response on August 29-30, 2020 India occupied some heights south of Pangong Tso on its own side of the line. This led to a subsequent disengagement in the Pangong Tso area. The government of India, for good reasons, seems unwilling to risk the wider war entailed by either vertical escalation (mounting major operations to evict the PLA) or horizontal escalation (to other sectors or to the maritime domain, for instance). This has resulted in the prospect of around 100,00 troops from both sides spending another brutal winter confronting each other along the LAC. The decision to change the status quo on the India-China border in 2020 has to have been a decision taken at the highest level in China for larger strategic reasons, not just tactical military convenience.

Since the immediate trigger for the crisis was a change in Chinese behaviour, it seems logical to look for explanations in China itself, and in its perception of the outside world. One way in which China’s domestic considerations have worked to complicate the settlement of the India-China border crisis has already been mentioned. Unlike past confrontations and face-offs, the framing of the crisis by China as a sovereignty dispute — rather than as a border dispute which would be solved by give and take — makes it harder to settle. It also suggests that for China the issue is not just about the LAC or its clarification but is part of an attempt to exercise control up to its claimed boundary, and also serves larger political goals. The other issue is the role of the PLA in the decision to heighten India-China border tensions and undertake escalating attempts to change the status quo since 2013. Ultimately, this is a question that needs further study and material that is unlikely to be available in the public domain.

Today, China displays both great confidence and a sense of victimhood. As Vice Premier and Politbureau member Liu He said in mid-2020, “bad things are turning into good ones,” referring to China’s success in suppressing Covid and in recovering growth in the economy in the last quarter. The triumphalist rhetoric is that “the East will prevail over the West.” The global pandemic and economic crash may have left China relatively better off than other major powers which are internally preoccupied and diminished. So far, China too has suffered some loss of reputation and economic harm, but less than others. However, China-US contention is now structural and that relationship is turning increasingly antagonistic, despite economic co-dependence. Besides, the worsening global economic prospect makes the China Dream harder to attain, both economically and by promoting countervailing ethnic nationalisms around China. All in all, a combination of Chinese hubris, awareness of a deteriorating external situation and hard times to come, and internal leadership and economic stresses, might explain China’s recent behaviour shading between assertiveness and aggression. Misreading the external situation, where there is really no existential threat to China, and overestimating China’s ability to shape the international environment could go together with elite dissension, resulting in the assertive and confrontational China that we see.

It thus seems worth considering in some detail what and how internal political drivers matter increasingly in China’s external behaviour. Taken as a whole, the internal drivers we have considered have four immediate effects.

Firstly, they suggest that China believes that her period of strategic opportunity may be closing soon. This is acknowledged in official Chinese statements. As a consequence, a reformed and rising China is and will be more assertive due to the internal push to tighten control and the external pull of opportunity and need. The world now depends on China for global economic growth and Asia-Pacific stability. Of course, that dependence is mutual. If China is a global economic player, she also needs the world for her own continued growth and stability. She needs markets, raw materials, commodities, energy and technology from the world if she is to continue to grow and maintain domestic stability. The issue is no longer one of accommodating China in a US-led international order. Recent history offers no cases of peaceful retrenchment by a hegemon, except Britain after WWII. The issue is of the new relationship that China seeks with the world.

In the short term, it may appear in Beijing that the harder Chinese line is working, particularly in their most important relationship, with the USA. China has got Mme Meng Wanzhou of Huawei back, the US is back at the table discussing trade, and the US seems willing to extend the time for China to implement the phase 1 trade deal. Will China try, without acknowledging their dependence, to destabilise the relationship with the US that is critical to their own economic future at minimal political cost at home? That remains to be seen, but is not evident from Chinese behaviour so far.

Secondly, an assertive external policy almost guarantees push-back and resistance. The Quad, AUKUS, and other examples abound. India has been pushed by Chinese actions into a much closer relationship with the US than would have been predicted a few years ago, and the US-Japan Security Treaty has been strengthened. In the longer term, this could pose a problem for China. But it is hard to say who will win the race between China’s build out of hard power and other leverage on the one hand and the countervailing actions that it provokes on the other.

No matter how “lovable” (Xi’s word) the image China tries to present the world, it is the ambition to be centre-stage and achieve primacy revealed in Chinese leadership statements and actions that the world will now deal with, hedge against or balance.

China’s problem now is that ambition once revealed cannot be credibly dialled back, as Kausikan points out. No matter how “lovable” (Xi’s word) the image China tries to present the world, it is the ambition to be centre-stage and achieve primacy revealed in Chinese leadership statements and actions that the world will now deal with, hedge against or balance.

The third consequence of an internally driven foreign policy, rather than one influenced by an objective appreciation of external conditions, is “wolf warrior” diplomacy and an inability to compromise or appreciate and adjust to others’ interests or different perspectives. This makes it hard for other countries to see a place for themselves in a China-centred ordering of the region or world. Hence the “great power autism” that Luttwak sees in Chinese (and US) behavior (Luttwak, 2012). There are signs that thinking Chinese worry about this problem. Speaking on the sidelines of the annual two sessions in March 2021, He Yiting, former executive vice-president of the Central Party School, had something of a warning for the Chinese leadership. He said that the country should “continue to expand opening-up, actively and prudently handle relations with major countries, and prevent the rise of domestic populism.” South China Morning Post (SCMP) reports that “other Chinese officials and academics have warned that the rise in nationalism could backfire both inside the nation and abroad.^[7]

The fourth consequence is an overemphasis on China’s security interests, their expanding definition, and an increasing reliance on the use or threat of use of force in the pursuit of those objectives. China has so far been skillful in militarising her periphery and expanding her military footprint without provoking kinetic responses, staying below the threshold of provoking a conventional military response in the ECS, SCS and other theatres like the India-China LAC in 2020. But on present trends one must wonder how long this can continue without miscalculation and escalation.

Ultimately, internal factors do not lead to an optimistic evaluation of China’s likely external behaviour. The reassurance is that the normal laws of physics, economics and politics do apply in China as well. The challenge is in seeing how they do so, and where their effects differ.

Dickson, B. J. (2016). The Dictator’s Dilemma: The Chinese Communist Party’s Strategy for Survival. Oxford University Press.

Freeman, C. (2019, February 12). After the Trade War, A Real War With China? Speech to the St. Petersburg Conference on World Affairs. https://chasfreeman.net/after-the-trade-war-a-real-war-with-china/

Luttwak, E. (2012). The Rise of China vs. The Logic of Strategy. Harvard University Press. ISBN 9780674066427

Johnson, I. (2017). The Souls of China: The Return of Religion After Mao. New York: Pantheon Books. ISBN 978-1-101-87005-1

Kee Beng, O. (2014). The Eurasian Core and Its Edges: Dialogues with Wang Gungwu on the History of the World. Singapore: ISEAS Publishing. https://doi.org/10.1355/9789814519861

Mohanty, M. (2018). China’s Transformation: The Success Story and The Success Trap. SAGE Publications, Inc., https://www.doi.org/10.4135/9789353280635

Overholt, W. (2018). China’s Crisis of Success. Cambridge: Cambridge University Press.
https://doi.org/10.1017/9781108368407

Wang, G., & Zheng, Y. (Eds.). (2009). China and the New International Order (1 ed.). Routledge. Weiss, J.C. (2014). Powerful Patriots: Nationalist Protest in China’s Foreign Relations. Oxford University Press.
https://doi.org/10.1093/acprof:oso/9780199387557.001.0001

Woetzel, J., Seong, J., Leung, N., Ngai, J., Manyika, J., & Madgavkar, A. (2019, July 1). China and the world: Inside the Dynamics of a Changing Relationship. Retrieved from Mckinsey & Company: https://www.mckinsey.com/featured-insights/china/china-and-the-world-inside-the-dynamics-of-a-changing-relationship

The post Internal Drivers of China’s External Behaviour first appeared on CSEP.

Executive Summary

The Indian healthcare sector has made significant progress in the last few decades. The under-5 child mortality rate dropped from 126 in 1990 to 34 in 2019, life expectancy rose from 58 years in 1990 to 69.4 years in 2018, and polio, guinea worm disease, maternal, and neonatal tetanus were successfully eradicated from the country.

Lack of access, availability, affordability, and quality care have resulted in sub optimal health outcomes for India, well below many of its peer countries

Despite the progress, healthcare delivery in India remains largely focused on periodic treatment, with inadequate attention to preventive and primary care. With a predominantly family health and infectious disease focus, India’s health system is not well geared to deal with the increasing burden of noncommunicable diseases. Lack of access, availability, affordability, and quality care have resulted in sub optimal health outcomes for India, well below many of its peer countries, and a significant financial burden of health expenditure at the individual and household level.

In this paper, we analyse the political determinants of improved health outcomes, making a case for political attention to healthcare, through increased investments, healthcare reforms and improved capacity to deliver curative and public health. We build on both theoretical frameworks and global and sub national experience, to develop hypotheses for greater political priority to health in India.

The paper is divided into four sections. The first provides a brief summary of the key challenges in the health sector. The second locates these in the political economy of healthcare. The third offers a framework and hypotheses for political priority to health in India. The fourth and final section summarises global and sub national experience, as the rationale for the framework and hypotheses for India.

The post The Political Pathway to Health System Improvements in India first appeared on CSEP.

Executive Summary 

As the 26th United Nations (UN) Conference on Climate Change, also known as the Conference of Parties (COP26), draws closer, the flurry of studies on what India should, or should not, do regarding its international commitments on greenhouse gas (GHG) emissions highlights the importance of both, the process to set long-term goals, and the associated long-term planning to chart a path for the realization of these goals.  

So far India is doing well, and is one of the few countries on a path to fulfilling its commitments for its nationally determined contributions (NDC) for 2030. Since 2010, when the Jawaharlal Nehru National Solar Mission (JNNSM) was launched, there have been unprecedented technological and other changes in the energy sector, particularly dramatic reductions in the cost of renewable energy (RE) based power. The Government of India has responded to these changes by equally dramatic enhancements of the targets for RE generation capacity in the resource mix.  However, the road ahead on the energy transition is going to become more challenging. Therefore, it is important to develop a coordinated approach to both, goal-setting and the associated long-term planning, that is effective and economically sound, so that the energy transition is as smooth as possible, and is done at the lowest cost. 

The focus in this paper is on the electricity sector. Most of the work in India on mitigating emissions has been done in this sector. Examining the long-term goal setting and planning process for the electricity sector should provide lessons and useful insights for other sectors, and for the whole economy. We review how long-term goal-setting and planning are carried out in India at present, identify shortcomings, and recommend changes to make both more effective. Our recommendations are also informed by our review of the experience of two countries with long-term goal-setting and planning—the United Kingdom (UK) and Australia—and the lessons for India from their experience.  

As we look at how long-term goals are set in the Indian electricity sector, several problems come to our attention. First, there is no overarching target in terms of emissions intensity for the sector. (Given that India is a developing economy, it is more appropriate to consider GHG emission-intensity targets for the electricity sector rather than absolute emission targets.) The target for the installed capacity of renewable energy (RE) plants is the closest proxy. Second, there is a profusion of separate targets for almost every resource used to generate electricity. Such an approach reduces the flexibility of distribution companies to select resources to meet their loads, resulting in a non-optimal resource mix, and a higher cost of electricity. The reduced flexibility could also stymie the development and deployment of newer technologies such as battery storage and small modular nuclear reactors. Third, there is insufficient attention to other development goals—domestic manufacturing, import dependence, and employment—when targets are announced. Even when these other goals are considered, ad-hoc measures are taken instead of a well thought out strategy. Fourth, many of the targets are pronouncements but often without an official policy document providing details of the target and outlining the rationale or deliberations behind its selection.   

Planning at the central level will be required to ensure adequacy of the transmission system, and at the local level for the distribution company to ensure adequacy of its network and to serve its remaining customers.

With a greater reliance on markets and privatisation, the nature of long-term planning in the electricity sector has changed, and is now carried out at both the national and local levels. Centralized planning is carried out by the Central Electricity Authority (CEA), and local-level planning is carried out by distribution companies. The CEA brings out the National Electricity Plan (NEP), which should ideally serve as a guide for investments in generation and storage, and should also ensure the adequacy of the transmission system to carry the required loads reliably. India is presently reaching the end of the third NEP (2017–2022). It is important to point out that the establishment of electricity markets, both at the wholesale and retail level, will not obviate the need for planning. Instead, it will make it more challenging. Planning at the central level will be required to ensure adequacy of the transmission system, and at the local level for the distribution company to ensure adequacy of its network and to serve its remaining customers. 

Four steps would greatly improve the NEP. First, it should be an integrated plan, instead of having two parts as is the case now—the transmission part of the plan is developed after the generation part has been finalized. Second, it should consider a much wider range of alternate plausible futures, and address uncertainty in a more comprehensive manner. Third, it should include consultation with a much wider set of stakeholders. Fourth, given the rapid pace of change in the sector and the resulting uncertainty, it should be reviewed in the middle of each five-year period.   

There are also serious shortcomings in long-term planning by distribution companies. Resource planning is not a part of the lexicon of the Indian power sector, and is poorly understood by distribution companies and regulators. At best, the focus is on sufficient generating capacity to meet peak loads—without much consideration of long-term system costs, an optimal resource mix, or risk management. A concerted effort will be required: (a) to increase awareness about the value of resource planning; (b) to develop a regulatory framework for resource planning; and, (c) to train staff of distribution companies and regulatory commissions on the practices of resource planning. 

Once there is sufficient expertise to carry out effective resource planning in distribution companies, it would be best for each state to have an emissions-intensity target for the electricity sector, derived from the emissions-intensity target for the national economy. One option for such a target could be in terms of grams of CO2-eq emissions per kilowatt hour (kWh) sold.1 State targets could be ratcheted down over time, to reduce the sector’s emissions-intensity.  

Each distribution company would need to develop and implement resource plans to meet the emissions-intensity target for its state. A difficult question is how to divide the national emissions-intensity target between states? There are some options we list in the paper, but the choice from those options requires a separate discussion.  

Until recently, planning in the electricity sector did not include building resilience into physical infrastructure, because it was felt that the power sector had well-established engineering rules and processes to cover that aspect. With the increasing number and severity of extreme weather events, not just in India, but across the world, the unthinkable has become the new normal. Planning for such events is important not just to prevent damage to the physical infrastructure, but also to factor-in vagaries in supply, as generation from renewable energy (RE)—wind, solar, and hydro—is directly linked to weather and climate. We cannot afford any longer to label these extreme weather events as unforeseeable; we must prepare for them in our planning processes. Planning, for making the power system more resilient, will not be easy because building-in resilience adds costs. Therefore, to mitigate costs and to find the optimal type and level of resilience that should be built in, long-term planning will require detailed and accurate information about the type and severity of climate risk that an area is likely to face.  

We recommend the following approach for the setting of long-term goals and associated planning, as India navigates its transition to clean energy in the electricity sector. 

• An autonomous and credible agency and a long-term target. We suggest that an autonomous and technically well-respected agency be assigned the responsibility for determining targets for emission intensity or net emissions. This agency could be either a new agency or created from an existing one, such as the CEA, with an expanded mandate to cover climate change issues for all sectors. The same agency should set the target year for complete decarbonisation of the electricity sector. The target year should be based on modelling and analysis of multiple plausible futures to set an ambitious but achievable target. Consultation with a wide-ranging set of stakeholders, and transparency about the assumptions and rationale for the selected target, should be an integral part of the process. 
• Shorter-term planning periods with targets. The period between now and the target date for complete decarbonisation of the electricity sector, should be divided into shorter periods of five years each; each with its own interim targets. These interim targets should be set for the maximum permissible emission-intensity of electricity sold, and stated in terms of grams of CO2-eq per kWh of electricity sold. The interim targets, possibly differentiated by state, should apply to all load-serving entities (LSEs). 
• Five-Yearly National Electricity Plan (NEP) with mid-term review. At the start of each five-year planning period, CEA should develop a NEP that represents the optimal path to reach the target of complete decarbonization. The NEP should identify the required augmentation and upgradation of the transmission grid to ensure transmission adequacy and reliability of the power system. The NEP should be an adaptive plan with signposts and decision-points, and should ideally also serve as a guide for investments in generation and storage. 
• Effective resource planning by distribution companies. Currently the main LSEs are distribution companies, but if and when retail competition occurs at a significant level, retail suppliers would also be LSEs. Targets for emission intensity instead of amounts of specific resources (RE, hydro, etc.) would provide flexibility to distribution companies to procure the optimal resource mix for their specific mix of consumers and load profile. However, in order to take advantage of this flexibility, the distribution companies will need to carry out effective long-term resource planning. As mentioned earlier, power procurement and resource-planning practices of distribution companies have very serious shortcomings as of now. A very significant effort will be needed to enhance the resource planning capabilities of the staff of distribution companies.   

• Effective monitoring by the independent agency. Monitoring the progress of reductions in emission intensity will be critical to India’s success in decarbonising its electricity sector. The independent agency (discussed in the first point above) should be tasked with: (a) monitoring annual progress; and, (b) suggesting corrective actions at the end of the five-year periods. 

The post Long-Term Goal-Setting and Planning for Decarbonising the Indian Power Sector – Need for a Coordinated Approach first appeared on CSEP.

DOWNLOADS

• Download Working Paper
• Download Working Paper in Hindi

Most of our debates focus on the here and now: issues such as the Covid-19 challenges, border disputes with China, the Agriculture Bills, phone hacking by Pegasus, or the banking sector’s continued bad debt crisis. However, the most important challenges – as well as the most promising opportunities – are what economists call “beyond the horizon” problems. Thanks to our evolution from the reptilian brain and our hardwired survival instinct, we systematically overestimate the magnitude of current challenges and underestimate the challenges that are far away.

This year is the thirtieth anniversary of India’s much vaunted economic reforms. Much has changed since then. In the early decades of independence, India had internalised poverty. In debates whether subsidies or infrastructure should be government priority, because of resource constraints and the zero sum nature of the expenditures, often-times subsidies got priority and long term investments lagged. The “Hindu rate of growth”, which translated to 1.3% per capita growth came to define India’s post-independence performance in early decades, (see Virmani, (2004))^[1]. Today’s India – in its reality and in its aspirations – is dramatically different. Ralph Waldo Emerson famously said: “The years teach much which the days never know.” My corollary: the years hide stories that only decades can tell.

This essay will attempt to look a decade ahead. I will cover a broad range of issues that I believe can be game changers for our country. Navigating these will require not just sound rational analysis, but also political will. And even more, it will require a preparation of society’s diverse constituents. Taken together, these will propel us forward. As we dwell on the decade ahead, it will be useful to recall Abraham Lincoln’s prophetic insight: “The best way to predict your future is to create it.”

While there will be inevitable swings in economic conditions, there is a strong unidirectional tailwind that is extremely favourable. I call it the operating leverage of the Indian consumer. For a majority of Indians, out of every Rs 100 of annual income, Rs 80 gets spent on day to day expenses. Only the remaining Rs 20 is discretionary income. If Indian nominal wage growth is 9%^[2], which is what the average has been, and if one deducts 4% inflation from this, the real wage growth would be 5%. In real terms, median income increases to Rs 105 annually. However, the median discretionary income goes from Rs 20 to Rs 25; that’s an increase of 25%. We have millions of Indians crossing this threshold, where they have nominal wage growth in the 8-10% range, but in real terms, their discretionary income is growing at 20%.

Business cycles can subdue this trend only somewhat over the short term. Over the medium term, and certainly over the long term, this trend will stay on course. The results of this are quite profound. Here’s a sample: Private general insurers have grown 18.5% and health insurers 21.2% in the decade of 2010-2020^[3], on the back of increasing market penetration and shift of market share from public sector companies to private insurers because of better quality of their services. Barring the Covid-19 disruption, advertising growth—a direct consumer proxy—has tracked 12% annualised growth over the past decade^[4]. Consumer durables have witnessed a 20% growth from 2012-2020. Company-specific numbers show similar trends: Telecom company Jio has grown its wireless subscribers from 186.6 million in end 2017-2018 to 387.5 million at the end of 2019-2020^[5] and its aggressive pricing has made India’s data consumption 11.96GB per subscriber per month on average in 2020 (TRAI, 2020), not just the highest in the world but more than 2x that of the US levels. In the past 20 years, electrical goods company Havells has increased its revenues almost 100x and its profits more than 300x, and as investors have come to realise its potential, its market cap has jumped 6,000x since its listing in 1994. (Just as a fun comparison, since Amazon’s IPO in 1997, its market cap is up 4,000x till date, making Jeff Bezos the richest man in the world.) All of this has one common theme: the Indian consumer. While there is some criticism that Indian purchasing power is limited, effectively, consumer markets are smaller than what top-down analysis shows, and market segments are saturating fast, and my own sense is that there is plenty of headroom. 2030 will see more of the above.

In the top ten industries producing India’s billionaires, the two largest contributors are information technology and pharmaceuticals, both of which are primarily global-contracting sectors.

The mix of India’s billionaires points to the consumer boom. Historically, as domestic markets have been small, exporters have been the darlings of industry. In the top ten industries producing India’s billionaires, the two largest contributors are information technology and pharmaceuticals, both of which are primarily global-contracting sectors. Most of the rest are consumer goods and related sectors: fast moving consumer goods, automotive, food and beverages, textiles and apparel. And in a divergence from its Asian peers, in India, real estate ranks 10th and infrastructure does not feature on the list at all.

This consumer-centric gravitational pull that one sees in legacy businesses also holds true in the world of disruption. Low penetration levels in most market segments have opened the opportunity for entrepreneurs to launch new products and brands, in online, offline and omni-channel modes. India today has 100 unicorns[6], and added 3 a month in 2021[7]. A report by Praxis Global Alliance(2021) is optimistic that India currently has 190 “Soonicorns” which are likely to graduate to Unicorn status by 2025. Fintech happens to be the largest generator of unicorns, followed by retail, online classifieds and travel, education and food, content and gaming. The time taken to reach unicorn-status has shrunk from an average of 7.4 years in 2010 to 2.4 years now, and based on the current trend lines, one can expect 250 unicorns by 2030. My prediction: powered by the domestic consumption boom, the most sought after jobs in 2030 will not be Unilever or Goldman Sachs, which have traditionally ruled Day 1 in top-tier campus recruitments, but in yet to be born, bootstrapped, adrenaline-driven, Unicorn-aspirant startups.

In the consumer sphere, two contra-trends are simultaneously true. New, but traditionally-driven consumer brands continue to create extraordinary wealth. Just look at Vini Cosmetics which makes the Fogg brand of deodorant. Or Pulse in the candy business, started by a true-blooded traditional paan masala company. Or Biba in women’s apparel, Fab India in handwoven garments and home furnishings, Forest Essentials in Ayurveda based skin care, MDH in spices, Veeba in sauces. The list is endless. At the same time, in category after category, digitally native brands are making their mark. Boat’s headphones are a rage with the 20-something crowd. Mama Earth’s skincare products have caught the imagination of young women. Licious found a white space in the meat industry and is attempting to create a direct-to-consumer brand in an otherwise disorganised sector. Country Delight, with its deep supply chains, is disrupting the dairy industry. Pharmeasy, a company we are shareholders in, has built India’s largest online pharmacy, became a Unicorn last year, and is planning an IPO pegged at a $5-6 billion valuation.

India’s disposable income led consumer boom is going to have profound changes in the financial markets as well. Currently as on 30^th Sep 2021, the top seven sectors constituting the Nifty 50 stock market index are financial services (37.23% weightage), information technology (17.41%), oil and gas (12.30%), consumer goods (11.11%), automobile (4.71%), pharma (3.39%), and construction (2.69%)^[8]. By 2030, there will be large changes in this composition as the Indian economy evolves. Financial services and oil and gas will reduce their weightage, and consumer goods will clearly gain. A few months ago, Tata Consumer Products replaced Gas Authority of India Limited in the index. And there’s talk that retailer DMart and consumer internet behemoth InfoEdge will soon be included in the index as well. Such changes will affect how India’s savings are eventually invested, creating a positive feedback loop. In more ways than one, this will be the decade of the Indian consumer!

Offsetting the secular trend of disproportionate increase in disposable income driving consumption-led-growth, there are several challenges that we cannot wish away as a society. We cannot expect government leaders to solve them in the course of the next decade, though we can expect they can be moderated to some degree.

India’s growth will be distorted by the differentials in economic activity in the West and the South as compared to the North and the East.

India’s growth will be distorted by the differentials in economic activity in the West and the South as compared to the North and the East. Already, on average, India’s southern and western states have been growing materially faster than their northern and eastern peers. By 2019, the three richest states in India on an absolute GDP basis were Maharashtra, Tamil Nadu and Gujarat. Then came Uttar Pradesh. When one considers that Uttar Pradesh’s population is 3x that of Gujarat and its economy is similar in size to Gujarat, the story becomes shocking^[9]. Per capita income of Gujarat, on the basis of Net State Domestic Product is 3x more than that of UP. Here are some more counter-intuitive statistics: Goa, India’s richest state on a per capita basis is more than 10x richer than Bihar, India’s poorest. Punjab, long considered India’s rich state, currently has a smaller GDP than the split-up states of Andhra Pradesh and Telangana individually; even on a per capita basis, it ranks much below Telangana and is neck-to-neck with Andhra Pradesh. Indeed, the future comes slowly, and then suddenly.

This would have at least three implications: Given the vastly different levels of prosperity, it would be difficult to get India’s 4817 legislators – the total number of members of parliament and of the various legislative assemblies – to reach common ground on the way forward for India. Moreover, if one adds the cultural and language differences between the rich and the poor states, the electorate would likely turn inward. The prosperous middle class in, say Tamil Nadu, would wonder why their tax monies are being spent to subsidise the inefficiencies of the masses of Uttar Pradesh. The urban crowds of Bangalore or Pune—fearing risks of squalor and crime—may not take too kindly to the rush of poor migrants from Bihar. Such fault lines have been seen in China and Korea, though these countries created high quality jobs in manufacturing, which is less true in India, and given the linguistic differences, managing these will be a fine art at all levels of the administration.

In the run up to 2030, India’s leaders will have to address the skewed nature of India’s development and will have to counter two fundamental questions, both of which have no correct answer.

India has lifted 271 million people out of poverty in the last decade (between 2006 and 2016)^[10], as per the United Nations Development Programme’s 2019 Multidimensional Poverty Index. This number is sometimes contested because of inaccuracies and lags in Indian economic data. Nonetheless, India’s extraordinary feat in tackling poverty hides many inconsistencies, as has been pointed out by Nobel laureate Amartya Sen and economist Jean Dreze in their earlier book “An Uncertain Glory”. Gender, caste and geographical disparities haunt India’s poor. Like elsewhere in the world, rising inequality is an issue in India. India’s Gini Coefficient – a standard measure of income inequality – is already worrying, especially given our stage of development. However, this picture of inequality is very different from western experience in the past decade, where standards of living for large sections of society have declined as compared to that of their parents. In India and in most developing countries, absolute gains have been across the board, even though uneven.

In the run up to 2030, India’s leaders will have to address the skewed nature of India’s development and will have to counter two fundamental questions, both of which have no correct answer. One is philosophical. The contradiction between liberty and equality – highlighted in Will Durant’s remarkable book “The Lessons of History” – will need to be addressed. The other is political. In a famous interaction between former Prime Minister Manmohan Singh and an un-named Chinese minister on the Chinese reform programme, when asked whether it would lead to greater inequality in China, the Chinese minister replied “We would certainly hope so.” Ideologically, I consider myself the right fringe of the left-movement, and would suggest that each one of us, not just political leaders or policy wonks, take a hard, holistic and pragmatic look at this question. 2030 is waiting for our answer.

My generation has been fortunate that we started our work life in the aftermath of the 1991 reforms. India’s growth rate quickly got reset to an upward trajectory. As India shed its socialist leanings and internalised the dynamism of free markets, the very definition of the ideological centre in the left-right economic dialogues moved decidedly towards the right. This trajectory has continued under governments of all hues and has been accelerated in the recent policy announcements. Indeed, the debates from thirty years ago seem archaic.

As India shed its socialist leanings and internalised the dynamism of free markets, the very definition of the ideological centre in the left-right economic dialogues moved decidedly towards the right.

As businessmen, we need to benchmark what our economic expectations are. First, we need to anchor it to the reality of the country. Economic theory tells us that growth is investment rate divided by incremental capital output ratio. Both are sticky numbers. India’s investment rate for long stretches has hovered around 30%^[11]. The investment rate is strongly correlated to India’s savings rate, which in turn is partly cultural and partly determined by the dependency ratio. Because of our high dependency ratio, our savings rate in the 1960s was almost half of what it is currently. As our savings rate doubled, so did our growth. India’s incremental capital output ratio is about 4 and is inching upwards. Therefore, India’s fighting weight in terms of economic growth is in the range of 7-7.5% and this is what it should strive for.

Second, we have to think probabilistically. We have to imagine scenarios and work with possibilities rather than a deterministic path. India’s growth will fluctuate around this number, and we should not get ecstatic if it goes to 9% briefly or collapses to 4.5% periodically. Both have happened and have invited extreme views. As India’s investment rate has circumstantially fluctuated, we have seen its effect on the GDP figures, most of which is short-lived. To borrow from Rudyard Kipling, we have to learn to meet with Triumph and Disaster, and treat those two impostors just the same!

Third, superficial comparisons with other countries are misleading. For instance, an oft-asked question in business circles is how China managed a spectacular growth rate of 10% for almost two decades. Here’s the answer: In most of that period, China’s savings rate was 45% and its incremental capital output ratio was about 5. The math was simple. Years of sub-par investments fuelled by a debt binge increased the incremental capital output ratio to 7 or more^[12]. Growth fell at 6.5%. The magic ended. One should not consider this a failure, but a somewhat natural outcome of the economy maturing.

Fourth, India’s favourable demographic window will create what Charlie Munger calls the “Lollapalooza” effect. Berkshire Hathaway Vice Chairman Charlie Munger coined the term to outline how multiple different tendencies and mental models combine to act in the same direction. Low dependency ratios will fuel a self-reinforcing cycle of savings, investments and growth. A bulge in working age population, which started in 2018 and is expected to last till 2050^[13], can help turbocharge growth, as happened with many Asian countries in the late 20^th century, which saw near-double digit economic growth for decades. To borrow from astrology, India’s stars are rightly aligned.

If one stays with India’s natural fighting weight in terms of economic growth, in the short to medium term, good governance can change the number by 1%.

Governments matter. In some ways, more than we think. In other ways, less than we think. In the early 1990s, 40.85%^[14] of Uttar Pradesh’s population and 22.19% of the combined Andhra Pradesh was below the poverty line. Both were near the bottom of the league tables. Twenty years later in 2011-12, Uttar Pradesh’s poverty rate was 29.43%^[15], while Andhra Pradesh had managed to reduce it to 9.20%. Political entrepreneurship clearly works. On the other hand, in the near term global macro and economic cycles matter more than governance. If one stays with India’s natural fighting weight in terms of economic growth, in the short to medium term, good governance can change the number by 1%. Global conditions—trade barriers, commodity prices, interest rates—can change this by a larger factor. In the long term, as macro-forces cancel each other, global macro goes into the background. What’s left is governance. People often tend to misattribute credit and blame. Political and election cycles, the recurring hum of central government or some state government elections, amplify this trend. So, one request, my friends: don’t focus on 2022 or even 2025, but on 2030!

Optimism is warranted. Here’s a surprising fact from the World Bank: Their “Lived Change Index” uses lifetime per capita GDP to track how much economic change a population has experienced^[16]. Over the past three decades, China is an outlier, having delivered 31x, with runner up Poland at 9x, and India comes in 6^th at 5x, ahead of Singapore, Malaysia and Brazil. India needs to continue to play the long game well.

An ascending India of 2030 will act in a versatile manner, have foresight and will shape the global agenda.

At the same time, speed will be of essence. Consider the following world events: coup in Myanmar, power crisis in Texas, Australia vs Facebook, Bitcoin hit $50,000, China banned BBC, NASA landed on Mars, India sent vaccines to many countries, global drop in Covid cases, first US airstrike under Biden. As data researcher Norbert Elekes pointed out, all of these happened in the single month of February 2021. Given this accelerating pace of world events, an ascending India of 2030 will act in a versatile manner, have foresight and will shape the global agenda.

The adage “The economy is too important to be left to economists” is often attributed to Winston Churchill but here I am referring to the seminal book by Robert Reich, well known UC Berkeley academic and former Labour Secretary in the Clinton Administration. He wrote passionately about the role of government in the era of late stage capitalism that we are in. South Korea’s “Miracle on the Han River”, from the early 1960s to the late 1980s, is considered unprecedented in the history of the world, and was led by its outward looking government. China’s transformation was anchored by Deng Xiaoping’s “To be rich is glorious” moment in the late 1970s. Germany, Mexico, Czech Republic, all had similar political champions.

In India, as political power devolves from the centre to the states, governance will become a deeper determinant of success.

In India, as political power devolves from the centre to the states, governance will become a deeper determinant of success. Whether it is managing the government’s precarious finances or streamlining the maze of direct and indirect taxation, whether it is solving the accumulated problems of bad loans on the books of India’s banks or bringing real long-term interest rates down from the high 5% that has haunted Indian business, whether it is navigating the world of trade agreements or strategising as multinationals ponder over their China+1 plans, whether it is tackling head on India’s poor social indicators or upgrading India’s state capacity, whether it is advancing India’s geopolitical standing or optimising India’s privatisation programme, whether it is tech-sector regulation or accelerating action on India’s legal backlog of 45 million cases^[17], whether it is catching up on India’s infrastructure needs or solving India’s agricultural inefficiencies, the winning formula will reside at the intersection of politics and economics. Economics will provide the logic, politics will provide the leeway.

India’s demographics is both a boon and a bane. India’s window of opportunity is perhaps the next decade and a half.

India’s demographics is both a boon and a bane. India’s window of opportunity is perhaps the next decade and a half. The over-65 population is projected to overtake the under-five group between 2025 and 2030. “India Ageing Report 2017” by the United Nations Population Fund says the share of population over the age of 60 would increase from 8% in 2015 to 19% in 2050. All this will reverse the trend of declining dependency ratios, hurt the savings-investment-growth dynamic, and moderate India’s economic growth rates. I read a tweet recently, which reflected the sentiments of Middle America: “The lifestyle you ordered is out of stock,” This would likely play out in India as well. With the build up of aspirations on one side and the weight of demographic reversals on the other side, tensions will surely mount.

Political leaders will have to lead with a singular focus and follow Jim Collins’ management advice regarding leadership in a world of complexity and uncertainty: “Instead of being oppressed by the “Tyranny of the Or”, highly visionary companies liberate themselves with the “Genius of the And”— the ability to embrace both extremes of a number of dimensions at the same time.” For Vision 2030 and beyond, boxes are out, fluidity is in.

Policy adventurism has long tails. For instance, recent news reports^[18], though contested^[19], show how government finances have been hurt by the oil bonds of the 2005-10 period, which were issued by the government to oil marketing companies to compensate for under-recoveries resulting from rise in crude prices which they were not allowed to pass on to consumers and industry. These, estimated between $10 to $18 billion, is now coming due, starting from late 2021 through to 2026. Such exercises of creative management of the Union Budget have added up to make government finances precarious and are effectively making taxpayers today pay for subsidies handed out to consumers more than a decade ago. In most such cases, politics wins, economics loses. Hard headed economics needs to be brought centre-stage.

In the near term, while the seductive appeal of nationalism, populism and protectionism will prevail, ultimately the pendulum will swing towards global integration, and our own historical experience of being an autarky will probably make us a champion of free markets and globalisation as this decade comes to an end.

Political polarisation would also likely have economic solutions. In a very timely essay in The American Purpose, Steven Feldstein (2021), a Fellow at the Carnegie Endowment, spoke about the risks of technologically driven echo chambers and safe havens: “There is a risk that democracies will fracture even further, into “splinternets,” unable to coordinate norms and standards.” Such risks are even more stark in India because of its multidimensional diversity. A singular focus on tangible prosperity can channelise the narrative. In the near term, while the seductive appeal of nationalism, populism and protectionism will prevail, ultimately the pendulum will swing towards global integration, and our own historical experience of being an autarky will probably make us a champion of free markets and globalisation as this decade comes to an end. And importantly, India has been conditioned to look West. Much of the action now is in the East and as India cracks the East Asian trade networks, the rewards are likely to be disproportionate.

As the world moves from bilateralism to multilateralism, alignments will be more issue based and tactical, giving Middle Powers like India new abilities to shape the world.

The Lowy Asia Power Index (2020) ranks countries based on eight criteria: economic capability, military capability, resilience, future resources, economic relationships, defence networks, diplomatic relations and cultural influence. Directly or indirectly, all of these factors are a confluence of political and economic forces. In the 2020 survey, India ranked 4th, after the United States, China and Japan. By 2030, India could easily come 3rd, if not 2nd. Geopolitically, India will have an opening: As the world moves from bilateralism to multilateralism, alignments will be more issue based and tactical, giving Middle Powers like India new abilities to shape the world. However, capitalising on it, will require an integrated worldview, the core of which will be India’s economic strength, aided and abetted by political craftsmanship, the deep roots of the Indian diaspora, and India’s near-natural status to be a counterweight to China.

The shortest poem in the world – Me, We – was recited by heavyweight boxing champ Muhammad Ali at the Harvard Commencement in 1975. It signified the paradox of self-confidence and deference to the community. The decade leading to 2030 will need Indian leaders to recite such poetry.

The economic prize of 2030 may not seem that attractive at first glance. According to the World Economic League Tables (2021), India’s GDP in 2030 will be $6.2 trillion, translating to $4185 on a per capita basis. However, on a PPP basis, this would be at least 3x more, comparable to Indonesia, South Africa or Peru today. As a society we should endeavour to beat this base case. Getting there will require Cathedral Thinking.

Cathedral Thinking refers to long-term, visionary work that could take generations to complete. Much like building a massive cathedral, those who lay the first stones won’t be there to savour the finished product. Yet each worker is driven to make a meaningful contribution to something that will be enjoyed by future generations, who they’ll never meet. That is the long-range vision leaders need if India has to reach its true potential.

For those who think that a nation’s economic fate is determined by geography or culture, Daron Acemoglu and Jim Robinson (2012) have bad news. In their remarkable book, “Why Nations Fail”, they go through two thousand years of political and economic history, and conclude that it’s man-made institutions, not resources or endowments or the contingencies of history, that are the prime determinants of whether a country is rich or poor. India’s institutions need to be reset for the new era of global competition.

India of 2030 will look very different from an institutional setting and that will perhaps be the core driver of all the surface changes that we will encounter.

A few things stand out. India’s institutions are typically forced to cater to a range of conflicting demands. Regulators often play catch up with market realities. Many government policies have a crisis as a frame of reference. And lastly, in India’s defining moments, individual heroism trumps institutional initiatives. India of 2030 will look very different from an institutional setting and that will perhaps be the core driver of all the surface changes that we will encounter.

Success – amongst people, businesses, countries – is not a result of more good luck, less bad luck, bigger spikes of luck, or better timing of luck. Instead, they make more of their luck than others. The current decade is a time to maximise our return on luck!

256 Network & Praxis Global Alliance. (2021). Turning Ideas to Gold. Retrieved from url:https://www.praxisga.com/reports-and-publications/financial-investors-group/report-turning-ideas-to-gold

Acemoglu, D. & Robinson, J.A. (2012). Why Nations Fail: The Origins of Power, Prosperity and Poverty. New York: Crown Publishers, Random House.

Collins, J. & Porras, J.I. (1994). Built to Last: Successful Habits of Visionary Companies. United States: Harper Business. ISBN 0-060-56610-8

Dreze, J. & Sen, A. (2013). An Uncertain Glory: India and its Contradictions. New Jersey: Princeton University Press.

Durant, W. & Durant, A. (1968). The Lessons of History. Simon & Schuster.

Feldstein, S. (2021). Can Democracy Survive the “Splinternet?”. American Purpose. Retrieved from url: https://www.americanpurpose.com/articles/can-democracy-survive-the-splinternet/

India Ageing Report (2017). Caring for Our Elders: Early Responses, available at https://india.unfpa.org/sites/default/files/pub-pdf/India%20Ageing%20Report%20-%202017%20%28Final%20Version%29.pdf

Lowy Institute Asia Power Index. (2020). Lowy Institute. Retrieved from: https://power.lowyinstitute.org/

Pitch Madison Advertising Report 2019. Retrieved from url: https://www.exchange4media.com/PMAR19-Final.pdf

Press Trust of India. (September 2, 2021). ‘India added three ‘unicorns’ per month in 2021: Hurun report’. Business Standard.

Reliance Industries Limited Integrated Annual Report 2019-2020. https://www.ril.com/getattachment/299caec5-2e8a-43b7-8f70-d633a150d07e/AnnualReport_2019-20.aspx

Reserve Bank of India Bulletin. August 2021. Volume LXXV Number 8. Retrieved from url: https://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/0BULLETINAUG2021767F2556D32A4061B0AC0EE3C54C1208.PDF

Telecom Regulatory Authority of India. (2020). The Indian Telecom Services Performance Indicators, July-September 2020. New Delhi. Retrieved from url: https://www.trai.gov.in/sites/default/files/QPIR_21012021_0.pdf

United Nations Development Programme. (2019). The 2019 Global Multidimensional Poverty Index (MPI). United Nations Development Programme and Oxford Poverty and Human Development Initiative. Retrieved from url: http://hdr.undp.org/en/2019-MPI

United Nations Population Fund 2017. ‘Caring for Our Elders: Early Responses’ – India Ageing Report – 2017. New Delhi, India: UNFPA. Retrieved from url: https://india.unfpa.org/sites/default/files/pub-pdf/India%20Ageing%20Report%20-%202017%20%28Final%20Version%29.pdf

Virmani, A., 2004. India’s economic growth: From socialist rate of growth to Bharatiya rate of growth, (No. 122). ICRIER Working Paper.

WORLD ECONOMIC LEAGUE TABLE (2021). Available at https://cebr.com/wp-content/uploads/2020/12/WELT-2021-final-23.12.pdf

Zac Dycthwald. (2021). China’s New Innovation Advantage. Harvard Business Review. Retrieved from url: https://hbr.org/2021/05/chinas-new-innovation-advantage

The post India’s Next Decade: Some Predictions, Some Speculations first appeared on CSEP.

DOWNLOADS

• Download Working Paper

Summary:

Approximately one in six urban residents in India lives in a slum, according to the Census of India (2011). The residents of slums are not only economically deprived, they fare worse on both mortality and morbidity indicators as compared to their non-slum neighbours as well as their rural counterparts (Mberu et al, 2016). They are therefore highly vulnerable to both communicable and non-communicable diseases. This vulnerability comes from both poverty as well as the lack of infrastructure like drainage, sanitation, and access to potable water (Sclar et al, 2005).

However, in India, not all slums are equally deprived. The statutory recognition of a slum happens through a process called ‘slum notification’, through which a state or local body formally acknowledges its existence. There exist many variations in how states notify slums and the impact of their notification policy. Generally, notification is a source of security for slum dwellers, since eviction from a notified slum must follow procedures laid down in the law. Notified slums are also the only slums eligible to be beneficiaries of public schemes and amenities (Subbaraman et al, 2012).

Therefore, non-notified slums are doubly deprived. In this paper we provide evidence of these deprivations and suggest how policy changes can lead to more equitable access to amenities.

Non-notified slums are doubly deprived. In this paper we provide evidence of these deprivations and suggest how policy changes can lead to more equitable access to amenities.

Initially, the slum policy in India focused on clearance of slums, dating back to 1956 when the Slum Areas (Improvement and Clearance) Act was passed. However, over the past 20 years, it has evolved to focus on upgradation and then in-situ redevelopment (Hindman et al, 2015). This change has been for the better — policies that focused on clearance often displaced slum dwellers entirely without compensation or relief. However, even as slum policy in India has evolved, why do some slums have better access to water, kitchens and toilets than others?

A frequently cited reason why slum households have fewer private amenities is the lack of property rights over their dwelling unit. Turner (1976) argues that housing in squatter settlements is an incremental process. The risk of eviction and demolition (due to ‘illegality’) discourages slum dwellers from investing in their properties. De Soto (2000) noted that insufficient property rights stifle property owners’ incentives to invest in their holdings and reduce formal credit access. There is growing empirical evidence of the link between the improvement of dwellings and secure property rights (see Field, 2005; Galiani and Schargrodsky, 2010; Nakamura 2014, 2017). Thus, property rights form a significant pathway to access better amenities.

Some other factors found to impact access to amenities in Indian slums are the slum-dwellers’ political contacts (Edelman and Mitra, 2006) and better human capital levels (Rains et al, 2019).

This paper begins with a survey of literature on property rights, amenities in slums and their effects on health outcomes. We detail our methodology and take note of the legal context of notification. The next section notes the impact of notification on access to amenities. Finally, we present case studies of slum policy from three states in India and conclude with actionable policy recommendations.

The post Can Property Rights Improve Access to Toilets for the Urban Poor? Evidence from India first appeared on CSEP.

DOWNLOADS

• Download Working Paper

Summary:

The 6th Assessment Report of the IPCC’s Working Group I has issued a “code red” warning: climate change is “widespread, rapid and intensifying” and the world looks set to exceed the Paris target of limiting global warming to 1.5°C above pre-industrial levels as early as 2035. If the process is not halted, we could see global warming reaching +3°C by the end of the century with far more frequent extreme events such as heatwaves, droughts, interruption of normal monsoon patterns, rising sea levels and flooding. Numerous studies have credibly established that India would be among the countries most severely affected.

The good news is that if we act fast enough to cut emissions drastically and reduce atmospheric CO2 concentrations, we will still exceed the +1.5°C limit, but the warming could be reversed and global temperatures nudged back to around +1.5°C by the end of this century, without any long-term damage to the ecosystem. We have a big stake in ensuring that this happens.

These issues will be discussed in the upcoming G20 meeting in October and CoP-26 in November. These meetings will occur in an environment in which global opinion is much more aware of the dangers of climate change as is reflected not only in views expressed by NGOs and other thought leaders but increasingly also heads of major corporations. Governments have also responded. Both the US and the EU have announced longer-term targets of reaching net zero emissions by 2050. Several other governments, including some from developing countries, have also endorsed the net zero date of 2050. China and Indonesia have put forth 2060 as their net zero date.

What strategy should India adopt in the forthcoming international meetings? This paper attempts to answer that question. Part I outlines our traditional position, which has been to refrain from making any commitment to reduce emissions, and argues that the time has come to modify our stand because changes in technology now make it possible to grow while also reducing emissions over time. Part II assesses whether the transition to renewable energy, which is now “technically feasible”, will also be “economically viable” in terms of cost competitiveness. This is critical to determine the immediate costs of transitioning to a low emissions pathway. Part III summarises the results of various studies estimating the extent of emissions reduction that is possible over the next three to four decades. Part IV highlights the structural changes that shifting to renewables will entail, and the many policy changes required from both the centre and the state governments to manage the transition. Part V draws upon the analysis to suggest a new negotiating strategy that we could push for in the CoP-26.

The post Getting to Net Zero: An Approach for India at CoP-26 first appeared on CSEP.

DOWNLOADS

• Download the Working Paper

Executive Summary

The recent Intergovernmental Panel on Climate Change (IPCC) report on climate change painted a dire picture of global warming, especially climate shifts and variance across countries. It highlights the need to limit emissions, and if the ambition is to keep warming under 1.5° Celsius, the summary is the world needs to get to zero by 2050.

A number of countries have announced plans to reach “net-zero” by 2050 or thereabouts. There are several problems with these announcements. First, are these really zero, or ‘net’ through futuristic or unfair offsets or, even worse, accounting tricks? Offsets are unfair when they are based on ‘all carbon is equal’ even though abating carbon isn’t equal in cost. ‘Economic efficiency’ has a skew that favours high-emitters, who benefit from offsets out of low-emitters (poorer countries) with early-in-the-trajectory abatement. Second, even if one does reach zero, what is the shape of the trajectory to get there? Most countries are conspicuously quiet on the details. The shape would determine the cumulative emissions over time, which is what really matters. Third, are all countries expected to reach the target at roughly the same time? Not only is this unfair to low-emitters (who are invariably poorer, developing countries), coming to zero by 2050 would still mean many high-emitters would still emit well more than their “fair share” of emissions through most apportionments of a global carbon budget. This is after being generous and writing off all historical emissions, even though carbon dioxide lingers in the atmosphere for centuries.

Becoming zero is important, but “date of net-zero” is incomplete, lacking any measure of what the date should be. “Sooner is better” remains a motherhood statement. To address many of these issues, this paper presents a richer framework for both creating a yardstick for cross-country comparison as well as incentivizing countries to lower their cumulative emissions going forward. This yardstick is, by design, based on total emissions. It thus overcomes the limitations of the ‘date of zero’ approach, which ignores any front-loading of emissions. The area-under-the-curve approach, which also tells us the date of zero, is richer because it directly indicates if a country is behind schedule and likely to bust its budget. It also tells us how much time a country with low emissions has before it must peak emissions.

The framework uses a standardized trajectory for all countries that assume they need time, nominally 30 years, to reach zero. Low emitters also have some remaining carbon space so they can continue as-is for “N” years until they have to peak and still stay in budget. High emitters may not even have 30 years to linearly decline to zero and stay in budget. They solve for a negative “N”, meaning they should have begun their decline in the past to allow themselves 30 years to come to zero, or they must decline faster to stay in budget. To reach zero in thirty years (a 2050 target) means a country has no years left before the 30-year decline to zero (“N” = 0).

Growth in emissions from low emitters for a few years is inevitable and embedded in the framework. In 2019, the countries with per capita fossil CO2 emissions below the world average, with 60% of the world’s population, had only 22% of global fossil CO2 emissions. A billion people in sub-Saharan Africa (excluding South Africa) were responsible for only 1% of global emissions. Any model expecting them to immediately focus on “zero emissions” is naïve and discriminatory.

Importantly, this framework enables a system that incentivizes low-emissions countries to “flatten the curve” – to peak emissions later, but lower. This would enable them to have a combination of lower cumulative emissions or the same emissions at a lower cost (given low-carbon technologies are getting cheaper over time). Net-zero by a rigid date wouldn’t support this. It would also fail to push for any low-hanging fruit of early emissions reduction, which could give some countries limited carbon space to let small residual emissions continue for a few years.

If the world does bust its carbon budget, it will be because of a subset of high-emission countries. These countries should make global finance transfers that enable low emitters to flatten their curve. They should also pay down costs along the learning curve for abatement technologies, such as green hydrogen, carbon capture, etc., that are currently expensive. However, for most high-emission countries, relying on direct air carbon capture to stay within an appropriate carbon budget as per this framework will not be practical due to the scale involved. In some cases, they would need to remove 50 percent to 275 percent of current emissions annually. This is before considering the high cost of such solutions. These points emphasise that countries should first focus on decreasing emissions.

This paper also shows that carbon pricing, currently based on incremental emissions per ton, may not be directly compatible with a framework focused on cumulative emissions. It is also unclear if pricing alone will lead to sufficient reductions. When we consider issues of equity, the situation is unfair to poorer (low-emission) countries, whose emissions will only grow. Any framework with rising carbon prices is especially unfair.

Given we do need to get to zero globally, countries need to articulate their trajectories for achieving their targets. Offsets should be considered with strong caution, and with separate accounting. As this framework shows, the shape of the trajectory is very important, which ultimately determines the cumulative emissions (the area-under-the-curve). All countries should focus on any low-hanging fruit of early reductions, which for high emitters will become absolute reductions and for low emitters represent a reduction in emissions growth rate.

The post Flatten-the-curve: Why total carbon emissions matter much more than ‘date of zero’ first appeared on CSEP.

DOWNLOADS

• Download Working Paper

Abstract

The Mines and Minerals (Development and Regulation) Act, 1957 was amended in 2015 and introduced as an auctions system to address three major concerns—transparency, fairness, and objectivity—raised by the Supreme Court regarding the mineral asset allocation process. Four changes became evident following the Act coming into force, and these have impacted competitive efficiency in the mining sector. (1) Of 114 non-fuel mineral auctions held so far, many received excessively high bids (particularly for iron-ore mines); bids higher than even the estimated value of reserves. (2) Mining company profiles changed from merchant miners (selling minerals on the market), to captive miners (owning downstream plants that consume the minerals). This could lead to less-than-efficient usage of the minerals acquired through auctions, with induced general equilibrium externalities. (3) High auction bids, combined with high royalty rates and some other statutory payments, have not encouraged new mining activity in any significant way. Short-term financial gains for State governments, and possible long-term revenue losses and strangulation of new investments, may result. (4) Many auctioned blocks are of previously operational mines (brownfield mines), where the leases had lapsed as of March 2020 as per conditions laid down in the amended Act. This paper also touches upon the subsequent amendment to the Act in 2021, and concludes with suggestions for rationalising the auctions mechanism to ensure competitive efficiency in the mining sector.

The Mines and Minerals (Development and Regulation) Amendment Act, 2015, (henceforth MMDR Act, 2015) ended the first-come, first-serve system of mining allocations and has brought in an auctions regime. This was intended to bring in ‘greater transparency’ and ‘[remove] discretion’ (Ministry of Mines, Government of India, 2019) in the allotment of natural resources. The Government of India noted that State governments would receive an ‘increased share [of revenues] from the mining sector’ with the new system (ibid.).

The analysis in this paper provides an overview of bids made in the auctions of iron ore, limestone, iron ore & manganese, bauxite, manganese, graphite, gold, chromite, copper, and diamond, with a focus on iron ore and limestone.

According to the Ministry of Mines, 114 non-fuel mines have been successfully auctioned to date. Technically qualified bidders (i.e., companies fulfilling certain criteria) participated in an ascending forward online electronic auction and bid on the percentage of the value of minerals which would be despatched over the lifespan of the mining operation.[1] There are two stages in the auction process, where the highest bid in the first stage is taken as the floor price of the second stage. The ascending forward system allows bidders to outbid others in each stage. The respective State government then granted each auction’s highest bidder a mining lease or a composite license (i.e., a prospecting license-cum-mining lease), subject to their having satisfied various conditions.

The analysis in this paper provides an overview of bids made in the auctions of iron ore, limestone, iron ore & manganese, bauxite, manganese, graphite, gold, chromite, copper, and diamond, with a focus on iron ore and limestone.

Of the 114 auctions held so far, detailed information on the first 97 auctions (held up to March 2020) is available on Transparency, Auction Monitoring and Resource Augmentation (TAMRA),[2] the auction monitoring website of the Ministry of Mines’.[3] Details on the remaining 17 auctions have not yet been made available.[4] Since detailed information is only available for 97 auctions, some of the figures and tables in this paper consider only this data.

Figure 1 shows the number of auctions each year following the amendment of the Act in 2015. The first year saw just six auctions but this number more than doubled over the next two years, to 15 and 14 respectively. The years 2018–19 and 2019–20 saw a surge in auctions (mainly of brownfield mines, i.e., already mined blocks, unlike ‘greenfield’ mines that have never been mined). This surge was triggered by a provision in the amended Act, which stated that leases of certain merchant mines would lapse on March 31, 2020 for specific reasons as mentioned in MMDR Act, 2015.

Meanwhile, in an attempt to ensure mineral security and continuation of mining, the government has passed the Mines and Minerals (Development and Regulation) Amendment Act, 2021 [MMDR Act, 2021], which allows for valid clearances to be passed on to the new leaseholder to ensure ‘continuity in mining operations even with change of lessee’ and to ‘avoid repetitive and redundant process of obtaining clearances’ for the same mine.

The amendments in MMDR 2021 have also resolved various pending cases under Sections 10A(2)(b) and 10A(2)(c)—to do with the rights of those who were granted leases before the MMDR Act, 2015—by stating that a ‘large number of mineral blocks’ would be put up for auction.

Figures 1 and 2 show the increasing number of auctions in 2018–19 and 2019–20, with 43 taking place in 2019–20; more than a third of all auctions since the start of the regime.

Of the 43 mines auctioned in 2019–20, 17 were iron-ore mines, and six were iron ore and manganese mines. With many iron-ore mines closing and the mining leases of several non-captive mines coming to an end in March 2020, there have been speculations that India might become a net importer of iron ore again. This had last happened in 2015 (Dry Cargo International, 2019). However, speedy auctions of mines will help increase the indigenous mining of iron ore rather than relying on imports.

Speedy auctions of mines will help increase the indigenous mining of iron ore rather than relying on imports.

The year 2020–21 saw the fewest auctions (barring the first year, 2015-16), which may be in part due to the Covid-19 pandemic. There have already been four auctions in the ongoing financial year 2021–22, with many more blocks expected to be auctioned. (HT Correspondent, 2021).

A total of 19 auctions have been held in Karnataka, 18 of which were previously operational iron-ore mines. Odisha saw a surge in auctions in 2019–20, with 25 blocks auctioned, of the total 31 in the state. The remaining seven states had fewer than 15 auctions each, primarily for limestone blocks (Figures 3 and 4).

The majority of blocks auctioned were iron ore (and some iron ore and manganese) and limestone blocks, which in total make up 81 of the 114 total auctions (Figure 5). In comparison, there were far fewer auctions of blocks with deep-seated minerals.

There are two types of leases that may be auctioned under MMDR Act, 2015: mining leases (MLs) and composite licenses (CLs) (prospecting license-cum-mining lease). The Minerals (Evidence of Mineral Contents) Rules, 2015 Section 7 provides details on the exploration requirements to determine whether a CL or ML would be granted for a particular mineral area.

Holders of CLs are given the right to undertake prospecting operations, followed by mining. These licenses are granted in areas with limited exploration and weaker evidence to show mineral content (MMDR Act, 2015, Section 11).

The majority of auctions were for MLs (Figures 5 and 6), given that many blocks were previously operational mines (and hence there was sufficient evidence for mineral content). As a result, 105 MLs were granted (in comparison to just nine CLs—one each for diamond, graphite, and manganese; two each for gold, copper and limestone). Composite licenses are generally granted for non-bulk commodities, such as diamonds and graphite, where more exploration is needed before mining operations can commence. More must be done to incentivise the exploration and mining of these non-bulk commodities.

Figures 7 to 9 show the winning bids for iron ore, limestone, and other blocks. As detailed information has not yet been made available, these figures show only the 97 auctions until March 2020. Some of these auctions were won with bids exceeding 100 percent, where mining companies agreed to pay the government more than the value of the minerals despatched, on top of statutory payments and other taxes. Statutory payments consist of royalties, District Mineral Foundation (DMF) contributions (10 percent of royalties for leases granted in or after 2015, and 30 percent of royalties for older leases), and National Mineral Exploration Trust (NMET) contributions (2 percent of royalties).

The winning bidder must pay the State government the bid percentage of the value of the minerals mined each month.[6], [7] The value of the minerals is computed using the Average Sale Price (ASP),[8] which is published by the Indian Bureau of Mines for each mineral by state and mineral grade, considering the mineral sales done by non-captive miners. These computations are done ex-post.

Computation of auction payment:

Monthly auction payment
= quantity of mineral despatched
× Average Sale Price of mineral (by state and grade)
× percentage quoted in auctions

Captive miners may sustain such a business model by absorbing losses from mining activities in their downstream businesses. In contrast, merchant miners will have to find ways to remain competitive. High bids in auctions result in inefficiencies in the economy. Captive miners may choose to only mine as per their requirements which might distort open market prices to their competitive advantage. Additionally, high bidders, hit by the ‘winners’ curse’, may not even start mining operations. Further, mining companies may attempt to cut corners in environmental protection or community welfare, given the high premiums they have committed to the government in auctions.

High bids in auctions result in inefficiencies in the economy. Captive miners may choose to only mine as per their requirements which might distort open market prices to their competitive advantage. Additionally, high bidders, hit by the ‘winners’ curse’, may not even start mining operations.

Many iron-ore mines have been auctioned at high premiums. For example, Figure 7 shows the Pratap Pura iron-ore mine in Madhya Pradesh, which was auctioned for 275 percent of the value of minerals in May 2018—the highest bid ever. Of the most recent iron-ore auctions in Odisha, all but two mines had a winning bid of over 100 percent, with the remaining two going for over 90 percent. The bids for the new iron ore and manganese mines were similarly high, with all six receiving winning bids of over 90 percent (Figure 9).

The auctions of iron ore blocks can be split into two components: brownfield mines and greenfield mines. Of the 36 iron ore mines auctioned, 31 were brownfield, and the remaining five were greenfield. While only a few greenfield mines were auctioned, it is notable that the average winning bid for brownfield mines (107 percent) was higher than the average for greenfield mines (70 percent), as is shown in Table 1. Figures 7 and 8 show the mines auctioned (green circles represent greenfield mines and brown circles represent brownfield mines).

In contrast to the iron ore auctions, Figure 8 shows that greenfield blocks dominated limestone auctions—25 of the 28 mines were greenfield. With these auctions, the average bid for greenfield blocks was 47 percent, higher than the 26 percent average for brownfield blocks. As opposed to iron-ore blocks, the bids for the greenfield limestone mines were higher on average than for brownfield mines, though only a few brownfield mines were auctioned.

Besides iron ore and limestone, six blocks of precious minerals were also auctioned. An interesting case was that of the Bunder diamond mine in Madhya Pradesh. Originally, evidence of the minerals was discovered by the Anglo-Australian mining company Rio Tinto in 2004. However, little progress was made to convert the exploration efforts into a mine, and in 2017, Rio Tinto announced that it would be ‘gifting’ the project back to the Government of Madhya Pradesh (Rio Tinto, 2017). The mine was then auctioned in 2019, and Essel Mining won the ML with a bid of 30.05 percent. Besides iron ore and limestone, peculiarly high bids (ranging from 75 percent to 200.05 percent) were received for the six graphite mines.

The auctions show that winning bids have been excessively high, leaving very little for the companies.

Using the results of the auctions and exploration data on the estimated quantity of mineral resources, the Ministry of Mines makes some implicit assumptions to calculate how much State governments can expect to earn over the lifetime of the mines. The auctions show that winning bids have been excessively high, leaving very little for the companies. Tables 1 and 2 show estimated earnings from iron ore and limestone auctions respectively, while Table 3 reflects the overall earnings of State governments from all auctioned mines. The assumptions made in computing this estimate apply to all tables:

• The estimate of the quantity and grade of resources in a mineral block is not the final quantity that can or will be mined.
• The ministry uses the average sale price (ASP) of the mineral (by state, and by grade) to determine the value of the minerals.
• This ASP will fluctuate over the lifetime of the mine and will likely not reflect the average value used when the ministry made its estimates.
• Of the 97 blocks auctioned, nine were for CLs. However, there is no guarantee that the prospecting efforts shall lead to a viable mining operation, and this will result in lower-than-expected government revenues.

For the 97 mines auctioned, the miners will, on average, pay the respective State governments 102.9 percent of the value of minerals. This is primarily due to the large winning bids for the 42 auctions of iron-ore and iron-ore and manganese blocks. These bids consistently exceeded 50 percent and in 22 auctions exceeded 100 percent.

Over and above the payment of operational expenses, auction commitments, and statutory payments, miners also need to pay corporate taxes, forest and wildlife protection payments, and stamp duties. All these costs may make the business model unsustainable, leading to dampened production, corners being cut (e.g., health and safety, environment, and community welfare) or a forfeit of the lease.

Many of the auctions were of brownfield merchant mines where the leases had lapsed in March 2020 (Figure 11). Section 8A of the MMDR Act, 2015 states that non-fuel mining leases would be valid for 50 years. Additionally, the leases of older merchant mines in operation for longer than this period would be allowed to continue mining operations till March 31, 2020, while the leases of similar captive mines would be extended till March 31, 2030.

A total of 334 mines were impacted by this section of the act in total, of which 48 were working mines, primarily producing iron ore which accounted for 25–35 percent of the country’s total output (Patel, 2019).

Given India’s untapped geological potential and the imminent demand for critical minerals for green technology manufacturing, there is an urgent need to enable the exploration and auctioning of greenfield deep-seated mineral assets and ensure their early operations.

Of the 97 auctions until March 2020, 45 were of brownfield blocks, i.e., mines previously in operation. There were 52 auctions of greenfield mines, including those with deep-seated minerals such as copper, diamond, gold, and graphite. However, according to the Federation of Indian Mineral Industries (FIMI), no greenfield mining project has come into operation from the auction process (Iyengar, 2021).

The Central government has attempted to facilitate a seamless transition between the leaseholders through an amendment of the MMDR (this was done with the Mineral Laws (Amendment) Act, 2020, which amended provisions of both MMDR, and the Coal Mines Act), such that the new miner would be able to start operations without acquiring new environmental clearances for two years.

Given India’s untapped geological potential and the imminent demand for critical minerals for green technology manufacturing, there is an urgent need to enable the exploration and auctioning of greenfield deep-seated mineral assets and ensure their early operations.

The Mines and Minerals (Development and Regulation) Act, 1957, was amended in March 2021 through the MMDR Amendment Act, 2021 (March 28). Several changes were made to improve mining and create a level playing field between captive and merchant miners. With this amendment, captive miners may now sell up to 50 percent of the minerals produced after meeting the requirement of their end-use plants and upon payment of additional amounts, compared to 25 percent before. This should help reduce the wastage of minerals and increase their supply in the open market.

Public-sector mining companies are also being brought to the same playing field as private-sector miners. While public-sector companies may be allocated mining lands without going through the auction process, they will be required to make additional payments to make up for the auction payments the state exchequer would have otherwise received if allocated to private-sector companies.

More changes have been made to the clearance transfer system, with auctioned brownfield mines carrying any existing and valid clearances to the new successful bidder. The aim is to ‘avoid the repetitive and redundant process of obtaining clearances again for the same mine’.[9]

Issues relating to the pending cases under Sections 10A(2)(b) and (c) have also been cleared, and many mineral blocks are set to be auctioned. The government has decided to reimburse the expenses incurred by the mining companies, through funds from the NMET. The Non-Exclusive Reconnaissance Permit (NERP) has been done away with; there had been no takers since its introduction in 2015.

The auction system needs a thorough review. Mentioned below are a few observations in this regard.

1. The promised high returns are the potential financial reward for the states, if the winning miners can overcome the ‘winner’s curse’ paradigm (Vijay Kumar & Sinha, 2020), and accomplish scheduled tasks. However, even if the miners succeed, the idiosyncratic promised over-payment acts as a tax on merchant miners and the economy.
2. The cost overspend would have to be recovered from downstream operations of these miners, creating inefficiencies of resource allocation in mining and downstream activities. In a general equilibrium framework, the economy shall have to bear the cost of a less than efficient allocation of productive resources.
3. As per discussions with senior officers of various mining companies and government officials, the reasons for overbidding may be many:
   • Most relate to the security of procuring raw materials. The cost of minerals may only be a small proportion of operations cost for downstream plants, but guaranteeing mineral supply would be important to the producers.
   • Additionally, some mining companies might have bid high in the hope of favourable policy-changes in the future.
4. The aftermath of the auctions appears to be unfavourable with regard to boosting mining production in India:
   • Some auctioned leases were surrendered, even before mining operations could begin.
   • Some others, who started production, failed to meet their agreed-upon production outputs per their Mine Development and Product Plans (MDPA).
   • This will adversely impact the government’s estimates of earnings, and the availability of mineral resources for further processing.
5. Furthermore, in the context of the Covid-19 pandemic—while global iron-ore prices are rising due to increasing demand from a recovering China (Mining.com, 2021)—iron-ore production in India has been doubly hampered: first by the pandemic, and secondly by the delay in continuing, or starting, operations of mines successfully auctioned over a year ago.
6. It is unlikely that the auction mechanism will be reverted to the first-come, first-serve system used in India earlier, which is still used in other mineral-rich countries. However, it may be worth considering a policy that differentiates the allocation mechanism between bulk and deep-seated minerals. It is not feasible to estimate the quantities of deep-seated minerals in the same vein as bulk minerals, without exploration using ore-specific geological expertise. This is evident from the fact that there have been very few auctions of these minerals and from the limited number of deep-seated mineral discoveries in India.
7. Moreover, many of these minerals are critical for manufacturing clean energy technologies, electronics, and national security applications. Therefore, the process of allocation of mineral rights must be sensitive to incentivising exploration—including the right to mine, which is prevalent in many other mining jurisdictions.
8. Some thought may be given to honing the existing auctions system to achieve a more efficient mineral allocation regime:
   • This includes placing multiple mineral blocks on auction under a pre-announced auctions calendar.
   • It may also help to change the auctions from a two-stage to a single-stage system.
   • Additionally, the ascending forward bidding process may be changed to a single sealed bid.

These changes would help reduce the scarcity mindset, as miners will know when more mineral blocks will be up for auction, and, therefore, it would not encourage competitive overbidding.

9. Finally, there must be a relook at the two mineral taxation systems currently in place—royalties and auctions—as past baggage is being carried forward in a new regime. Paul Milgrom and Robert Wilson, both of Stanford University, won the Nobel Prize in 2020 for their pioneering theoretical work on how auctions work, and for their insights on how to innovate auction formats for selling goods and services that are not amenable to efficient sale in a traditional manner (The Nobel Prize, 2020). It would be worthwhile to imbibe learnings from their work to further improve the auctions system in India.

Dry Cargo International. (2019, December 2). India May Become Net Importer of Iron Ore Again from Next Year. https://www.drycargomag.com/india-may-become-net-importer-of-iron-ore-again-from-next-year

HT Correspondent. (2021, June 5). Chhattisgarh govt to auction 16 iron ore, limestone mines in next 2-3 months. Hindustan Times. https://www.hindustantimes.com/cities/others/chhattisgarh-govt-to-auction-16-iron-ore-limestone-mines-in-next-2-3-months-101622870964819.html

Iyengar, S. P. (2021, January 18). FIMI debunks mine auction process; blames it for raw material shortage. The Hindu BusinessLine. https://www.thehindubusinessline.com/news/fimi-debunks-mine-auction-process-blames-it-for-raw-material-shortage/article33599524.ece

Mining.com. (2021, April 6). Iron ore price back above $170 as China steel hits record. https://www.mining.com/iron-ore-price-above-170-on-robust-chinese-demand/

Ministry of Mines website, https://mines.gov.in/, accessed June 2021

Ministry of Mines, Government of India. (2019). National Mineral Policy 2019.
https://www.mines.ap.gov.in/miningportal/Downloads/NewDocs/National%20Mineral%20Policy.pdf

Patel, K. (2019, December 31). Mining lease expiry in 2020 throws up risks and opportunities. MoneyControl. https://www.moneycontrol.com/news/opinion/mining-lease-expiry-in-2020-throws-up-risks-and-opportunities-4774851.html

Rio Tinto. (2017, February 7). Rio Tinto gifts Bunder diamond project in India to Government of Madhya Pradesh. https://www.riotinto.com/en/news/releases/Bunder-project-gifted-to-government

Sivamani, G. (2020). An analysis of non-fuel mineral blocks auctions in India. Brookings India [now CSEP]. https://www.brookings.edu/research/an-analysis-of-non-fuel-mineral-blocks-auctions-in-india/

The Nobel Prize. (2020, October 12). The Prize in Economic Sciences 2020 [Press release].
https://www.nobelprize.org/prizes/economic-sciences/2020/press-release/

Vijay Kumar, S., & Sinha, R. (2020). Mineral Auctions in India: Winner’s Curse or Owner’s Pride? The Energy and Resources Institute.

The post Non-fuel Mineral Auctions: How Fair is the Game, and For Whom? first appeared on CSEP.

Abstract 

Why have boundaries been so changeable while frontiers and borders are relatively long-lasting? Is the experience of borders and boundaries in south Asia different from other regions of the world? This paper explores the subcontinent’s recent historical experience, marked by the colonial Raj’s geopolitical and power-centric approach to frontiers, and post-independence Nehruvian approach to the impermanence of boundaries. It also considers India’s situation, located as she is in a region with old nations in new states, with porous borders, where nationalism is still a work in progress and boundaries are contested, and as a result, boundaries are sometimes meaningless or unenforceable in practice. The paper concludes by indicating some possible research avenues and policy paths to reconcile two seemingly opposite objectives: of clarifying and formalising borders in and around the Indian subcontinent, while at the same time using technology and other resources to make boundaries irrelevant and borders open to the communities and people who straddle them. Intellectual and infrastructural investment on South Asian frontiers and borderlands could facilitate the freer flow of people, goods, and ideas in a more integrated region and reduce the future propensity for tension and conflict.  

Every boundary, no matter when it was set, is only temporary. We can be as certain of this as we are that empires that rise also fall (Messmer & Chuang, 2018, p. 20). I am hard-pressed to think of one state boundary on earth which is where it was 200 years ago. Why is this so? 

The other question that has bothered me is: Do we in South Asia have more trouble with our borders, boundaries and frontiers than other parts of the world, and, if so, why? Or is this a frog’s view from the bottom of his well, extrapolating from a career of dealing with disputed boundaries and their consequences?  

I think not. Objectively speaking, even subregions where modern boundaries are entirely artificial colonial creations—parts of Africa, west Asia—seem to have less trouble with their frontiers. They seem to find enough other issues to fight their wars over; seldom is it territory, unlike the Indian experience. All independent India’s wars have involved territory in one way or another. 

I can think of two broad reasons why this is so: our inheritance and our present situation in South Asia. This working paper examines both these reasons, and then concludes with a final section laying out a possible approach to borders in and around the Indian subcontinent. 

Theory vs Practice 

Theory draws a distinction between boundaries on the one hand, and frontiers or borders on the other. A boundary is a line demarcated on the ground and drawn on a map; the frontier is an indeterminate zone at the edge of a territory, a zone where life shifts back and forth, a transition between two or more regions, cultures and peoples. A frontier is thus fluid and shifts over time. For classical geopoliticians like Karl Haushofer, they were zones of contestation. His post-Versailles volume on Borders spoke of ‘wandering frontiers’ and the realistic insight that during war there are no borders or boundaries (1939). Frontiers are then battle zones, subject to dispute. 

The idea of fixed lines or boundaries is an early modern European creation and has been under attack ever since in practice. From the day the Westphalian system of state boundaries was agreed in Europe, it was undermined in practice. So-called after the Peace of Westphalia of 1648 to end the Thirty Years War, this system was credited with establishing the principles of sovereignty for the state within territorial boundaries, legal equality between states, secular politics, non-intervention in the internal affairs of each state, standing diplomacy, international law, and European congresses to maintain the balance of power between these states while admitting of inter-state anarchy and power politics. 

In Europe itself, parts of East Europe and the Balkans were almost permanently unstable and were a standing mockery of much that was meant by a Westphalian system. The one practice that stood out throughout this instability was that of boundaries rather than frontiers, of the imposition of abstract cartographic lines on indeterminate frontier zones. International power politics substantially redistributed territories and even altered sovereignties, but boundaries were nonetheless nearly precise. Outside Europe, of course, no such precision was known or attempted by Europeans, with the advance of colonial settlement and imperial conquest, and the retreat of pastoral nomadism. The needs of empire were different.

Historically, the Indian sub-continent was a space with permeable frontiers, constantly shifting in response to political, economic and ecological changes. 

Other civilisations had a more practical approach to borders and boundaries. Universalist empires like imperial China of course saw no boundaries in All-Under-Heaven or tianxia. Indian polities, starting from a different world view, also dealt with the reality of frontiers and zones rather than lines. You only have to think of the location of Ashoka’s rock edicts, well beyond areas he ruled directly but well within areas he influenced. Through Mughal times and in the 18th century, the frontier shifted between the worlds of Iran, Turan and Hind (Gommans, 2018, p. 17; Palat, 2015). Historically, the Indian sub-continent was a space with permeable frontiers, constantly shifting in response to political, economic and ecological changes. 

The British Raj in India was ambivalent both in theory and practice on the sanctity of boundaries and was very aware of the fluid and shifting nature of the frontier. This was recognised quite early. Mackinder, speaking as a professional geographer in 1942, said: “The Victorian habit of thinking in political frontiers must have been seriously discredited by now!” (Mackinder, 1942, p. 125). So long as it enjoyed the advantage of power on India’s frontiers, the Raj was quite willing to practice what it did not preach, relying on the reality of the relations of power at points of contestation. 

Curzon is probably the best example of ambiguity and evolution in Raj attitudes to boundaries. He marked in his person the transition from an imperial to a geopolitical vision of the frontier. As governor-general in Calcutta, Curzon was full of mobile frontiers and plans to extend influence in Tibet, Central Asia, Iran, and the Indian Ocean, besides upholding paramountcy over the princely states in India. But from London as foreign secretary, he was busy drawing boundaries to make and unmake states in East Europe and demoting them to the status of protectorates (Palat, 2018, p. 10). 

The Frontier Policy of the Raj  

In practice, the frontier policy of the Raj was bound not to boundaries but to managing the frontier and extending British influence—from Durand to Curzon to MacMahon to Caroe.  

 What George Curzon preached in his authoritative Romanes lecture of 1907 did not differentiate in theory between frontier and boundary, but he described it, in fact, in considerable detail as he explained the triple frontier of British India, especially on the north-west: the administrative, the military and the strategic frontiers of India. Other geographers followed suit. Thomas Holdich, a former colonial army officer with much experience like Curzon of India’s northwest frontier, established the difference explicitly in 1916: ‘No limit is set to a frontier until an actual line of boundary is defined by treaty; and even then, it is generally open to dispute until that boundary is actually demarcated’ (Holdich, 1916, p. 76). This was an imperial approach and view. 

As a result, in practice the frontier policy of the Raj was, as we all know, bound not to boundaries but to managing the frontier and extending British influence—from Durand to Curzon to MacMahon to Caroe. Zones were central to their ideas of the ‘glacis’ and ‘the Himalayan Fringe’ in the defence of India. 

The British in India saw a bogey of Russia, first imperial then revolutionary, in the north-west of India and repeatedly intervened in Afghanistan to preempt that fear from becoming reality. Despite policy based on false premises, and suffering repeated tactical setbacks in Afghanistan and elsewhere, the British in India did succeed in keeping external powers at bay and away from India itself. They also saw off a Japanese threat in the north-east when Japan took Burma and sought to enter India in WWII. 

In 1893, Mortimer Durand, Foreign Secretary to the Government of India, negotiated a unique and peculiar agreement with Afghanistan which gave India a double border. The ‘Durand Line’, (which Pakistan today regards as its international border with Afghanistan), ran through tribal areas, eliminating no-man’s-land and dividing it into spheres of influence loosely attached to Kabul and Lahore. But behind it to the east, resting for the most part on the Indus, lay the administrative border. Between the two lines, tribes lived under British protection but not as British subjects; they came under the supervision of Political Agents and not the direct rule of Deputy Commissioners; their crimes were dealt with under tribal and Islamic law not the Code of Criminal Procedure. 

In 1900, Lord Curzon, now Viceroy of India, who had long proclaimed the Russian threat, traveled to the North-West and revised what he considered the Empire’s deeply flawed frontier policy. He withdrew regular troops from advanced positions on the Khyber and concentrated them in the rear, instead employing tribal forces recruited by British officers, such as the Khyber Rifles and Khurram Militia, to police the tribal country. In his own words, Curzon’s way of managing the Pathan tribesman was “to pay him and humour him when he behaves, but to lay him out flat when he does not” (Gilmour, 2019). He also detached Punjab’s frontier districts and united them to the trans-border tracts between the Indus and Durand Line creating the North West Frontier Province in 1901. Curzon had created a frontier that John Masters described as “a betwixt and between place, part India, part Central Asia” (1956, p. 6) 

It was similar in the east, where Burma was administered from Calcutta from the 1870s to 1936. A belt of neutral states (Persia, Afghanistan, Tibet, Siam) were maintained beyond the zone of British influence. In the east, tribal and local law applied up to the high watershed boundary in the Himalayas, formalised in 1914 in the so-called MacMahon Line; behind that was a fully British administered area up to the Himalayan foothills.  

Curzon, typically, liked to stress that scientifically determined boundaries “sanctified in international law” were “an agency of peace” (Curzon, 1907, p. 48). But in fact, the legacy that India inherited from the Raj on frontiers was an imperial model of soft frontiers rather than the modern nation-state model of hard boundaries, and of protectorates and buffer zones separating them from other imperial adversaries. As one of the Raj’s Foreign Secretaries said, “The true frontier of the British dominion in Asia … does not tally with the outer edge of … territory over which we exercise administrative jurisdiction. The true frontier includes… large regions over which the English crown has established protectorates” (Lyall, 1973, p. 334-335). 

Nehru’s Geopolitics of Frontiers 

Nehru understood boundaries as part of his globalist view as being an aspect of subordination to an international order, not of the expansion of a single state and of permanent struggles for survival and dominance.

Nehru was opposed to geopolitics and hard realism but was realistic in his understanding of boundaries and frontiers. He saw the impermanence of borders in practice, even though his entire 17 years as prime minister of India were spent on boundary disputes with Pakistan and China, in an inconclusive struggle to define them permanently. Yet he periodically reminded the public that boundaries were impermanent, fluid, and anachronisms to the age of air transport, wireless communication, and high population mobility in an integrating world.  

“We talk of countries, of Pakistan and India and a frontier between the two and yet in these days of jet travel and various types of missiles, a frontier has no meaning. You cross a number of frontiers in the course of an hour or two. You cannot even delimit quite clearly where one frontier in the air ends and where the other begins, broadly you may know that underneath is some other country. You cannot draw a line in the air. In other worlds, the growth of science and technology and communications has really rather made the idea of national frontiers out of date, precise national frontiers they do not just fit in, you are crossing them, all the time, and I have little doubt, that unless some catastrophe intervene, we shall have to outgrow completely this idea of national frontiers” (Nehru, 2015, p. 484). 

There is a difference here between what Nehru saw as the impermanence of boundaries and the geopoliticians who saw a mobile frontier as part of expansionism necessary for survival of the state, for lebensraum, for imperial dominion. Nehru understood boundaries as part of his globalist view as being an aspect of subordination to an international order, not of the expansion of a single state and of permanent struggles for survival and dominance. Both were supranational, but one was oriented to expansion and conquest, the other to cooperation, confederation, and federation (Palat, 2018). 

South Asia today is composed of old nations in new states, with porous borders, where nationalism is still a work in progress. Every boundary has cross-border ethnicities. These factors combine to make our boundaries contested, and often meaningless or unenforceable in practice. 

This situation is compounded by the economics of globalisation, by new technologies, expanding interests, which also make borders porous and boundaries meaningless. 

Mid-20th Century Reality and State formation in South Asia 

Many of South Asia’s issues with boundaries are a result of the ongoing attempt to create modern states in ancient nations whose geographical boundaries do not match those of the new states. We are transitioning to Westphalian states—hard sovereignty, precise boundaries—very different from traditional theory and the practice of statecraft in this part of the world. Some traditional polities (India, Nepal, Sri Lanka, Myanmar and China) have made the transition; others (Tibet) did not. New states were formed—Pakistan, Bangladesh.  

The colonial state and its successors were and are devoted to the idea of the border as a fixed, dividing line, and drew boundaries to make the state enterprise more efficient. In this process, the states were blind to other factors such as community, livelihood, and ethnic and other links among local peoples, and to links between them and the land.  

 Two phenomena stand out in the modern political evolution of the subcontinent: The areas bordering it, such as Afghanistan and Tibet, (the buffers of an earlier era, that Raj coinage), have been occupied or contended over by one or another great power. The mountainous borderlands have now been pierced from the north, first by the Soviets and then by China.  

Secondly, since 1947 new restraints on movement have been imposed inside and outside the subcontinent. Frontiers have congealed into boundaries in some places, but in all of them the reality of their porosity, territorial and border disputes, remain as sources of political friction and military conflict in the region (Ispahani, 1989, ch. 4).  

We have a history of partitions, not just the slapdash partition of India and Pakistan and therefore of Punjab and Bengal which attracts most attention, but also of Assam and of the borderlands with Burma/Myanmar. For example, Berenice Guyot-Rechard, who has worked on the Patkai highlands and the 1944-45 proposals considered by the British on creating boundaries in the areas inhabited by the Zo, Naga and Kachin communities, points out rightly that there is nothing natural about the division between India and Burma, now Myanmar, and that colonial boundaries divided and marginalised indigenous peoples (2020). Doctrines of “buffer zones” reduced the inhabitants to cyphers and contributed to preventing Tibet and Afghanistan from evolving into modern states.  

In essence, the problem today is that the colonial state and its successors were and are devoted to the idea of the border as a fixed, dividing line, and drew boundaries to make the state enterprise more efficient. In this process, the states were blind to other factors such as community, livelihood, and ethnic and other links among local peoples, and to links between them and the land.  

The pursuit of a boundary as a fixed dividing line has been accompanied by violence, conflict and people’s suffering both within and between states. The violence on the Assam-Mizoram border, and continuing demands to partition Manipur can be seen as consequences of the partition of Assam. Indeed, Assam has been partitioned repeatedly—Sylhet’s “transfer” to East Pakistan, and then in the 1960s and 70s the creation of Nagaland, Meghalaya, Mizoram and Arunachal Pradesh. As Guyot-Rechard points out, partition as an attempt to solve deep-rooted political, identity and socio-economic issues ends up creating the conditions of its own reproduction—or at the very least, separatist movements. 

I am also convinced that our mental maps and concepts limit us and act as straitjackets. We need to change our partitioned mindsets. Today we think of India or south Asia as distinct, neatly delimited, and separate from south-east Asia, central Asia and west Asia. We tend to forget and neglect our intertwined history, our multiple links. To the east these links were both by land through the Myanmar highlands and through the maritime space of the Bay of Bengal. The imposition of immigration controls and exclusionary citizenship regimes between India, Burma and Malaya after independence was another partition that in historical terms is relatively recent.  

Yet, there remain limits to what the Westphalian state can achieve in practice. When earlier this year Delhi asked Mizoram to close the border to refugees from Myanmar after the recent military take over, Mizoram refused to prevent their Chin kin from finding sanctuary in India. 

Make Boundaries Irrelevant 

So what should we in south Asia do in these circumstances, when boundaries are zero-sum, exclusivist, but necessary markers of individual sovereignties and cherished symbols of nationalism, while borderlands are our inclusive commons? Do we have to choose between them, creating and living the ‘tragedy of the commons’ (Hardin, 1968) by choosing hard Westphalian boundaries, or tapping into the ‘miracle of the commons’ (Ostrom, 1997) in our borderlands?  

What I believe we should seek among ourselves in south Asia is to make boundaries irrelevant without changing them. 

 South Asian governments, drawing legitimacy from modern nationalism, would argue that without hard defined boundaries, with borders policed by states, controlling immigration and criminal activities, state security would be imperiled. 

Partisans of the borderlands and their inhabitants argue that if we continue along our present path of building fences and hardening boundaries in the pursuit of illusory state efficiency, we would create human tragedies to dwarf what we have already visited on our border communities. If instead we were to treat the borderlands as what they are and have been in history, as the commons in which people, goods, and ideas flow and intermingle, we would find a much better future for us all.  

My answer is to choose both: build clear, mutually agreed boundaries where both sides work to police, control immigration and suppress criminal activities. But at the same time, ensure that in aspects of the people’s livelihood that same boundary is not an impediment, using various means like inland waterways, electric grids, road, rail and data connectivity, border haats, and so on. 

In other words, what I believe we should seek among ourselves in south Asia is to make boundaries irrelevant without changing them. For south Asia, from Afghanistan to Myanmar and the Indian Ocean region, I am convinced that this is an idea whose time has come. And this could be done without touching the legal sanctity of existing boundaries where they exist but by changing their practical impact. Today’s technologies actually make seamless connectivity possible without compromising security, through GPS tracking, fixed scanners at border crossings and the use of barcodes for identification. Shyam Saran has often pointed out that what is required is a mindset change, seeing boundaries and borders as connectors rather than as walls behind which we cower in fear of the “other” (2005). Instead, we should be reintroducing the permeability of the subcontinent’s borders without changing boundaries, thus returning to the pattern that marked periods of prosperity in our history. 

Some, particularly Indians, may ask what about boundaries in adversarial relationships like those that India has with China and Pakistan? In such cases, this approach would require, at a minimum, peace on the border, a positive equilibrium in the bilateral political relationship, and, ideally, a settled boundary. Is Beijing or Islamabad (or Delhi) willing to trust and empower their own communities in the borderlands? Not yet, I suspect, but this is one possible future. The present arrangements on these borders are clearly producing less than optimal outcomes in terms of both security and prosperity for the people and governments involved. 

We must also recognise that the world seems to be going in the other direction, trying, I believe in vain, to draw clear boundaries and enforce them in the frontiers between states. At least seventy walls, it is estimated, now zigzag across the surface of the earth, most erected by states since the turn of the millennium in an attempt to harden boundaries: between Saudi Arabia and Yemen; between the US and Mexico; between South Africa and Zimbabwe; between India and Bangladesh, India and Pakistan; between Uzbekistan and Kyrgyzstan; between Hungary and Serbia (Volner, 2019, p. 204). In south Asia we are building walls and fences in a region that has never known them in history. In no case, however, have walls and fences produced the outcomes they promise, as shown by the Indian experience with Pakistan, or the history of China’s Great Wall.  

It is time that we thought of better and more productive alternatives.  

Curzon, G. (1907). Frontiers; The Romanes Lecture. Oxford: The Clarendon Press. 

Gilmour, D. (2019). Curzon: Imperial Statesman. London: Penguin UK. 

Gommans, J. (2018). The Indian Frontier: Horse and Warband in the Making of Empires. New Delhi: Manohar.  

Guyot-Réchard, B. (2020). Tangled Lands: Burma and India’s Unfinished Separation, 1937–1948. The Journal of Asian Studies, 80(2), pp. 293-315.  

Hardin, G. (1968). The tragedy of the commons. Science. 162: 1243-1248. 

Haushofer, K. (1939). Grenzen in ihrer geographischen und politischen Bedeutung. Heidelberg; Berlin; Magdeburg: Vowinckel.  

Holdich [Col. Sir], T. (1916). Political Frontiers and Boundary Making. New York: Macmillan. 

Ispahani, M. (1989). Roads and Rivals: The Political Uses of Access in the Borderlands of Asia. Ithaca: Cornell University Press.  

Lyall, A. (1973). Rise and Expansion of the British Dominion in India. New Delhi: Manohar.  

Mackinder, H. (1942). Geography, an Art and a Philosophy. Geography. 27(4). pp. 122-30. 

Masters, J. (1956). Bugles And A Tiger: My life in the Gurkhas. London: Cassell. 

Messmer, M. & Chuang, HM. (2018). China at its Limits. Berlin: Kerber Verlag.  

Nehru, J. (2015). Selected Works of Jawaharlal Nehru. Jawaharlal Nehru Memorial Fund, Series 2, Vol. 67. 

Ostrom, E. (1997). A Behavioral Approach to the Rational Choice Theory of Collective Action. Presidential Address, American Political Science Association. 

Palat, M. (ed.). (2018). ‘Geopolitics as Theory of World Dominion’ in Palat, M. (ed). Indian and the World in the First Half of the Twentieth Century. Routledge. pp. 29-33. 

Palat, R. (2015). The Making of the Indian Ocean Economy, 1250-1650; Princes, Paddy Fields and Bazaars. New York: Palgrave MacMillan. 

Saran, S. (2005). India and its Neighbours. Foreign Secretary’s speech at the India International Centre. Ministry of External Affairs. New Delhi. February 14. https://mea.gov.in/Speeches-Statements.htm?dtl/2483/Foreign+Secretary+Mr+Shyam+Sarans+speech+on+India+and+its+Neighbours+at+the+India+International +Centre+IIC 

Volner, I. (2019). The Great Great Wall: Along the Borders of History from China to Mexico. New York: Abrams Press. 

The post Fault Lines: Reflections on South Asian Frontiers first appeared on CSEP.

DOWNLOADS

• Download Working Paper

Abstract 

This paper examines the role of India’s Integrated Check Posts (ICPs) in South Asia in facilitating regional connectivity. The ICPs are entry and exit points on India’s land borders and house various facilities such as customs, immigration, border security, quarantine, among others, within a single facilitation zone. Formulated in the early 2000s in the aftermath of the Kargil War (1999) and initiated since 2012, the ICPs have helped streamline cross-border trade and passenger flows through the modernisation of border management infrastructure. In 2019-20, 40% of India’s total trade with Bangladesh, Nepal, Myanmar, and Pakistan took place through the six ICPs at Agartala, Petrapole, Raxaul, Jogbani, Moreh and Attari.

However, several challenges such as the lack of mirror infrastructure in the neighbouring countries, limitations in public-private partnership, and ground-level issues including inadequate warehousing space to handle increasing volumes, narrow approach road, lack of digitisation etc., have affected the utilisation of the ICP to its full potential. The paper delves into these challenges, both at the policy and operational level, and suggests recommendations to overcome the same. It also analyses international best practices in border management through two comparative case studies: the USA–Mexico and Norway–Sweden border check-posts. Finally, the paper argues that while ICPs are integral for regional economic integration in South Asia, the future expansion of ICPs ought to be aligned with other regional connectivity initiatives to complement the existing and envisaged economic corridors and supply-chain routes.

Keywords: Integrated Check Posts, Land Ports Authority of India, South Asia, Regional Connectivity, India’s Land Borders, Connectivity Infrastructure

Recommended citation: Sinha, R. (2021). Linking Land Borders: India’s Integrated Check Posts (CSEP Working Paper 9). New Delhi: Centre for Social and Economic Progress

India shares 15,106.7 kilometres (km) of international land borders with seven neighbours—Afghanistan, Bangladesh, Bhutan, China, Nepal, Myanmar, and Pakistan. Movement of goods and people across these borders is facilitated by different kinds of border management infrastructure, including Land Customs Stations (LCSs), Immigration Check Posts (ImCPs), consolidated facilities like Integrated Check Posts (ICPs) and other border-trade centres.[1] Of these, ICPs are important facilitation points, ideated in the early 2000s and operationalised since 2012 with the inauguration of India’s first ICP at Attari, Punjab. As of 2021, India has nine operational ICPs along its land borders with neighbouring countries, of which seven have been formally inaugurated. In 2019–20, trade worth approximately US$ 7.9 billion took place through the inaugurated ICPs, accounting for approximately 40% of India’s total land-based trade with Bangladesh, Nepal, Myanmar, and Pakistan.[2] Overall, however, trade with the neighbouring countries only accounts for 3.5% of India’s global trade.[3]

Regional economic integration in South Asia stands at an abysmal 5% (Kathuria, 2018). This share has been consistently low for years. A report by the National Transport Development Policy Committee (NTDPC, 2014, p.593) notes that such a low level of integration has roots in the lack of quality border management infrastructure, leading to high logistics cost. In South Asia, the logistics cost is very high at 13–14% of the gross domestic product (GDP), as against the global average of 8–9% (Gupta, 2018). The Covid-19 pandemic has further stressed that beyond the trade gaps that exist during normal times, there is a need to strengthen border infrastructure and its management to ensure the continuous supply of essential goods and the movement of people. For instance, at ICP Petrapole—one of the busiest land borders between India and Bangladesh—all trade and immigration activities were suspended between March and June 2020. As a result, bilateral trade volume dropped to US$ 421 million in April–May 2020, compared to US$ 2 billion during the same period in 2019 (Noyon, 2020).

The idea of developing ICPs was formulated by India to provide customs, immigration and other allied facilities through a single facilitation zone.

The idea of developing ICPs was formulated by India to provide customs, immigration and other allied facilities through a single facilitation zone. Geographically and metaphorically, the ICPs epitomise the state’s attempt to exercise central administrative control in an otherwise neglected periphery. Literature on border management in South Asia has put the primary focus on securitising the borders, with trade and travel facilitation being treated as secondary (Das, 2021). This approach rendered the South Asian region disconnected for much of the latter part of 20th century. Therefore, it is also important to analyse the role of the state in constructing and maintaining the ICPs to regulate cross-border trade and movement of people, and in turn evaluate the approach towards regional connectivity. Few studies have been conducted focusing on ICPs in the region and their role in facilitating regional integration. They have focused on ICPs within the larger ambit of bilateral trade relations (Taneja, Prakash, Bimal, Garg & Roy, 2019; De & Iyengar, 2014; CUTS, 2019). An exclusive study focused on contextualising the ICPs within the larger framework of regional integration in South Asia is lacking.

This paper aims to address the gap in the understanding of the ICPs beyond operational difficulties at the ground level and is divided into five sections.

The first section looks briefly at border management infrastructure and regional connectivity in South Asia. The following section analyses the Indian government’s approach towards establishing the Land Ports Authority of India (LPAI) and the ICPs. The paper then comprehensively maps the status of the six inaugurated ICPs in terms of infrastructure, trade, and passenger volume and identifies several challenges. The next section highlights international best practices in the cross-border movement to address the various challenges faced at the Indian ICPs, and the last section assesses the future role of ICPs within the ambit of a comprehensive border management system among the other regional connectivity initiatives in South Asia, including inland waterways, railways, etc. The paper concludes with policy recommendations.

The data on trade movement through the ICPs (2011–2020) has been sourced from the Directorate General of Commercial Intelligence and Statistics (DGCI&S), Ministry of Commerce and Industry (MoCI), Government of India. The data for passenger movement is sourced from the LPAI website.

Qualitative inputs have been collected through interviews with key stakeholders in the Government of India, former bureaucrats, scholars, and traders. All years refer to the Indian fiscal year from April to March, unless otherwise stated.

Data discrepancy was observed while analysing the trade figures for ICP Moreh with the figures reported by DGCI&S being much lower than those reported by the Ministry of Commerce, Government of Myanmar (see Ministry of Commerce, n.d.). For instance, in 2019–20, the Government of Myanmar reported trade worth US$ 96.7 million through ICP Moreh; the DGCI&S reported the same as US$ 0.2 million. The reason for this large discrepancy is unclear. To maintain consistency of data, the paper uses only DGCI&S figures. In case of exchange rates from Rs to US$, the paper uses data published by the Reserve Bank of India at nominal (current) dollar values.

It should be noted that ICPs exist on the Indian side with only four neighbouring countries. Therefore, this paper covers data between India and those neighbouring countries, namely Bangladesh, Nepal, Myanmar, and Pakistan.

Efficient connectivity infrastructure is a prerequisite for regional economic integration. A World Bank study led by Sanjay Kathuria (2018) posits that trade between South Asian countries could be close to US$ 67 billion, three times more than the actual figure of US$ 23 billion. Various structural impediments, tariff and non-tariff barriers have limited the trade potential in the region, and in turn, affected regional integration.

Following economic liberalisation in the twentieth century, countries in South Asia have prioritised trade with distant European and Southeast Asian countries but have effectively maintained a closed border within the neighbourhood. For instance, it takes approximately two days for a container to be shipped from Kolkata port to Singapore (approximately 3,700 km), whereas it takes about the same amount of time for a truck at ICP Petrapole to cross the land border into neighbouring Bangladesh. Till the early 1960s, India, Nepal, and formerly East Pakistan (Bangladesh) were well connected through the waterways of Ganga and Brahmaputra rivers, and a large number of active rail services. Regional air connectivity in South Asia has also decreased significantly, with no flights between Nepal and Pakistan, or between smaller cities such as Port Blair (India) and Yangon (Myanmar) (Xavier & Sinha, 2020).

As a result of this poor state of connectivity, which affected the region for decades, little attention had been given to improvements in border management infrastructure till the 1990s.

Evolution of India’s border management infrastructure

The push for improving land border management infrastructure began in India in 2000, in the aftermath of the Kargil War (1999). This led to the institutionalisation of border management through the establishment of the Department of Border Management in January 2004 under the Ministry of Home Affairs (MHA, 2004). During this time, a security-oriented approach to border management was dominant, and discussions were held by a Group of Ministers on the setting-up of border management infrastructure to check illegal activities.[4]

At the India–Nepal border, the Group recommended setting up ImCPs and LCSs at all transit points linked to Kolkata Customs, in order to check the illegal movement of people and goods; between India and Bangladesh, the Group called for ‘renewed efforts’ to formalise cross-border trade and check smuggling; and for the India–Myanmar border, it recommended the establishment of ‘a composite check-post’ at Moreh. It would comprise customs and immigration facilities and be manned by staff from the federal Narcotics Control Bureau and the State police (Group of Ministers, n.d., pp. 65-68).

In the last decade, several other factors have also led to further modernisation of border management infrastructure through the establishment of ICPs. First, the rising trade between India and its neighbouring countries, the increasing volume of literature on the potential of economic corridors in the region, and the shifting focus among governments on using the South Asian countries as transit corridors—have all spurred further growth (De & Iyengar, 2014).

For most Least Developed Countries (LDCs) in South Asia, trade is at the heart of economic development. India is the market for approximately 70% and 90% of Nepal and Bhutan’s exports, respectively. Since the 2000s, India’s trade with Nepal has increased from US$ 0.3 million in 2000–2001 to US$7.9 billion in 2019–20.[5] Furthermore, approximately 75% of Nepal’s and 100% of Bhutan’s global trade transits through India (Sinha & Sareen, 2020). These rising trade volumes necessitate improvement in border trade infrastructure.

Secondly, this is also driven by China’s growing investments in infrastructure in South Asia (Xavier, 2020). India has been taking steps to correct decades of regional insularity with a focus on increasing connectivity with its neighbours, both at the regional and bilateral level. In this regard, the need to improve border management infrastructure was identified in the 2000s. This approach further accelerated under the ‘Neighbourhood First’ policy initiated in 2014, wherein improving regional connectivity infrastructure became a policy priority. According to the Ministry of External Affairs (MEA, 2019), this policy places neighbouring countries in the ‘first circle of priority’ and is based on the tenets of ‘connectivity, commerce, and contacts.’

The development of the ICPs in India and its immediate neighbours is one of the key focus areas to improve connectivity. The ICPs in Northeast India are also important for the nation’s Act East policy.

The development of the ICPs in India and its immediate neighbours is one of the key focus areas to improve connectivity. The ICPs in Northeast India are also important for the nation’s Act East policy, which is an extension of its 1991 Look East policy and is focused on integrating the Indian economy with the supply chains of Southeast Asia (MEA, 2021). Both policies have also led to the setting-up of mechanisms for monitoring infrastructure projects with neighbouring countries. For instance, after Prime Minister Modi’s visit to Nepal in 2016, a Nepal-India Oversight Mechanism was put in place to oversee the implementation of bilateral projects (Roche, 2020).

Finally, improving cross-border trade infrastructure is also driven by India’s international obligations. In April 2016, India ratified the World Trade Organisation’s Trade Facilitation Agreement (TFA), thus committing to simplification and harmonisation of trading across borders. India has also formulated a National Trade Facilitation Action Plan 2020–2023, to reduce the time it takes to release cargo from ports. The National Committee on Trade Facilitation (NCTF, 2020) set the target for clearance of goods from an LCS within 48 hours for imports and 24 hours for exports, by enabling paperless transactions and infrastructure augmentation. Particularly for land ports, the action plan includes upgrading the identified LCS’ to ICPs; resolving issues related to logistics and infrastructure (with a specific focus on the LCS in the Northeast); and standardising operational procedures in terms of working hours and labour charges. Additionally, in 2017, India also ratified the Transports Internationaux Routiers or International Road Transports (TIR) Convention.[6] By joining the convention, the Government of India envisaged that ‘the need for inspection of goods at intermediate borders as well as physical escorts en route shall be obviated due to reciprocal recognition of Customs controls’ (Press Information Bureau [PIB], 2017). It is also expected that the TIR Convention will help India in implementing the TFA. However, among India’s neighbours, only Pakistan and Afghanistan are signatories to the convention.

Since 2012, India has inaugurated seven ICPs at Attari, Kartarpur, Agartala, Petrapole, Raxaul, Jogbani, and Moreh. Out of these, Kartarpur is currently limited to passenger movement. India has also been constructing ICPs at Rupaidiha (Uttar Pradesh), Dawki (Meghalaya) and Sabroom (Tripura).

The ICPs are central to India’s connectivity plans in the region. They not only consist of border infrastructure for facilitation of trade and people, but also act as important centres to advance other multi-modal intra- and inter-regional connectivity initiatives, such as improving rail connectivity; implementing the Bangladesh–Bhutan–India–Nepal Motor Vehicles Agreement (BBIN-MVA); the use of Chattogram and Mongla ports in Bangladesh to transport cargo to India’s north-east region; and the Kaladan Multi-modal Transit Transport Project to connect Southeast Asia to South Asia, among others.

Land-border crossings

Land-border crossings between India and its neighbouring countries are under two categories—Land Customs Stations (LCSs) and Immigration Check Posts (ImCPs). The ICPs consolidate both facilities within a single facilitation zone. This paper primarily discusses ICPs.

All LCSs fall under the Central Board of Indirect Taxes and Customs. Chapter III (7) of The Customs Act 1962 defines it as: ‘the places which alone shall be land customs stations for the clearance of goods imported or to be exported by land or inland water or any class of such goods’ (CBIC, 1962). The LCSs are thus border crossings where trade in goods occurs between India and its neighbours.

The ImCPs are nodal points for facilitation of passenger movement across India’s land, sea, and air borders. India has 86 ImCPs, of which 37 are manned by the Bureau of Immigration (BoI), under the Ministry of Home Affairs and the remainder by state governments (Bureau of Immigration, n.d.).

Integrated Check Posts (ICPs)

The LPAI is the nodal agency for construction, operation, and management of the ICPs. It defines them as ‘major entry points on India’s land borders which … house all the regulatory agencies like Immigration, Customs, Border Security etc. together with support facilities in a single complex equipped with all modern amenities and serves as a single window facility.’ (LPAI, n.d.[a])

A customs station at an ICP performs the same functions as it does at an LCS, albeit with better infrastructure. At each ICP, the LPAI provides facilities such as a passenger terminal building, currency exchange, a building to process cargo, cargo inspection sheds, warehouse/cold storage facilities, a quarantine laboratory, banks, and scanners. (LPAI, (n.d.)[b])

Several stakeholders play a key role in the functioning of an ICP. In addition to the LPAI, there are six main stakeholders including Customs; immigration authorities (including the BoI or state government immigration officers); the security establishment such as the Border Security Force (BSF), Indo-Tibetan Border Police (ITBP), Seema Suraksha Bal (SSB); FSSAI, Plant Quarantine (Ministry of Agriculture and Farmers Welfare); Animal Quarantine and Certification Services (Ministry of Fisheries, Animal Husbandry and Dairying); and Port Heath Unit (Ministry of Health and Family Welfare). Coordinated management between these authorities is key to the efficient functioning of the ICPs.

Compared to seaports and airports, the ICPs are relatively smaller ports built at a cost up to Rs 200 crore (approx. US$ 29 million). Table 1 compares the size, management, and location of different types of ports in India. In June 2006, the Additional Secretary (Commerce) had identified 13 LCS to be upgraded to ICPs at an inter-ministerial meeting based on the volume of trade. Of these, six have been completed and inaugurated (Table 2; Department-Related Parliamentary Standing Committee on Home Affairs [PSCHA], 2010).

In 2018–19, the government decided to do away with the phase-wise development of ICPs and instead prioritised development based on freight and passenger volume (LPAI, 2019). According to an official at the LPAI, the goal is to have 23 ICPs on India’s land borders by 2025.[7]

Given that less than 2% of India’s global trade takes place through the ICPs (thereby generating lesser revenue), limited emphasis has been laid on its expansion and further development till recently. In comparison, 70% of India’s trade-by value and 90%-by volume, takes place through seaports built over much larger areas than the ICPs (see Table 1). Trade of mostly high-value-low-volume commodities, such as gold, passes through airports. Compared to India’s global trade, India’s trade with neighbouring countries is in low-value goods.

Genesis: Institutionalising the ICPs

As mentioned in the previous section, the initial prompt for modernising border management infrastructure was the Kargil War between India and Pakistan in 1999. On July 29, 1999, post the war, the Government of India appointed a Kargil Review Committee (KRC) to comprehensively assess the borders and problems in national security (Godbole, 2014). Following the submission of the KRC’s report, Prime Minister Atal Bihari Vajpayee set up a Group of Ministers on April 27, 2000, to review these recommendations. The Group noted that beyond the armed security approach, a wider range of measures would be required to safeguard national security. As a result, four task forces were set up on May 16, 2000: (i) Intelligence Apparatus; (ii) Internal Security; (iii) Border Management; and (iv) Management of Defence. (Group of Ministers, n.d., pp. 1-3).

In 2004, a Committee of Secretaries directed the newly created Department of Border Management to set up an Inter-Ministerial Working Group (IWG) to consider the creation of an autonomous body that would oversee the construction, management, and maintenance of ICPs (LPAI, n.d.[a]). The IWG recommended setting up of the LPAI as a statutory body answerable to the Department of Border Management. Pending the institutionalisation of the LPAI, an Empowered Steering Committee (ESC) was formed on December 15, 2006, with representation from the MEA(MHA, 2008, p. 32). The ESC was mandated to engage with consultants (technical and commercial) and project developers, arrange funds, monitor Draft Project Reports, coordinate with the government, and take administrative and financial decisions for proposals involving expenditure up to Rs 100 crore (approx. US$ 22 million).

The Cabinet Committee on Security approved the setting up of LPAI ‘in principle’ at a meeting held on November 23, 2006 (LPAI, n.d.[a]). It was initially suggested that the ICPs be developed under the public-private partnership (PPP) model. However, the Cabinet Committee on Economic Affairs (CCEA), during a meeting held on November 6, 2008, noted that there may be concerns about sovereign functions on ‘strategically sensitive borders, and procedures related to PPP would require a substantial completion time’. Therefore, the CCEA approved a proposal that the ICPs would be constructed solely with government funding, while either the LPAI or the ESC could assign non-sovereign functions to a private entity. The 11th Five-Year Plan earmarked approximately Rs 635 crore (approx. US$ 158 million) for development of the ICPs (see Table 2; PSCHA, 2010, p. 11).

The Land Ports Authority of India Bill, 2009 was introduced in the Lok Sabha on March 9, 2009. It was referred to the Department-Related Parliamentary Standing Committee on Home Affairs (PSCHA) by the Chairman, Rajya Sabha on September 14, 2009 (MHA, 2009, p. 31). The members of the Committee held a meeting in December 2009 and sought time to examine the critical aspects of the Bill before presenting it to the Rajya Sabha on the first day of the budget session of Parliament in 2010 (PSCHA, 2010, p. 13).

The Committee highlighted various important issues, including those related to the jurisdiction of the LPAI and the ICPs, questioning the role of the MHA in instituting a body that would build infrastructure for facilitating cross-border trade and commerce, rather than the Ministry of Commerce and Industry (ibid., p. 14). Based on the Committee’s recommendations, the LPAI Bill was passed with a few amendments (including a change in the long title, plus amendments to the role of private players) to include security imperatives, trade facilitation, membership of the LPAI from different ministries, and replacement of the word ‘regulate’ with ‘coordinate’ (ibid., p. 38).

The Bill became The Land Ports Authority of India Act, 2010, upon receiving assent from the President of India, and was notified in the Gazette of India, Extraordinary, Part II, Section I on September 1, 2010 (MHA, 2011, p. 47). After selection of members, the LPAI was established on March 1, 2012, just a month prior to the operationalisation of the first ICP at Attari (MHA, 2013, p. 39).

India–Pakistan: ICP Attari

Spread over approximately 118 acres in Attari in Punjab, the ICP was built at an estimated cost of Rs 150 crore (approx. US$ 31 million) (Table 1) and borders Wagah in Pakistan. The custodian of the terminal is the Central Warehousing Corporation (CWC). It is the only road-based trading point between India and Pakistan and was the first Indian ICP to be operationalised on March 23, 2012 (LPAI, n.d.[c]; see Figure 1). It was expected that with the operationalisation of this ICP, the Attari border would become a trading hub (Mehdudia, 2012).

During the Fourth and Fifth Technical Level Meetings between India and Pakistan, held in November and December of 2011 at Attari/Wagah, India also proposed the construction of an ICP terminal at Wagah in Pakistan, however, the proposal did not materialise (MHA, 2012, p. 56).

The operationalisation of ICP Attari was one of the steps taken to normalise and boost economic relations between India and Pakistan in 2012. At this time Pakistan had a ‘negative’ list of 1,209 items that that it did not permit the import of from any trading point with India (Pandher, 2012). As per a joint statement released after the seventh round of talks on ‘Commercial and Economic Cooperation’ between the commerce secretaries of India and Pakistan in September 2012, Pakistan committed to burying the negative list within a year; however, the negative list continues to be a barrier in trade (MoCI, 2012).

Through ICP Attari, Pakistan allows the import of only 138 items, while permitting unrestricted exports to India (LPAI, n.d.[c]). India does not have any limitations on the number of items for trade from this route.  As a result of the restrictions in bilateral trade through the land route, sea is the dominant mode of trade. The ICP is also used for transit of goods from Afghanistan to India.

Trade

Attari was selected as the site for the ICP based on the trade volume passing through the erstwhile LCS. Approximately 100–150 trucks crossed the border daily till late 2000s, for trade that accounted for approximately Rs 1,500 crore (approx. US$ 316 million) (Pandher, 2012). Of the total bilateral annual trade between India and Pakistan in 2011–12, around 17% took place through the Attari road route. Post inauguration of the ICP, this share increased to 30% and 33% in 2012–13 and 2013–14 respectively, with more than 250 trucks crossing the border per day (Figure 2). However, it is pertinent to note that the initial increase in trade through ICP Attari was on account of re-routing the existing trade, as the overall trade between India and Pakistan remained nearly the same.[8]

Despite reduction in the overall India-Pakistan trade over the years, ICP Attari remained an important trading point for both countries, accounting for a quarter of the trade passing between India and Pakistan (2014–2018), and almost 47% in 2019–20.

India’s major items of export include cotton, organic chemicals, tanning or dyeing extracts, plastics and articles thereof, etc. It imports mineral oils and products of their distillation, edible fruits and nuts, salt, sulphur, earth and stones, oil seeds, etc. from this port.

Passenger movement

Following the inauguration of the ICP, passenger movement also increased, showing a rise between 2013 and 2016 when compared to 2012–13 (Figure 3). It must be noted that between India and Pakistan, infrastructure plays a limited role in augmenting passenger movement between both countries due to restrictions imposed by the political environment between both countries. People who received visas were mostly pilgrims or business people. Post the outbreak of Covid-19, passenger movement from the ICP was suspended between March 16 and April 15, 2020 (Ministry of Health and Family Welfare [MH&FW], 2020).

Infrastructure

Given the sensitive nature of the India-Pakistan border, the security infrastructure at ICP Attari includes CCTV cameras and observation towers manned by BSF personnel. It is the only ICP to have a full-body truck scanner, however, this is not operational. In 2017, the customs also acquired modern hand-held scanning equipment from Israel (three I-scan detectors and four video boroscopes) to check passenger baggage and truck cavities (Bassi, 2017).

Challenges

1. Resumption of trade through ICP Attari: Economic relations between India and Pakistan have remained hostage to the volatile political relations between the two countries. After the Pulwama attack in February 2019, India rolled back the ‘Most Favoured Nation’ (MFN) status it had given to Pakistan and declared a tariff hike of 200% on all imports from Pakistan (Suneja, 2019). After the abrogation of Article 370 from the erstwhile state of Jammu and Kashmir in August 2019, Pakistan unilaterally ceased trade with India. While the opening of ICP Attari increased trade through this route and led to development in the nearby areas, its closure in 2019 has adversely affected the livelihood of many (Doval, 2020).
2. Need for mechanised cargo-handling infrastructure: The labour-intensive loading and unloading of goods from trucks at ICP Attari increases the turn-around time of trucks at the ICP. There is a lack of equipment such as conveyor belts and cranes for handling cargo such as cement bags in the warehousing area (Sinha et al., 2016, p. 100). The current suspension of trade through this ICP can be used to upgrade its infrastructure.
3. Lack of coordination between various authorities: Since its inauguration, the long-term presence of an LPAI official has been lacking at ICP Attari. Given that the LPAI’s mandate is to coordinate between different authorities, the absence of an LPAI official creates issues between the various agencies—customs, CWC, BSF, etc.—and addressing issues takes a longer time (ibid.).
4. Digitisation of operations: ICP Attari is equipped with some of the most modern security equipment, including a full-body truck scanner. However, in practice, the security and customs procedure, at times, includes manual frisking of goods and passengers. Given new emergencies such as Covid-19, it is now all the more important to completely digitise the security infrastructure and streamline procedures at the ICP. Additionally, the Land Port Management System (LPMS), equipped with Radio-Frequency Identification (RFID) facility for trucks, needs to be made operational soon to digitise interactions at the ICP completely. ^[9]

India–Bangladesh

India shares its longest land border with Bangladesh over 4,097 km. Strong infrastructure at this border is essential for two reasons: Bangladesh is India’s largest trading partner in South Asia and it is the highest global source of tourism exports for India (Sinha & Sharma, 2020). A large quantum of trade and tourism between India and Bangladesh takes place through the land routes.

The bilateral trade is guided by the 2015 India–Bangladesh Treaty of Trade. Under Article VIII of the treaty the two countries ‘agree to make mutually beneficial arrangements for use of their waterways, roadways, and railways for commerce … and for passage of goods between two places of one country and to third countries’ (MEA, 2015). Land routes (road and rail) account for approximately 75% of India’s exports and 50% of its imports with Bangladesh (Bhattacharjee, 2019). There are approximately 38 land-border crossings (operational and non-operational), including LCSs, ImCPs and ICPs, along the India-Bangladesh border for facilitation of cross-border movements. The first ICP was inaugurated in Agartala (Tripura) in 2013, followed by Petrapole (West Bengal) in 2016. Two more ICPs have been made operational since 2020 – ICP Srimantapur (Tripura) and ICP Sutarkandi (Assam); these are yet to be inaugrated (Figure 4)

The passenger movement between India and Bangladesh is guided by the 2013 and 2018 Revised Travel Agreements. Approximately 70% (2018) of the registered tourist arrivals in India from Bangladesh are via land (Sinha & Sharma, 2020, p. 11).

In Bangladesh, trade through land ports is managed by the Bangladesh Land Ports Authority (BLPA) established in 2001, which functions under the Ministry of Shipping. While 23 LCS’ in Bangladesh have been declared land ports, the BLPA directly manages five (Benapole, Bhomra, Birumari, Akhaura and Nakugaon). The others are operated by private terminal operators on a Build-Operate-Transfer (BOT) basis (BLPA, n.d.). The BLPA operationalised the check posts at Benapole and Akhaura in 2002 and 2010, respectively.

ICP Agartala

Spread over a land area of 11.72 acres, the ICP at Agartala in Tripura is the only one located in a state capital (LPAI, n.d.[d]). It was inaugurated on November 17, 2013. The corresponding land port in Bangladesh is Akhaura.  It is one of the busiest routes for movement of goods and people between the two countries. The Central Warehousing Commission (CWC) was appointed as the cargo terminal operator of the ICP post inauguration. The infrastructure was built at a cost of Rs 73.50 crore (approx. US$ 13 million) (Sanyal, 2018).

Trade

In 2019–20, trade worth US$ 43 million took place from ICP Agartala (Figure 5). This route is dominated by imports from Bangladesh, which accounts for around 90% of the trade through the port. While the trade share of the ICP has reduced over the years, from 1.2% in 2011–12 to 0.3% in 2016–17, it is again showing an increase post the inauguration of the ICP.

The main items of import by India include processed stone, bricks, tiles, fish, cement, and furniture. Whereas India exports bamboo, turmeric, ginger, marble, fruits, among other items, through the ICP.

Passenger movement

ICP Agartala records high passenger movement annually. Between 2016 and 2019, it saw a 142% increase in passenger movement (from 99,101 in 2016–17 to a record high of 2,39,468 in 2018–19; see Figure 6). This increase is arguably attributed to the Revised Travel Arrangement between India and Bangladesh in 2018. The state government mans the immigration at the check post within the ICP. On January 20, 2020, the Government of Tripura floated a tender for constructing a tourist information centre at the ICP (TTDCL, 2020).

Infrastructure

ICP Agartala is spread across 11.72 acres, and the Akhaura Land Port (Bangladesh) is 15 acres. Given the high volume of imports, the ICP has a storage capacity to 4,000 tonnes for imports and 2,000 tonnes for exports, in addition to a 7,000 sq m open yard (Sanyal, 2018). At Akhaura, the storage capacity is 2,000 tonnes (BLPA, n.d., p. 3).

Challenge

1. Inadequate representation of PGAs: Food products are a major item of import from ICP Agartala. Partner Government Agencies (PGAs) such as plant and animal quarantine are present at the port. However, there is no representation from FSSAI. As a result, some food products are held for more than 48 hours at the port, adding to the time and cost of trade. There is a need to develop a network of private laboratories in and around Tripura to address this challenge.

ICP Petrapole

ICP Petrapole is located approximately 80 kms from Kolkata, the capital of the Indian state of West Bengal. The foundation stone for the ICP was laid in 2011 and the ICP was operationalised in February 2016. It was formally inaugurated in July 2016 (MEA, 2016). Benapole is the corresponding land port in Bangladesh. The cargo terminal at ICP Petrapole is managed by the CWC, whereas that at Benapole is directly managed by the BLPA (BLPA, n.d., p. 3).

Prior to its operationalisation as an ICP, Petrapole was functioning as an LCS with a number of issues, including limited parking for trucks. The space available was for 250 trucks at the CWC parking space, whereas the need was for at least 450 trucks. Regular congestion at the approach roads, inadequate monitoring facilities leading to pilferage, inadequate storage space, and lack of testing laboratories were some of the other issues faced at the LCS (Sinha et al., 2016). Some of these issues were addressed post operationalisation of the ICP.

Trade

The Petrapole–Benapole route accounts for almost 65% of the land-based trade between India and Bangladesh (2019–20; Figure 7). Post the inauguration of ICP Petrapole, there was a marginal increase of 6% to 10% in total year-on-year trade through this route (2016–19). The success has been limited due to the fact the Benapole does not have mirror ICP facilities and continues to face infrastructure issues, thus limiting the total number of trucks that can cross the border in a day. According to an Indian government official, the growing trade deficit between India and Bangladesh is another factor limiting trade through the Petrapole-Benapole land border.[10] A daily average of 750 trucks cross the border for imports and exports (2018–19).[11]

Passenger movement

Due to its proximity to Kolkata, approximately 2.5 million people utilise the Petrapole–Benapole route for cross-border movement annually. The figures have been increasing annually (Figure 8). Currently, the passenger movement takes place through a temporary structure near the zero gate of the ICP.  Construction of a new Passenger Terminal Building (PTB)  commenced in February 2020 and is scheduled to be completed by May 2022. The new PTB is spread over an area of 14.55 acre (58,900 sq m).

Infrastructure

Benapole Land Port is spread over 61 acres and has a storage capacity of 40,000 MT. Given its current infrastructure (Table 8), the port has the capacity to handle approximately 2 million MT annually and is currently operating at a 110% capacity (BLPA, n.d.).

Challenges

1. Heavily congested approach road: There is heavy congestion on the highways (national highways (NH) 19, 112 and state highway (SH) 1) leading from Kolkata to Petrapole. The three routes are lined with trees of high ecological importance, making it impossible to cut down and pave way for wider roads. This has also given rise to dense illegal settlements along the highway.[12]
2. Prevalence of informal parking at Kalitala, West Bengal: While Indian export trucks are supposed to be parked at the ICP, an illegal parking syndicate exists approximately 20 km before the ICPs, affecting the seamless movement of cargo. A per-day parking fee is charged and trucks are parked there for 10 to 20 days. The problem has been persistent for many years (Raja, 2020).
3. Lack of adequte manpower: In 2017, India and Bangladesh had agreed to operate Petrapole and Benapole border posts round-the-clock to cater to the increasing traffic (The Hindu, 2017). However, according to ground reports, the trade does not take place at night and is closed on Fridays. The problem is also persistent due to the lack of adequate customs human resources to clear the goods at the ICP round the clock.
4. Paucity of parking and storage space at Benapole: Benapole is currently operating at an over-capacity in terms of cargo volume and the number of trucks it receives annually. Particularly during the border closure in 2020, due to the spread of the Covid-19 pandemic, the check-post was heavily congested with delays of up to about 10 days. While the port has 32 sheds with a total capacity of 50,000 tons, it is handling 100,000 tons (Raja, 2020b). As a result, the turn-around-time of trucks is very high, leading to high parking fees.
5. Manual documentation system: Due to the lack of digitisation at the ports, many documents are handled in a physical form. For instance, the Customs Out of Charge (OOC) is signed manually by a customs officer, and the car pass is issued in triplicate physical copies endorsed by the customs and the border security agencies.[13] While many seaports have automated such procedures, the land ports continue to use the physical form of documentation. This issues are expected to be addressed once the Land Port Management System is operational.

India–Myanmar: ICP Moreh

India and Myanmar share a 1,063 km-long border in the north-east region through which cross-border movements take place. The India–Myanmar trade agreement was signed in 1970. The bilateral trade between both countries is approximately US$ 1.3 billion (2019–20), dominated by a trade surplus from India.

India and Myanmar had signed a border trading agreement in 1994, recognising two operational border trading points—Moreh–Tamu and Zokhawthar–Rhi. These trading points would be used to barter locally produced commodities and 22 items were initially listed. This list was subsequently upgraded with the addition of 18 commodities in 2008 and another 22 commodities in 2012. In 2008, both countries also agreed to upgrade the border trade to a normal trade and set up a third border trading point at Avakhung–Somna (Export-Import Bank of India, 2018).

In 2015, however, Reserve Bank of India abolished barter trade; henceforth, all trade transactions with Myanmar would be settled in any permitted currency in addition to the Asian Clearing Union mechanism.[14] As a result of the normalisation of trade, the unilateral Duty-Free Tariff Preference (DFTP) Scheme of India and the ASEAN–India Trade in Goods Agreement (AITGA) became relevant in case of Myanmar (ibid.).

ICP Moreh

Inaugurated in January 2019, ICP Moreh (India) has now become the most important border check-post along the Indo-Myanmar border. Tamu, its corresponding location in Myanmar does not operate as an ICP (Figure 4). ICP Moreh is spread over a total area of 38.34 acres and was constructed by RITES at a cost of Rs 130 crore (approx. US$ 20 million); Moreh and Tamu are located along the Asian Highway-1.[15]

The Detailed Engineering Report (DER) to set up the ICP at Moreh was approved in FY 2009–10. However, after facing several delays due to land acquisition and completion of facilities, the ICP was only inaugurated nine years later, in 2019.

Trade

Trade through ICP Moreh ranges between 1% to 3% of the total bilateral trade between India and Myanmar. Following the operationalisation of the ICP in 2019, India traded the highest volume of exports through the ICP of US$ 48 million (Figure 9). However, it can be seen from the figure that post the 2015 ban on barter trade, the trade figures dipped. Evidently transition to formal trade was not easy due to, among other factors, the limited capacity of traders who could fulfil the new trade norms (Dutta, 2019). Lack of infrastructure for trade such as a proper road, bridges, warehouses etc., were additional factors limiting the trade.

While India’s imports through this land post have been low, they came to a halt between 2017 and 2019 after India increased import duty on betel nut, from 4% to 40%, in January 2017. The trade resumed thereafter. Today, Indian exports are mostly related to Indian projects in Myanmar (Bose, 2018).

The major commodities exported by India to Myanmar through Moreh include cumin seeds, wheat flour, pulses, coon yarn, auto parts, soyabean meal, pharmaceuticals, and dry grapes. The major items of import include betel nut, dry ginger, fresh ginger, mung, black matpe, turmeric roots, resin, and medicinal herbs, among others.

Passenger movement

Following the inauguration of the passenger terminal building at ICP Moreh in 2018 (LPAI, n.d.[h]), passenger movement increased sevenfold in 2018–19 (Figure 10). In addition, India has since initiated gratis visas for the citizens of Myanmar. Citizens of both countries are allowed to travel up to 16 km inside each other’s territory against a ‘day pass’ issued on submission of an identity proof (Samom, 2018).

Infrastructure

Given Myanmar’s importance in connecting South Asia with South-East Asia, the infrastructure at ICP Moreh is not adequate to meet the growing need of future transactions. Although still new, there is a need to strengthen this border check-post to facilitate trade and movement of people.

Challenges

1. Delay in operationalisation of the cargo terminal and land bridge: It is reported that the cargo terminal is yet to be fully operational. Due to this, the old LCS gate is still being used for trade. Additionally, a land bridge which will facilitate two way traffic is still under construction (Dutta 2019).
2. Poor internet facilities: Despite an operational BSNL connection at ICP Moreh, the downtime of the internet is very high. As a result, many operations, such as customs clearance, that are digitised through the Electronic Data Interchange (EDI), are yet to function at ICP Moreh and most of the paperwork takes place physically (Export-Import Bank of India, 2018). The LPAI is seeking an additional connection for the ICP.

India-Nepal

The idea of constructing four major ICPs along the India-Nepal border at Jogbani, Raxaul, Sonauli and Rupaidiha, was initially mooted in a meeting of the Committee of Secretaries in October 2003, based on a National Security Council Secretariat assessment that infrastructure at these locations was ‘abysmal’ (PSCHA, 2010, p. 14). Subsequently, in 2005, India and Nepal signed a Memorandum of Understanding (MoU) for construction of four ICPs along the 1,751 km-long shared border (Sood, 2018).  In addition to developing ICPs on its side of the border, India also agreed to contribute approximately Rs 500 crore (US$ 100 million) towards the construction of mirror ICPs on the Nepali side (The World Bank, 2013).

As Nepal is a landlocked country, ICPs are integral for its commerce and security. While both countries share an open border as per the 1950 Indo-Nepal Treaty of Peace and Friendship, trade and transit take place through select border crossings identified in the Treaty of Trade (2009) and the Treaty of Transit (1999).

Currently, there are two operational ICPs at Raxaul (India)–Birgunj (Nepal) and Jogbani (India)–Biratnagar (Nepal). These two ICPs handle approximately 58% of the total trade between India and Nepal (2019–20).[16] India is also constructing a third ICP connecting Rupaidiha (India) and Nepalgunj (Nepal). The construction commenced in November 2020 (Roche, 2020a). The Treaty of Trade (2009) also identifies 24 LCS and ImCPs (Figure 11). At present only road-based transport takes place through the ICPs. Rail transfers continue to take place directly to the Inland Clearance Depot (ICD) at Birgunj. In case of the Jogbani-Biratnagar ICP, goods are transferred on a rail-cum-road basis.

India and Nepal are the only countries in South Asia to have mirror ICPs on both sides of the border. The Nepal Intermodal Transport Development Board (NITDB) is vested with the responsibility of regulating the ICPs.[17] It was established under the Development Board Act 1956, in Nepal, to manage cross-border infrastructures to facilitate Nepal’s international trade.

Terminal operations for the ICP and ICD are handed over to private companies after a competitive bidding process. The NITDB only steps in to operate these as a stop-gap arrangement when they are unable to lease out the premises to a terminal management company. Currently, ICP Birgunj is operated by the NITDB. TransNepal, a terminal company, has been operating ICP Biratnagar since August 2020.

ICP Raxaul–ICP Birgunj

The ICPs at Raxaul and Birgunj were the first to be made operational between India and Nepal. The latter is the most important ICP for Nepal, catering to approximately 60% of its global trade. In 2019–20, 45% of Nepal’s total trade with India took place through this ICP (see Figure 12).[18] The foundation stone of these two mirror ICPs was laid in 2010, and the ICP at Raxaul was operationalised in June 2016. Two years later, in 2018, both Raxaul and Birgunj ICPs were jointly inaugurated. The ICP at Raxaul is located approximately 250 km from Patna in Bihar, and Birgunj ICP is located in Bara District of Nepal. The latter was constructed by an Indian public-sector unit, Rail India Technical and Economic Service Ltd (RITES), through a grant assistance of Rs 120 crore (US$ 25 million) by India (World Bank, 2013).

Trade

Since the operationalisation of ICP Raxaul in 2016, India’s exports to Nepal increased by 75% from US$ 1.39 billion in 2015–16 to US$ 2.43 billion in 2016–17. The share of ICP Raxaul in the overall bilateral trade stood at approximately 45% in 2016. The DGCI&S lists the top five commodities exported by India through this route, namely petroleum products, iron and steel, drug formulations, motor vehicles, and dairy-related industrial machinery. India imports items, such as vegetable oil, processed items, yarn and fabrics, cosmetics, and leather through the ICP.

Passenger movement

While a passenger terminal building has been built at the ICPs, minimal movement is recorded. For instance, in 2016–17, the total number of passengers crossing the border was recorded as 2,321 at Raxaul, i.e. an average of less than 10 people per day (LPAI, n.d.[f]). This is because India and Nepal maintain an open border and registered border crossings are limited to third country citizens.

Infrastructure

Both ICPs, Raxaul and Birgunj, are built as mirror facilities spread over 215 acres and 165 acres, respectively (NITDB, n.d.). A number of trade and non-trade-related infrastructure facilities have been provided within the ICP. Table 5 below provides a list of the infrastructure facilities available at both ICPs.

The upgrading of infrastructure at both ICPs has played a key role in reducing waiting time. Earlier it would take between two to four days from Raxaul to Birgunj, due to heavy congestion and the lack of parking areas (World Bank, 2013). Currently, the time taken to cross the border is approximately one-and-a-half days for both exports and imports.[19] On an average, 1,000 trucks cross the ICPs daily.[20]

Challenges

1. The old LCS route is still operational for exports at Raxaul: Despite the inauguration of the ICPs in 2018, a complete shift to using the ICP trade gates has not taken place. Exports such as petroleum and coal continue to move from the old LCS gate due to resistance from traders (Taneja et al., 2019).
2. Unpaved approach road to ICP Birgunj: The 700 m-long approach road to ICP Birgunj is rough. Road development has not taken place there for years due to land acquisition issues. The condition of the road is a major deterrent in the seamless movement of trucks and passenger vehicles.
3. Inadequate warehouse space at ICP Birgunj: Stakeholder interviews reveal that the warehouse storage space at the ICP is limited and can handle only up to six containers (TEUs) at a time. Given that Nepal’s imports are higher through this route, this ICP requires more warehousing space.[21]
4. Lack of digitisation at ICP Raxaul. A number of processes at ICP Raxaul take place manually, including the maintenance of records at the gates and the requirement of physical copies of entry and exit slips in triplicate. The lack of good internet connectivity in the area exacerbate this issue. As with all other ICPs, the issue can be addressed by implemenation of the the LPAI’s Land Port Management System (LPMS).
5. Lack of testing facilities at the ICP: Agricultural exports from Nepal face issues due to lack of plant quarantine facilities near Raxaul. The samples are collected at Raxaul and sent to Kolkata for testing. The whole process takes about 10 days to complete, leading to accrual of detention charges on the consignment, and the rotting of some items. While the cargo volume does not justify the need for additional manpower at the ICP, there is an urgent need for developing an integrated plan for testing facilities.

ICP Jogbani–ICP Biratnagar

The ICPs at Jogbani (India) and Biratnagar (Nepal) are the second pair of ICPs between India and Nepal. The ICP at Biratnagar was built with Indian assistance of US$19.64 million and the foundation stone for both ICPs was laid on June 26, 2010. While ICP Jogbani was completed and operationalised in 2016, there were delays in starting ICP Biratnagar. Both ICPs were jointly inaugurated on January 20, 2020.

Trade

Approximately 14% of India-Nepal bilateral trade (2019-20) is routed through ICP Jogbani. Between 2011–2020, trade figures ranged between US$ 0.5 billion to US$ 1.2 billion (Figure 13). Exports have been increasing following the operationalisation of ICP Jogbani, however the overall impact of the ICP infrastructure via-à-vis the volume of trade remains to be assessed.

Major commodities exported by India through this ICP include petroleum products, cold rolled steel sheets, non-alloy steel, liquefied petroleum gas (LPG), and milt steel billets. On the other hand, Nepal exports galvanised plain sheets and coils (GPGC), woven fabrics, galvanised iron (GI) wire, yarn, and brass sheets among other items, through this port (LPAI, n.d.[g]).

The two ICPs are also important border points for movement of transhipment cargo to Nepal from India’s eastern seaports; ICP Jogbani is located approximately 581 km from Kolkata port. Currently, the transhipment cargo moves on a rail-cum-road basis, i.e., the containers arrive by rail till Bathnaha in Bihar, from Kolkata, Haldia and Visakhapatnam ports and are then moved by road from ICP Jogbani to Biratnagar (CBIC, 2019).

In 2019, the Government of India introduced the Electronic Cargo Tracking System (ECTS) based on the Government of Nepal’s proposal for a change in modality wherein the Nepal-bound cargo can be allowed movement into Nepal without the need for the traders to file a ‘transit declaration’ with the Indian Customs. As a result, cargo movement from Indian seaports to Bathnaha by rail and then onwards to Jogbani by road could be tracked by the ECTS system (ibid.).

Passenger movement

Like ICP Raxaul and ICP Birgunj, the passenger movement through these ICPs remains low. According to available data, in 2016–17, 2,321 third-country passengers crossed this border by road (LPAI, n.d.[g]).

Infrastructure

ICP Jogbani is built on an area of about 186 acres. The key infrastructure facilities at the ICP have been summarised in Table 9. Given that the ICP has been operational only for a year, it is difficult to gauge the impact of the infrastructure on the movement of goods and people. Therefore, no challenges are identified for the ICP.

Globally, the dominant mode of transport to and from neighbouring countries is land-based (via road), despite the availability of alternatives (the railways, inland waterways, and the sea). Whether it is North American trade (Mexico–USA–Canada), intra-European Union (EU) trade, or between China and Central Asia, the maximum movement of goods is via trucks and trailers (Barajas et al., 2014). An UNCTAD (2019) study also rates road as the most economical mode of transport when moving goods over shorter distances. Therefore, the emphasis on developing border infrastructure to facilitate road movement is higher. This section focuses on two case studies from the US–Mexico land border at Laredo and the Norway-Sweden land border at Svinesund to demonstrate how upgradation of border infrastructure can facilitate road-based movement of goods and people.

Laredo: Point of Entry between USA and Mexico

Approximately 80% of the trade between USA and Mexico takes place over land via trucks and railways (UNCTAD, 2019). Laredo is one of the 28 border crossings located along the 1,255 mile-long (approximately 2,020 km) border between Texas (USA) and Mexico; one of the 13 crossings that handle commercial vehicles; and one of the busiest land-based trade routes between the two countries (Texas Department of Transportation [TDT], 2019).

Laredo makes a case in point to show how improving policies and modernisation of the border-crossing infrastructure, led to decrease in time taken to cross the border and an increase in the volume of trade.

Between 2006 and 2017, the value of USA–Mexico trade increased by 68%; within this, the value of Texas–Mexico trade increased by 65%. During the same time period, the value of USA–Mexico trade moved by truck almost doubled from US$219 billion in 2006 to US$385 billion in 2017 (ibid., p. 1). Here is a brief look at the infrastructure and policy change exercises that took place during this period leading to an increase in trade volume through the Laredo Point of Entry.

Upgrading the World Trade Bridge

The World Trade Bridge in Laredo connects Texas and Mexico. Prior to its inauguration in 2000, heavy traffic congestion often led to the rerouting of trailers to other ports (ibid.). The Bridge was upgraded in 2011 and the number of lanes increased from 7 to 15 (Uribe, 2012). The Bridge now handles 40% of all incoming trucks from Mexico into Texas; in 2017 alone, it handled a total of 1.66 million trucks (TDT, 2019, p. 3). The median waiting time for trucks to cross the bridge is just one hour now (compared to five hours earlier). If the exporter and logistics company are accredited under a Customs and Border Protection ‘trusted traveller programme’, then the waiting time drops to less than 30 minutes.[22]

‘Ready Lanes’ for passengers

The Laredo point of entry has ‘Ready Lanes’ equipped with radio-frequency identification (RFID) readers for US citizens to drive through the check-posts, scan the passport card, and proceed to the Customs and Border Protection officer (U.S. Customs and Border Protection [CBP], 2018). This facilitates seamless movement of people without the need for checking of physical documents.

Unified Cargo Processing (UCP) Program

The UCP was initiated in 2017 by the US Customs and Border Protection (CBP) and its Mexican counterpart, Servicio de Administracion Tributaria (SAT). The objective was to jointly conduct inspection on cross-border trucks, thus saving time in movement (Resendiz, 2019). The authorities also share x-ray scans of trailers for joint security clearance. The UCP shipments have a dedicated lane at the border—the Free and Secure Trade (FAST) lane – that allows for unencumbered border crossing (CBP, 2018a).

Other Infrastructure upgradation

Several other facilities have been provided at the border to aid the movement of goods and people. For instance, full-body truck scanners are used on a case-by-case basis and separate gates—categorised by the level of facilitation—have been provided for seamless passenger and freight movement, as have more lanes.

Smart Borders between Norway and Sweden

The border crossings between Norway and Sweden are considered the most advanced in the world. Both countries share an approximately 1,600 km-long border, lined with about 80 crossings, only 14 of which are manned by customs officers. The busiest border crossing is at Svinesund with approximately 66,000 monthly freight-truck movements (Karlsson, 2017, p. 28). The border houses the most developed customs solution in the world, using all the international standard of the World Customs Organisation and full compliance with the World Trade Organisation’s Trade Facilitation Agreement. Most goods traffic is cleared at an average time of 3-9 minutes post arrival at the border (ibid. pp. 29-30).

While Sweden is one of the 27 EU member states, and thus, a de facto signatory to all EU agreements, Norway is a member of the European Economic Area and the Schengen Agreement, but not the EU Customs Union. As a result, customs controls are required for the border between Norway and Sweden. In 1997, an agreement on customs cooperation between the European community and the Kingdom of Norway was signed, allowing Sweden and Norway to coordinate for joint customs administration. The smart border between Norway and Sweden is a case in point that highlights how technology can support seamless cross-border movements. Such technology upgradations need to be supported with infrastructure and political will to facilitate cross-border flows.  There are several good practices operational at this border, especially since the inauguration of the Svinesund bridge in 2005, that can be mirrored or adapted globally.

Large area of border check-posts

Despite having a considerably smaller volume of freight traffic as compared to South Asian countries, Norway and Sweden have a 15 km-long border control zone on either side of the border, to regulate freight and passenger traffic.

Joint customs control within the border control zone

Either of the customs authorities of Norway and Sweden can carry out the customs formalities within the control zone. The systems of both countries are digitally linked allowing for real-time information sharing between both countries (ibid., p. 28).

Automatic number-plate recognition (ANPR)

Since 2011, Norway has been using the ANPR cameras at border crossings without customs posts to scan the number plates of the trucks and passenger cars, and check for uninsured vehicles, traffic violations, and illegal entry (Cellan-Jones, 2017). This technology, however, is yet to be integrated with the customs system.

Full body x-ray scanners

Approximately four full-body truck/lorry x-ray scanners have been installed in the border control zone, which scan every crossing truck for contraband, illegal food, and agricultural products(ibid.).

In 2020, the Home Minister of India announced that many LCSs in the Northeast region would be upgraded to ICPs (IANS, 2020). Additionally, the LPAI envisages the operationalisation of 24 ICPs by 2030. This infrastructure development along India’s land borders begs two key questions: (i) are ICPs really facilitating freight and passenger movement between India and its neighbours?; and (ii) with various regional connectivity infrastructure projects in the pipeline, what role will the ICPs play?

As part of India’s ‘Act East’ and ‘Neighbourhood First’ policies, several regional connectivity initiatives have been taken in South Asia that warrant a reassessment of the role that ICPs would play in trade facilitation and movement of people.

First, an empirical analysis of the various operational ICPs in the region shows an increase in trade and movement of people post the operationalisation of the ICPs. For instance, India’s exports to Nepal increased by 75% post initiation of ICP Raxaul in 2016; the share of ICP Attari in India’s total trade with Pakistan increased from 17% in 2011–12 to 33% in 2013–14, signifying re-routing of trade from sea; and the passenger movement through ICP Moreh increased by approximately 530% in 2018–19.

Most of the current operational ICPs, including Raxaul and Petrapole, are operating at over 100% capacity. Any further increase in volume leads to congestion on the approach roads and within the ICPs. The volume of freight and passenger traffic is soon likely to increase with various connectivity infrastructure initiatives linked to the ICPs coming to fruition. Therefore, it is important that a pre-emptive growth estimation be done for traffic through the ICPs, so that adequate facilities can be provided for different types of cargo while maintaining the export clearance time as 24 hours, based on the National Trade Facilitation Action Plan 2020–23 (NCTF, 2020).

Secondly, as part of India’s ‘Act East’ and ‘Neighbourhood First’ policies, several regional connectivity initiatives have been taken in South Asia that warrant a reassessment of the role that ICPs would play in trade facilitation and movement of people. These regional connectivity initiatives, particularly the Bangladesh-Bhutan-India-Nepal Motor Vehicles Agreement (BBIN-MVA), development of cross-border railways, and inland waterways transport, will increase the mandate of the ICPs. Table  10 below provides a list of key infrastructure projects between India and the neighbouring countries.

With Nepal, rail connectivity projects such as the Jogbani–Biratnagar and the Jayanagar–Bijalpura–Bardibas railway link are nearing completion (Indo-Nepal Railway Project, 2021). Apart from this, India has also offered assistance in developing inland waterway transport with Nepal. With Bhutan, India inaugrated a new route between Jaigaon (West Bengal) and Ahllay, Pasakha (Bhutan) to decongest vehicluar traffic along Jaigaon-Phuentsholing route (Figure 14). In 2020, India opened four more trade routes with Bhutan at Nagarkata, Agartala, Jogighopa, and Pandu. The latter two are riverrine ports.

With Bangladesh, four rail lines are now operational. The 12 km-long Agartala–Akhaura railway link is under execution; this route is expected to cut travel time between Tripura and Kolkata via Dhaka and facilitate freight movement from India’s Northeastern states to Kolkata. Inland waterways is another mode that has seen development in recent years. In September 2020, during the pilot test of the Chittagong–Tripura inland waterway route, 50 MT of cement was transported on river Gomti from Daudkandi (Bangladesh) to Sonamura (India) via a 90 km waterway (Deb, 2020).

With such an increase in the regional connectivity initiatives, it is important to delve into the future role of ICPs and ascertain the infrastructure facilities required for the same. It is likely that there will be an increasing focus on off-border clearances, that is, customs clearance taking place at an inland customs location rather than when cargo reaches the ICP.

According to a former MEA official, the planning for key projects such as roads and ICPs is done on a ‘past-experience’ basis and not a ‘forward-looking’ approach. For instance, he notes that roads are built based on the current traffic volume and not on future projections; and consultants and planners work on old statistics. Given the huge potential of these routes in facilitating multi-modal transportation, it is important that infrastructure be developed at the ICPs keeping future potential in mind, and not on existing trade and transit figures. There is also a need to ensure alignment of the existing border infrastructure, including the ICPs, with the above-mentioned regional connectivity initiatives to accrue maximum benefit for trade facilitation and to ensure the seamless movement of people across sub-regions. Such developments warrant infrastructure upgradation and investment in technology upgradation in the border areas.

Furthermore, at an inter-regional level, ICPs are envisaged to connect the transport of Indian goods to the Northeast region transiting via Bangladesh, and further link them with supply chains in South-East Asia. Several other connectivity initiatives are also at various stages of development connecting South Asia with South-east Asia, such as the India—Myanmar—Thailand (IMT) Trilateral Highway, Asian Highways 1 and 2, the Trans-Asian railway network, among others. Some of these routes intersect at the ICPs. For instance, the IMT route passes through ICP Moreh. The infrastructure is expected to play a key role in multi-modal transportation in the region and pave way for easing transportation from South Asia to South-East Asia. For instance,

While the need for ICPs arose out of border security concerns, increasing the volume of trade with neighbouring countries as well as connectivity through important infrastructure projects should be the driving factor behind selection of the LCS’ for upgradation to ICPs. The construction of ICPs has shown significant improvements at certain places, however, not much improvement has taken place at other border points due to lack of a mirror infrastructure in the neighbouring countries. For instance, the case of ICP Petrapole shows that the increase in freight traffic has been limited due various infrastructural deficits, such as the lack of adequate parking and warehousing space at the corresponding land port in Benapole, Bangladesh.

Apart from this, several common challenges exist across the ICPs, including harmonisation of working hours with neighbouring countries, limitations in truck movement, absence of partner government agencies such as plant and animal quarantine, and paucity of warehousing space. These challenges will need to be addressed for further construction of the ICPs, in order to promote seamless regional trade and logistics.

In total, 40% of the land-based goods trade between India and its neighbours takes place via the Integrated Check Posts (ICPs). The idea of establishing ICPs along India’s border with its neighbouring countries was mooted by the KRC Report in 2000. This led to several developments on the administrative front—from forming a Department of Border Management in the Ministry of Home Affairs in 2003, to constituting an autonomous body called LPAI for management of the ICPs in 2010. The first ICP was inaugurated in 2012 at the Attari border between India and Pakistan. Subsequently, ICPs were also established at Agartala (Tripura), Raxaul (Bihar), Petrapole (West Bengal), Moreh (Manipur), Jogbani (Bihar) and Katarpur (Punjab).

In total, 40% of the land-based goods trade between India and its neighbours takes place via the Integrated Check Posts.

As global best practices at the USA–Mexico and Norway–Sweden border check posts show, technologies and policy practices that reduce time and cost of trade already exist globally. Their implementation is dependent on cooperation and the political will of countries. The Covid-19 crisis has particularly alerted countries on the importance of smart border control technologies to enable contact-free transfer of goods and people across borders. This is an opportune moment to re-evaluate the approach towards development of border infrastructure and re-align it, taking cognizance of the trade potential and the capacity to handle ‘unforeseen emergencies.’

The ICPs are an ambitious model for improving border management infrastructure. The nine operational ICPs in India and two in Nepal since 2012, show the capacity of the Government of India to deliver on the project and are a testament to the rising demand from India’s smaller neighbours. Therefore, it is important to leverage India’s strength and success story in this area for achieving greater regional integration. It is also important that the next ICPs should be developed based on need, trade potential and their future role among other regional connectivity initiatives in South Asia.

At the inter-governmental level

1. Development of ICPs in line with other regional infrastructure connectivity initiatives

All ICPs should be developed to complement the other regional infrastructure connectivity initiatives. For instance, the construction of an ICP at Sabroom in Tripura, was announced to complement the recently inaugurated ‘Friendship Bridge’ between India and Bangladesh over River Feni in Sabroom. Similarly, infrastructure (including ICDs) that exists at the border in neighbouring countries can be linked with ICPs. The LPAI and other stakeholders in the Government of India must take cognizance of existing and planned infrastructure projects at the border areas during project planning.

2. Upgrading infrastructure at the ICPs, and technological cooperation with neighbouring countries

There is a need to develop mirror ICP infrastructure with the requisite facilities in Bangladesh (Akhaura and Benapole), and Myanmar (Tamu) to ensure seamless clearance of goods, and the creation of a real-time data exchange platform between the customs authorities, immigration, custodians, and security personnel of both countries to ensure paperless and no-contact transactions. As in the case of Nepal (Birgunj and Biratnagar), India can commission the construction of ICP infrastructure in the neighbouring countries through MEA grants. For Benapole (Bangladesh), this request was also made by traders during the 4th Meeting of the Council for Trade Development and Promotion held on January 10, 2019 (MoCI, 2019). Additionally, through its own experience, India can support Nepal, Bangladesh and Myanmar in capacity building for implementation of the TIR Carnets.

3. Development of ICDs where ICPs cannot be expanded

While the border between Norway and Sweden boasts of a 15 km-long border control zone, such zones are difficult to build in South Asia due to paucity of land, land acquisition issues and the lack of a joint policy between any two countries on border movement in the region. The LPAI and the Ministry of Commerce and Industry can explore establishing ICDs as an extension of the ICPs for customs clearance, and increasing the parking and warehouse space.

4. Explore the possibility of management and operations of the ICPs on a PPP model

The MHA mooted a public-private partnership model for ICPs in the late 2000s, which was struck down citing security reasons. However, times have changed. It is expected that growth in regional connectivity initiatives such as railways, inland waterways, bridges and ICPs, will generate a higher volume of cargo flow through the region. According to a former MEA official, the security and commercial approach must go hand in hand when it comes to these ICPs. Therefore, the LPAI can explore the possibility of management and operations of the ICPs on a PPP model in order to enhance efficiencies, address capacity issues and reduce logistics cost.

At the ground-level

1. Need for PGA/testing facilities

A common challenge across all ICPs is lack of representation from Partner Government Agencies, such as plant and animal quarantine, drug control, etc. While it is not feasible to have manpower from these agencies at every land port due to the volume of trade, an alternative nevertheless needs to be developed by the LPAI and CBIC to address this issue. A possible option would be to create an integrated system of accredited labs within a 12-hour distance of the ICP, using courier services for movement of samples.

2. Improving infrastructure of the approach roads and bridges

There is a need to upgrade the condition of approach roads leading to all ICPs in the region. This will lower the cost of transportation and reduce road-traffic congestion. This can be accomplished by the efforts of the MHA, the Ministry of Road Transport and Highways and the relevant state governments working together. The National Highways and Infrastructure Development Corporation Ltd, which is playing a key role in upgrading the India–Myanmar bridge at Moreh, will have to expedite completion to enable higher volumes of freight movement.

3. Timely implementation of the Land Port Management System

Adequate internet facilities need to be provided in all the border areas for the digitisation process to be fully implemented at all ICPs. Paperless transactions will generate time and cost savings, whilst facilitating proper recording of information related to trade and passenger movement. The Land Port Management System needs to be implemented urgently in order to integrate various stakeholders and the documentation process at the ICPs.

4. Focus on off-border customs facilitation

Off-border facilitation and clearances—similar to the procedure taking place at the seaports—could be considered, given the paucity of parking and warehousing space at the ICPs. Off-border facilitation could possibly take place at an inland dry port, and, for instance, only trucks with a ‘Let Export Order’, would be allowed to enter ICP premises.  Such measures will not only reduce congestion at the ICP but will also address the issue of intermittent internet connectivity which is, at present, necessitating paper-based transactions.

5. Enabling provisional clearance of cargo by customs

The CBIC has provided the facility of provisional clearance of cargo at seaports—allowing the importer to take the cargo from port, based on a bond. This provision will also be useful for land ports, particularly in the case of perishable goods that face warehousing and cold storage issues.

6. Creation of Facilitation Lanes at the ICP

In order to expedite movement of cargo and passenger vehicles, facilitation lanes can be created at ICP gates on the model of the USA-Mexico border (discussed in previous section). The facilitation can be based on several predetermined parameters, such as RFID tags and cargo with a Let-export-order. This would enable faster movement of goods and passenger vehicles for authorised operators and passengers, significantly reducing the dwell time of vehicles at the ICP.

Ali, S.S. (2021, January 14). Centre releases Rs 90.56 crore for second Integrated Check Post in Tripura. The Hindu. Retrieved January 15, 2021, from https://www.thehindu.com/news/national/other-states/centre-releases-9056-crore-for-second-integrated-check-post-in-tripura/article33576385.ece

Bangladesh Land Port Authority. (n.d.). Overview. Retrieved from http://bsbk.portal.gov.bd/sites/default/files/files/bsbk.portal.gov.bd/page/1da6d5ad_5287_4dc7_8146_0326260b1894/overview%20(Sep%2716).pdf

Barajas, I.A., Sisto, N.P., Gaytán, E.A., Cantú, J.C., and López, H.L.  (2014, October 10). Trade flows between the United States and Mexico: NAFTA and the border region. Articulo – Journal of Urban Research [Online]. DOI: https://doi.org/10.4000/articulo.2567

Bassi, A. (2017, May 12). Attari check post gets modern surveillance equipment. Hindustan Times. Retrieved October 22, 2020, from https://www.hindustantimes.com/punjab/attari-post-gets-modern-surveillance-equipment/story-9u94ixb4IoPfh2OJCleg6H.html.

Bose, P.R. (2018, November 12). At Moreh, trade with Myanmar borders on informal. The Hindu Business Line. Retrieved October 30, 2020., from https://www.thehindubusinessline.com/news/at-moreh-trade-with-myanmar-borders-on-informal/article25478894.ece

Bureau of Immigration. (n.d.). About Us. Retrieved August 4, 2020, from https://boi.gov.in/

Cellan-Jones, R. (2017, September 29). Frictionless borders: learning from Norway. BBC. Retrieved from https://www.bbc.com/news/technology-41412561

Central Board of Indirect Taxes and Customs. (1962). The Customs Act, 1962. Retrieved from https://www.cbic.gov.in/htdocs-cbec/customs/cs-acts-botm

Central Board of Indirect Taxes and Customs. (2019, September 29). Transhipment of Cargo to Nepal under Electronic Cargo Tracking System Regulations, 2019. (Notification No. 68/2019-Customs (N.T.)). Retrieved from https://www.cbic.gov.in/resources/htdocs-cbec/customs/cs-act/formatted-htmls/Cargo-Tracking-System-English.pdf

CUTS. (2019). India–Bangladesh agriculture trade: Demystifying non-tariff barriers to India–Bangladesh trade in agricultural products and their linkages with food security and livelihood. Jaipur, India: CUTS International. Retrieved from https://cuts-citee.org/pdf/project_report-ntbagr.pdf

CUTS. (2015), Trade facilitation, trade costs and inclusive development: A case story of Attari-Wagah border of India and Pakistan. Retrieved from http://www.cuts-citee.org/pdf/CUTS_Case_Story_on_Trade_Faciltiation.pdf

Das, P. (2021, February 7). Border Management and Threats to Internal Security. Electronic Journal of Social Sciences and Strategic Studies, 2(1), 89–110. Retrieved from https://www.ejsss.net.in/article_html.php?did=9311&issueno=0

De, P., and Iyengar, K. (Eds). (2014). Developing economic corridors in South Asia. Mandaluyong City, Philippines: Asian Development Bank. Retrieved from https://www.adb.org/sites/default/files/publication/162073/developing-economic-corridors.pdf

Deb, D. (2020, September 7). Explained: What the opening of waterway with Bangladesh means for Tripura. The Indian Express. Retrieved from https://indianexpress.com/article/explained/explained-what-the-opening-of-waterway-with-bangladesh-means-for-tripura-6584061/

Department-Related Parliamentary Standing Committee on Home Affairs (2010). One Hundred and Forty Third Report On The Land Ports Authority Of India Bill, 2009. Rajya Sabha Secretariat, Government of India. Retrieved from https://prsindia.org/files/bills_acts/bills_parliament/SCR_Land_Ports_Authority_of_India_Bill,_2009.pdf

Doval, N. (2020, March 6). India-Pakistan Trade: Border Trauma. Open Magazine. Retrieved January 16, 2021, from https://openthemagazine.com/features/dispatch/india-pakistan-trade-border-trauma/

Dutta, S. (2019, June 26). Moreh–Tamu: an unfulfilled potential. Vivekanada International Foundation. Retrieved from https://www.vifindia.org/article/2019/june/26/moreh-tamu-an-unfulfilled-potential

Export-Import Bank of India. (2018). Act East: Enhancing India’s trade with Bangladesh and Myanmar across border. (Working Paper no. 77). New Delhi: Export-Import Bank of India. Retrieved from https://www.eximbankindia.in/Assets/Dynamic/PDF/Publication-Resources/ResearchPapers/97file.pdf

Godbole, M. (2014, December 03). Lecture by Dr Madhav Godbole on “Securing India’s Borders—The Way Ahead” [Speech].  Manohar Parrikar Institute for Defence Studies and Analyses. Retrieved from https://idsa.in/keyspeeches/LecturebyDrMadhavGodbole

Group of Ministers (n.d.). Report on National Security. Vivekananda International Foundation. Retrieved September 10, 2020, from https://www.vifindia.org/sites/default/files/GoM%20Report%20on%20National%20Security.pdf

Gupta, A. K. (2018). Strengthening Transport Connectivity in Southern and Central Asia [PowerPoint slides]. South and South-West Asia Office, UNESCAP. https://www.unescap.org/sites/default/files/Anil_Gupta7_8feb2018.pdf

Indo-Nepal Railway Project: India Govt spend 500 cr to improve connectivity. (2021, January 18). LiveMint. Retrieved from https://www.livemint.com/news/india/indonepal-railway-project-india-govt-spend-rs-500-cr-to-improve-connectivity-11610932818082.html

Ministry of Commerce and Industry. (2012). Joint Statement of the 7th Round of Talks on Commercial and Economic Co-Operation Between Commerce Secretaries of India And Pakistan. (2012, September 21). Retrieved from http://commerce.nic.in/trade/Joint_Press_Statement_CS_Pakistan_India_Sept_20_21st_2012.pdf

Karlsson, L . (2017). Smart Border 2.0: Avoiding a hard border on the island of Ireland for Customs control and the free movement of persons. Policy Department for Citizens’ Rights and Constitutional Affairs, Directorate General for Internal Policies of the Union, European Parliament. Retrieved from http://publications.europa.eu/resource/cellar/a9c80272-fcca-11e7-b8f5-01aa75ed71a1.0001.03/DOC_1

Kathuria, S. (Ed). (2018). A Glass Half Full: The Promise of Regional Trade in South Asia. Washington, DC: The World Bank. Retrieved from https://openknowledge.worldbank.org/handle/10986/30246

Land Ports Authority of India. (n.d.[a]). Genesis. Retrieved September 20, 2020, from http://www.lpai.gov.in/content/innerpage/genesis.php

Land Ports Authority of India. (n.d.[b]). Facilities. Retrieved September 20, 2020, from http://www.lpai.gov.in/content/innerpage/facilities.php

Land Ports Authority of India. (n.d.[c]). ICP Attari. Retrieved October 25, 2020, from http://lpai.gov.in/content/innerpage/icp-attari.php

Land Ports Authority of India. (n.d.[d]). ICP Agartala. Retrieved October 18, 2020, from http://lpai.gov.in/content/innerpage/icp-agartala.php

Land Ports Authority of India. (n.d.[e]). ICP Petrapole. Retrieved October 18, 2020, from http://lpai.gov.in/content/innerpage/icp-petrapole.php

Land Ports Authority of India. (n.d.[f]). Raxaul–Birgunj. Retrieved October 22, 2020, from http://lpai.gov.in/content/innerpage/icp-raxaul.php

Land Ports Authority of India. (n.d.[g]). ICP Jogbani. Retrieved October 22, 2020, from http://lpai.gov.in/content/innerpage/icp-jogbani.php

Land Ports Authority of India. (n.d.[h]). ICP Moreh. Retrieved October 26, 2020, from http://lpai.gov.in/content/innerpage/icp-moreh.php

Land Ports Authority of India. (n.d.[i]). Roadmap of ICPs. Retrieved September 20, 2020, from http://lpai.gov.in/content/innerpage/next-phase.php

Land Ports Authority of India. (2019). 7th Annual Report 2018–19. Retrieved from  http://lpai.gov.in/upload/uploadfiles/files/Annual%20Report%202018-19.pdf

Mehudia, S. (2012, April 14). Attari border will become a trade hub. The Hindu. Retrieved October 20, 2020, from https://www.thehindu.com/business/attari-border-will-become-a-trade-hub/article3314985.ece

Ministry of Commerce. (n.d.). [Table:] Export/import border trade situation of Myanmar in 2012–2013 Fical Year To 2019–2020 Fiscal (up to February monthly). Republic of the Union of Myanmar. Retrieved from https://www.commerce.gov.mm/en/article/export-import-border-trade-situation-myanmar-2012-2013-fical-year-2019-2020-fical-year?__cf_chl_jschl_tk__=c9061009fc839e1e07b9139820b9eeeedde180ca-1617084441-0-AeUtjwmCYtZWUp_hpEegL6qBcQAlniMPUIVR4mD3YxB4B4MTk8sCL8U

Ministry of Commerce and Industry (2019). 4th Meeting of Council for Trade Development and Promotion held on 10 January 2019. Retrieved from https://commerce.gov.in/wp-content/uploads/2020/07/MOC_636882650768706682_ROD_4th_Council_for_Trade_Development_and_Promotion.pdf

Ministry of External Affairs. (2015, June 6). Trade Agreement between India and Bangladesh. MHA, Government of India. Retrieved from http://www.mea.gov.in/Portal/LegalTreatiesDoc/BG15B2412.pdf

Ministry of External Affairs. (2016, July 21). Joint dedication of the Petrapole Integrated Check Post (ICP) [Press release]. Retrieved from  https://mea.gov.in/press-releases.htm?dtl/27118/Joint_dedication_of_the_Petrapole_Integrated_Check_Post_ICP

Ministry of External Affairs. (2019, September 18). Transcript of Press Conference by External Affairs Minister on 100 days of Government (September 17, 2019) [Press release]. Retrieved from https://www.mea.gov.in/media-briefings.htm?dtl/31833/Transcript+of+Press+Conference+by+External+Affairs+Minister+on+100+days+of+Government+September+17+2019

Ministry of External Affairs. (2021, February 15). Lecture by External Affairs Minister on Act East Policy and India-Japan cooperation in North East India with a special focus on Assam [Speech]. Retrieved from https://www.mea.gov.in/Speeches-Statements.htm?dtl/33523/Lecture_by_External_Affairs_Minister_on_Act_East_Policy_and_IndiaJapan_cooperation_in_North_East_India_with_a_special_focus_on_Assam

Ministry of Health and Family Welfare. (2020, March 14). Restriction of international passenger traffic through Land Check Posts in view of the spread of Covid-19 (Office Memorandum no. 25022/12/2017-lmm). Retrieved from https://www.mohfw.gov.in/pdf/NewinstructionsDt14032020Restirctiononinternationalpassengertraffic.pdf

Ministry of Home Affairs. (2004). Annual Report 2003–04. Retrieved from https://www.mha.gov.in/documents/annual-reports

Ministry of Home Affairs. (2008). Annual Report 2007–08. Retrieved from https://www.mha.gov.in/documents/annual-reports

Ministry of Home Affairs. (2009). Annual Report 2008–09. Retrieved from https://www.mha.gov.in/documents/annual-reports

Ministry of Home Affairs. (2011). Annual Report 2010–11. Retrieved from https://www.mha.gov.in/documents/annual-reports

Ministry of Home Affairs. (2012). Annual Report 2011–12. Retrieved from https://www.mha.gov.in/documents/annual-reports

Ministry of Home Affairs. (2013). Annual Report 2012–13. Retrieved from https://www.mha.gov.in/documents/annual-reports

National Committee on Trade Facilitation. (2020). Implementation of the Trade Facilitation Agreement: National Trade Facilitation Action Plan 2020–23. Retrieved from https://www.cbic.gov.in/resources//htdocs-cbec/implmntin-trade-facilitation/NTFAP2020-23jk.pdf;jsessionid=47DB608F30BBA17D412EE05FBEB949D7

National Transport Development Policy Committee. (2014). ‘Promoting International Transport Connectivity Between India And the South and South East Asia Regions’. In India Transport Report: Moving India to 2032 (p. 593). New Delhi: Routledge. Retrieved from http://niti.gov.in/planningcommission.gov.in/docs/reports/genrep/NTDPC_Vol_02.pdf

Nepal Intermodal Transport Development Board. (n.d.). Birgunj ICP. Retrieved from http://nitdb.gov.np/wp-content/uploads/2018/05/Details-of-Birgunj-ICP.pdf

Noyon, A.U. (2020, July 5). Bangladesh India trade relations under strain. The Business Standard. Retrieved September 10, 2020, from https://tbsnews.net/economy/trade/bangladesh-india-trade-relations-under-strain-102277

Pandher, S. (2012, April 11). Attari Integrated Check Post to open for trade on Friday. The Hindu. Retrieved September 24, 2020, from https://www.thehindu.com/news/national/attari-integrated-check-post-to-open-for-trade-on-friday/article3304431.ece

Petrapole-Benapole ICP to be run 24 hours (2017, August 1). The Hindu. Retrieved October 20, 2020, from https://www.thehindu.com/business/Economy/petrapole-benapole-icp-to-be-run-24-hours/article19401527.ece

Press Information Bureau. (2017, March 6). Cabinet approves India’s accession to the Customs Convention on International Transport of Goods under cover of TIR Carnets (TIR Convention) [Press Release]. Retrieved from https://pib.gov.in/PressReleseDetail.aspx?PRID=1483815

Press Information Bureau. (2020, July 16). Union Shipping Minister flags off first container ship from Kolkata Port to Agartala via Chattogram port [Press Release]. Retrieved from https://pib.gov.in/Pressreleaseshare.aspx?PRID=1639055#:~:text=Union%20Shipping%20Minister%20flags%20off,to%20Agartala%20via%20Chattogram%20port&text=Union%20Minister%20of%20State%20for,Bangladesh%2C%20in%20a%20virtual%20ceremony.

Raja, S. (2020, August 13). Storage space fills up with overdue import at Benapole port. Dhaka Tribune. Retrieved October 20, 2020, from https://www.dhakatribune.com/bangladesh/nation/2020/08/13/storage-space-fills-up-with-overdue-import-at-benapole-port

Raja, S. (2020, October 16a). Indian truck parking syndicates impede imports at Benapole. Dhaka Tribune. Retrieved October 20, 2020, from https://www.dhakatribune.com/bangladesh/nation/2020/10/16/indian-truck-parking-syndicates-impede-imports-at-benapole

Resendiz, J. (2019, September 30). CBP, Mexico takes steps to speed up border trade at Laredo ports of entry. Border Report. Retrieved December 4, 2020, from https://www.borderreport.com/border-report-tour/cbp-mexico-take-steps-to-speed-up-border-trade-at-laredo/

Reuters. (2017, June 16). Nepal’s colonial-era rail link slowly chugs back to life. The Wire. Retrieved October 3, 2020, from https://thewire.in/external-affairs/nepal-colonial-era-rail-link

Roche, E. (2020, August 17). India, Nepal need to speed up implementation of projects in the Himalayan region. LiveMint. Retrieved September 20, 2020, from https://www.livemint.com/news/india/india-nepal-to-speed-up-implementation-of-projects-in-himalayan-nation-11597669632498.html

Roche, E. (2020, November 13a). India, Nepal Launch Construction of Third Integrated Check Post. LiveMint. Retrieved January 21, 2020, from https://www.livemint.com/news/india/india-nepal-launch-construction-of-third-integrated-check-post-11605277418383.html

Samom, S. (2018, August 9). India–Myanmar border land road formally opened. Hindustan Times. Retrieved from https://www.hindustantimes.com/india-news/new-friendship-bridge-that-connects-india-with-myanmar-opens/story-VFkwUpth7wV9uq5KidfotI.html

Sanyal, S. (2018, March 12). Integrated check post near Agartala to be commissioned shortly. The Hindu Business Line. Retrieved from https://www.thehindubusinessline.com/economy/logistics/integrated-check-post-near-agartala-to-be-commissioned-shortly/article23104445.ece

Sinha, R., & Sareen, N. (2020). India’s limited trade connectivity with South Asia. New Delhi: Brookings Institution India Centre. Retrieved from https://www.brookings.edu/wp-content/uploads/2020/05/Trade-Policy-Brief.pdf

Sinha, R. & Sharma, B. (2020). Travel South Asia: India’s Tourism Connectivity with the Region. New Delhi: Brookings Institution India Centre. Retrieved from https://www.brookings.edu/research/travel-south-asia-indias-tourism-connectivity-with-the-region/

Sinha, S., Hussain, A., Sinha, R., Chakraborty, S., & Malik, A. (2016). Bridging Infrastructural Deficits at Select Trade Ports in India. New Delhi, India: Bureau of Research on Industry and Economic Fundamentals. Retrieved from https://www.briefindia.com/wp-content/uploads/2017/05/Bridging-Infrastructural-Deficits.pdf

Sood, R. (2018, April 11). A new beginning with Nepal. The Hindu. Retrieved December 4, 2020, from https://www.thehindu.com/opinion/lead/a-new-beginning-with-nepal/article23496223.ece

Suneja, K. (2019, February 17). India hikes customs duty to 200 per cent on all goods imported from Pakistan. Economic Times. Retrieved October 26, 2020, from https://economictimes.indiatimes.com/news/economy/policy/india-hikes-customs-duty-to-200-pc-on-all-goods-imported-from-pakistan/articleshow/68026919.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Taneja, N., Prakash, S., Bimal, S., Garg, S., & Roy, R. (2019). Strengthening India-Nepal economic relations. New Delhi: Indian Council for Research on International Economic Relations. Retrieved from http://icrier.org/pdf/Working_Paper_381.pdf

Texas Department of Transportation. (2019, January). Texas border district trade transportation activities. Retrieved from https://ftp.txdot.gov/pub/txdot/move-texas-freight/studies/border-activities-report.pdf

The World Bank. (2013). Project Appraisal Document: South Asia: Nepal India regional trade and transport project. Retrieved from http://documents1.worldbank.org/curated/pt/801711468306290657/pdf/781990PAD0P144010Box377322B00OUO090.pdf

Tripura Tourism Development Corporation Limited (TTDCL). (2020, January 20). Short notice quotation for selection of vendor for construction of tourist information centre at arrival lounge of Integrated Check Post at Akhaura, Agartala during the year 2019–20. Retrieved from https://tripura.gov.in/sites/default/files/20200120-Construction-TIC-AkhauraICP.pdf

United Nations Conference on Trade and Development. (2019). The Time Cost Distance Model. [PowerPoint Slides]. UNCTAD. https://unctad.org/system/files/non-official-document/aldc2019_ethiopia_servicestrade_Valentine3_UNCTAD_en.pdf

Uribe, M.O. (2012, October 29). NAFTA’s promise slowed by lack of border infrastructure. Marketplace. Market Place. Retrieved from https://www.marketplace.org/2012/10/29/naftas-promise-slowed-lack-border-infrastructure/

U.S. Customs and Border Protection. (2018, October 5). CBP to Launch Awareness Campaign for Ready Lane at South Texas Ports of Entry. Retrieved from https://www.cbp.gov/newsroom/local-media-release/cbp-launch-awareness-campaign-ready-lane-south-texas-ports-entry

US Customs and Border Protection. (2018, September 28a). U.S. CBP and Mexico SAT announce Unified Cargo Processing at the El Paso port of entry. Retrieved from https://www.cbp.gov/newsroom/local-media-release/us-cbp-and-mexico-sat-announce-unified-cargo-processing-el-paso-port

US Customs and Border Protection. (n.d.). Securing and Facilitating Trade in North America. UCBP, US Department of Homeland Security. Retrieved from https://www.cbp.gov/border-security/ports-entry/cargo-security/c-tpat-customs-trade-partnership-against-terrorism/mutual-recognition/aeo-programs/

Xavier, C. (2020). Sambandh as strategy: India’s new approach to regional connectivity. New Delhi, India: Brookings Institution India Centre. Retrieved from https://www.brookings.edu/wp-content/uploads/2020/01/India%E2%80%99s-New-Approach-to-Regional-Connectivity-V3_M.pdf

Xavier, C., & Sinha, R. (2020). ‘Regional Connectivity and India’s BIMSTEC Policy’. National Security, III(1), 34–51. Retrieved from https://www.vifindia.org/sites/default/files/national-security-vol-3-issue-1-article-CXRS.pdf

The post Linking Land Borders: India’s Integrated Check Posts first appeared on CSEP.

DOWNLOADS

• Download the Working Paper

Executive Summary

India responded to Covid-19 as soon as it was becoming clear that a pandemic was in the offing. The government imposed a sudden nationwide total lockdown on March 25, 2020. This lasted until end of May 2020 and was then lifted in phases subsequently. The country suffered a severe economic contraction with GDP estimated to have fallen by 24% in Q1 FY 2021 and by 7.3% in FY 2020-21 as a whole. The policy response to the economic impact of both the pandemic and the consequent lockdown was the usual mix of fiscal, monetary and financial measures, but relatively light on fiscal measures. At 2-2.5% of GDP, India’s stimulus spending has been at the lower end amongst emerging markets.

This paper discusses the role of Reserve Bank of India (RBI) in India’s fight against the pandemic. It documents the various policies undertaken by the RBI in its capacity as the monetary authority, lead financial system regulator and supervisor of financial intermediaries, banker to and debt manager of the central and state governments, currency issuer and manager, and regulator and operator of the payment and settlement system. The paper also decodes numerous policy instruments at the disposal of RBI and effectiveness of measures such as the credit enhancement schemes, and loan moratoriums which may not have had the desired effects.

As the monetary authority, the Monetary Policy Committee (MPC) laid a triple objective of mitigating negative effects of the virus, reviving growth and preserving financial stability. To ease economic hardship while keeping inflation in check, the RBI slashed interest rates keeping the policy repo rate at a low of 4%. The cash reserve ratio (CRR) was lowered, which provided additional liquidity to help aid banking system. The goal was to ensure that no part of the financial system faced liquidity concerns or credit constraints.

To tide over the pandemic, it was paramount for government and the central bank policies to work in tandem. To ensure that governments did not have to cut their spending due to shortfalls in revenue, RBI needed to enable both central and state government to borrow adequately in debt markets. As a banker to the central and state governments, the limit on ways and means advances for both central and state government were increased. Aside from this, through open market operations, RBI purchased about 30% of central government’s net market borrowings in FY 2021 and has committed to continue to purchase substantial amounts in FY 2022 through the G-sec Acquisition Programme. Special OMOs – through Operation Twist (OT) involving the simultaneous purchasing of long-term government securities and selling corresponding short-term securities of similar amounts in a liquidity neutral fashion, have lowered long-term yield and smoothened the curve. The Reserve Bank was successful in managing the large government borrowing in FY 2021 at a weighted average borrowing cost for the central government, at just 5.79%, the lowest in 16 years.

As regulator of the banking system, it is crucial that the interests of both borrowers and lenders are aligned to ensure stability of the financial system. A host of measures were put in place to help in the continued smooth functioning of financial intermediaries including banks and NBFCs. On the one hand, these policy measures were aimed at protecting and helping borrowers in this time of economic and financial stress brought on by the pandemic and the consequent lockdowns. On the other hand, measures were also put in place to provide regulatory relief to financial intermediaries in terms of their access to liquidity and regulatory forbearance to protect their balance sheets. The overall aim was to keep credit flowing despite all the disruptions being experienced by the economy and financial markets.

Overall, the RBI, in cooperation with the Government of India, has succeeded in achieving its broad objective of keeping financial intermediaries, financial markets and the financial system as a whole sound, liquid, and functioning smoothly. It has maintained financial stability despite initial conditions of the Indian financial intermediaries being stressed as a consequence of legacy problems. But very significant challenges remain as this crisis unfolds further in both India and the rest of the world. It has also protected households as well as small and large businesses from experiencing acute financial stress for the time being, but stresses will emerge once regulatory forbearance is lifted.

Transmission of the highly accommodative monetary policy, and the corresponding liquidity management, has been largely successful. Interest rates have fallen across the board and g-sec yields are at almost record lows, with most real interest rates now being in negative territory. However, the RBI’s liquidity injection has been so large that there was an almost consistent systemic liquidity surplus of about Rs 6 trillion (about 3% of GDP) that needed to be absorbed by the RBI on a daily basis.

However, despite all the measures implemented to promote the flow of credit to all segments of the market, credit growth has continued to be sluggish except for a significant increase to the SMSE sector. Hence there is a mismatch between the performance of the real sector and financial markets. This could potentially lead to enhanced stresses experienced by both lenders and borrowers, leading to potential financial instability. Thus, financial stability challenges remain for the Indian financial system and its regulator in the months to come.

India responded to Covid-19 as soon as it was becoming clear that a pandemic was in the offing. Although there were only 500 confirmed cases at that time, the government imposed a sudden nationwide total lockdown on March 25, 2020. This lasted until end of May 2020 and was then lifted in phases subsequently. In the words of the government’s official Economic Survey, “India focused on saving lives and livelihoods by its willingness to take short-term pain for long-term gain” (Government of India 2021: 1). The short-term pain was indeed palpable, with GDP estimated to have contracted by 24.4 % year-on-year in Q1 FY 2021,[1] followed by a further contraction of 7.3 % year-on-year in Q2, and a faint recovery of 0.4 % year-on-year in Q3. The full FY 2020–21 GDP is estimated to have contracted by 8.0%, which has come on top of an ongoing economic slowdown over the previous eight quarters or so. The current expectation of most forecasters is that the Indian economy will stage a robust recovery and grow by 10–12.5% in FY 22.[2] Thus, overall, the economic cost of Covid-19 will be around two years of GDP growth and as yet indeterminate losses in employment and livelihoods.

In terms of lives, India has fared much better than the West, with about 120 deaths per million and fewer than 9,000 cases per million (as of March 31, 2021),[3] compared with the United States recording around 1,700 deaths per million and over 90,000 cases per million. However, the Indian record is a not as good as that of much of Asia, and similar but slightly worse than the rest of South Asia. Given the low levels of income in the country and high density of settlements, both urban and rural, India has been lucky to have not experienced a worse disease outcome. Looking to the future, possessing the highest vaccine production capacity in the world, India is potentially well-placed to implement a successful mass vaccination programme by the end of 2021, but the speed of vaccinations has faltered. So this will need more urgent and faster systematic implementation in light of the new wave now being experienced by India (in mid-April 2021).

The policy response to the economic impact of both the pandemic and the consequent lockdown was the usual mix of fiscal, monetary and financial measures, but relatively light on fiscal measures, which were largely focused on cushioning the impact on the poor and on tiny and small businesses. “This included direct food transfers to the poor and vulnerable, livelihood programmes, guarantees and liquidity enhancing measures” (Government of India 2021: 20). The additional fiscal stimulus was in the range of only about 2–2.5 % of GDP, which is at the lower end of the spectrum for emerging market economies (EMEs). The government of India has been very mindful of the need to preserve its fiscal firepower in view of its already extended fiscal situation,[4] and the uncertainty surrounding the length of time that the pandemic will affect the world and India. Consequently, much of the burden of policy measures has rested on active cooperation between the government and the Reserve Bank of India (RBI) in ensuring that the economy and the financial system remained stable and liquid. They have largely succeeded in achieving this broad objective, at least in the short term: financial markets have exhibited significant stability, with no lack of liquidity, inflation has been range bound between 4.1 % and 7.6 % over the year,[5] and financial institutions have remained viable as a consequence of the various policy measures taken.

This paper focuses on the specific measures taken by the Reserve Bank in this context.

At the beginning of the pandemic, starting in March 2020, as lockdowns spread across the world, the expectations of the RBI, along with most other leading central banks, were of a severe economic dislocation, the possible freezing of financial markets, widespread suffering of households and businesses, with their inevitable impact on financial intermediaries, along with a severe downturn in global trade. Judging from previous experience, emerging markets, including India, also faced the spectre of capital outflow with its associated impact on asset price volatility and financial stability. As the initial severe lockdowns had their expected economic impact, including in India, the negative economic expectations were reinforced by indices such as the global manufacturing Purchasing Managers Index (PMI) exhibiting its lowest level in April 2020 since 2008– 09, along with the services PMI being at its lowest level ever, and global trade was falling substantially.

With the experience of the 2008–09 North Atlantic Financial Crisis (NAFC) still relatively fresh in the minds of macro managers, fiscal and monetary authorities, along with financial regulators, were ready to use all instruments at their command to avert the then expected financial and economic disaster. Central banks, in particular, were well equipped to pull out all the stops.

In India, with the possibility of a relatively constrained fiscal response, the RBI had to do much of the heavy lifting. The RBI is a full-service central bank as the monetary authority, lead financial system regulator and supervisor of financial intermediaries, banker to and debt manager of the central and state governments, currency issuer and manager, and regulator and operator of the payment and settlement system. Its policy actions since February 2020 have therefore encompassed all these areas and have had the benefit of being coordinated. It has carried out more policy actions than any other EME central banks (Cantu et al. 2021)

A perusal of the various documents issued by the RBI since February 2020 provides the broad objectives that it desired to achieve through its policy measures. Its multiple objectives included:

• Minimise the adverse macroeconomic impact of the Covid-19 pandemic and the associated lockdowns
• Enhance effective transmission of monetary policy
  • Ensure smooth and seamless transmission of monetary policy impulses
• Preserve financial stability
  • Prevent financial markets from freezing up
    • Maintain orderly functioning of financial markets and financial institutions
    • Provision of adequate system level as well as targeted liquidity
  • Keep the financial system and financial markets sound, liquid and smoothly functioning so that finance keeps flowing to all stakeholders
    • Ensure normal functioning of financial intermediaries to facilitate flow of funds at affordable rates and rekindle investment impulses
    • Sustain bank credit flows on easy terms
    • Ensure access to finance for all, especially the sectors which were hit the hardest
  • Ease financial strains on both households and businesses
  • Facilitate trade, both exports and imports, through easy availability of credit and payment services
    • Facilitate the completion of the enhanced market borrowing programmes of both the central and state governments in a non-disruptive manner
      • Ensure an orderly evolution of the yield curve
    • Ensure the orderly and smooth functioning of the payment and settlement systems, at both retail and wholesale levels
    • Maintain smooth and regular flow of currency across the country

In accordance with these objectives, in cooperation with the government, the RBI implemented a plethora of policy changes throughout the year starting in March 2020. Some were at a general, macro level, while some others were at a micro level and detailed. An almost full chronology is provided in the table in the Annex. They can be grouped into four broad categories, though some were not easy to classify:

• Monetary policy
• Liquidity management and special credit facilities
• Fiscal cooperation
• Regulatory measures

The Reserve Bank is a ‘flexible inflation targetter’^[6] and its operational monetary policy signalling rate is the repo rate – the rate at which it lends to commercial banks on a collateralised basis through its Liquidity Adjustment Facility (LAF). The operating target of monetary policy is the weighted average call rate (WACR), which reflects the rate at which transactions are conducted in the unsecured segment of the overnight money market. The LAF attempts to maintain an interest-rate corridor between the interest rate of the Marginal Standing Facility (MSF) as the upper bound, and the fixed reverse repo rate as the lower bound, with the policy repo rate in between (RBI 2021c: 122). The fixed rate reverse repo and MSF of overnight tenor are conducted every day between 9am and midnight. The 14-day variable rate repo/reverse repo is conducted on a fortnightly basis based on assessment of liquidity conditions by the Reserve Bank.^[7] The objective of the liquidity operations is to align the WACR with the repo rate. Prior to Covid, the LAF interest-rate corridor was kept relatively narrow at 50 basis points.

The RBI acted very quickly in March 2020 and convened the Monetary Policy Committee (MPC) on March 24, a week earlier than its previously scheduled date. The decisions taken were intended to “(a) mitigate the negative effects of the virus; (b) the revive growth; and above all, (c) preserve financial stability” (RBI 2020a). Starting from the aggressive policy actions taken in this meeting, the RBI reduced the policy repo rate from 5.15% to 4.0% over the year. This was done in two stages: first a reduction of 75 basis points to 4.40% on March 27, 2020 and then another 40 basis points on May 22, 2020. The rate has been stable since then. Correspondingly, the MSF rate has been reduced from 5.40% to 4.25%, and the reverse repo rate somewhat more by 155 basis points from 4.9% to 3.35%. Thus, the monetary policy interest-rate corridor has been expanded significantly from 50 basis points to 90 basis points (Figure 1). Although inflation was higher than the RBI’s tolerance band through much of 2020, it is now back within the policy range.

Other policy actions were taken simultaneously in March 2020 to provide banks increased access to funds and aid their lending. The cash reserve ratio (CRR) for banks was reduced by 100 basis points from 4% to 3% of their net demand and time liabilities (NDTL) for a period of one year. This had the effect of providing additional primary liquidity of Rs 1.37 trillion[8] to the banking system. Some other technical accommodations were also given to banks in their daily compliance with the CRR regulation. CRR exemptions were also provided aimed at incentivising lending to micro, small and medium-sized enterprises. In addition, banks were also allowed a potential increase in the limits available for accessing the MSF from 2% to 3% of the NDTL. This provided a further increase in banks’ potential access to funds by another Rs 1.37 trillion. However, this facility has seen very little usage in view of the other liquidity actions taken by the RBI. In view of the abundant liquidity available in the system, it has now been announced that the CRR will be restored to its earlier value of 4% by end-May 2021.

Although the RBI is some distance away from nominal negative rates, its real policy rates were in negative territory through much of 2020 and beyond because of elevated inflation levels. This has been transmitted to both bank deposit and lending rates, and the money market target rates (WACR) as well. The real yield on risk-free ten-year government securities were also negative through much of 2020. Thus, in view of the relatively higher inflation rates prevalent in India (and other EMEs), while the central bank has not had to resort to nominal negative policy rates, its highly accommodative monetary policy has indeed resulted in significant real negative rates (Figure 2 and Table 1).

Going forward, the RBI will need to constantly assess the consequences of such a prolonged period of real negative interest rates and high liquidity provision on inflation and financial stability; on household savings;[9] and possible bursting of asset bubbles. It should be of interest to compare the magnitude of real policy rates between advanced and emerging market economies, and their consequences as they unfold.

Forward guidance

For the first time, perhaps, the RBI engaged in some degree of forward guidance. “FG gained prominence in the Reserve Bank’s communication strategy to support the accommodative stance of the Monetary Policy Committee (MPC)” (RBI 2021d: 48). The nature of this forward guidance was repeated assurance to financial markets that the policy stance would remain accommodative until the revival of growth. As announced by the MPC in October 2020, it would “continue with the accommodative stance as long as necessary – at least during the current financial year and into the next financial year – to revive growth on a durable basis and mitigate the impact of Covid-19 on the economy while ensuring that inflation remains within the target going forward” (RBI 2021d: 48). The accommodative stance continued in the recent MPC meeting held in April 2021, with a stronger assurance that the RBI will do “whatever it takes”[10] in the wake of continued Covid threats. Repeated assurances have also been given that the RBI would maintain comfortable liquidity conditions, financial stability and an orderly yield curve. These statements have been interpreted by the RBI as constituting “explicit time contingent and state contingent forward guidance” (RBI 2021d: 51), even though they are perhaps not as explicit as the forward guidance employed by some other advanced economy central banks. Since real GDP growth is expected to recover to 10%+ levels in FY 2022, this forward guidance can be interpreted to be somewhat ambiguous.

As already mentioned, the RBI performs active liquidity management on a daily basis through the operations of the LAF. These operations were enhanced significantly through the introduction of long-term repo operations (LTROs) in February/March 2020 for one year and three-year tenors “to support monetary transmission and augment credit flows to productive sectors” (RBI 2020e: 69), similar to the operations by the European Central Bank (ECB). Since the rate was linked to the policy repo rate, these resources were available to banks at a rate lower than prevailing market rates as well as banks’ own deposit costs. This was designed to facilitate monetary policy transmission and to support credit offtake. LTRO auctions were held amounting to Rs 1.25 trillion. As market rates went down over time, almost all the funds were returned to the RBI by September 2020.

Further liquidity facilities were provided through two targeted long-term repo operations (TLTRO 1.0 and 2.0) of up to three years tenor at the floating rate linked to the policy repo rate. Lending through this facility was targeted for banks to invest in specified instruments such as investment-grade corporate bonds, commercial paper (CP) and the like. The introduction of this facility was a response to some tightening observed in financial conditions consequent to sell-off pressures in financial markets arising from the initial reactions to the outbreak of the pandemic. TLTRO facilities were therefore designed to address the “sharp spikes in risk premium on corporate bonds, CPs and debentures dried up trading activity resulting in market liquidity” (RBI 2021d: 47). Subsequent TLTROs were introduced to provide relief to the small and mid-sized corporates, non-bank financial institutions (NBFCs), and micro finance institutions (MFIs). Later, in October 2020, the TLTRO facility was made on an on-tap basis up to end-March 2021; and in December 2020 an additional 26 sectors adjudged to be “stressed sectors” were made eligible to receive funds under the scheme. Investments made by banks under this facility can be classified as held to maturity (HTM) even above the 25% of total investment permitted to be included in the HTM portfolio. Four TLTRO auctions were held initially amounting to just over Rs 1 trillion. TLTRO 2.0 attracted lukewarm demand in view of ample liquidity in the system. TLTRO 2.0 has been extended till September 2021 at a recently held MPC meeting in April 2021.

India has a number of sectoral development finance institutions: the Small Industries Development Bank of India (SIDBI), the National Housing Bank (NHB), the National Bank for Agriculture and Rural Development (NABARD) and the Export–Import Bank (EXIM Bank). Special refinancing facilities were provided at the policy repo rate to each of these institutions, amounting to an aggregate of Rs 750 billion, to relieve their liquidity stress and to enable them to extend credit at low rates in their respective sectors. Less than half of the potential liquidity provided has been used. This facility has been extended for the financial year 2021-22 with Rs 500 billion.

The overall objective therefore was to make sure that no part of the financial system faced any difficulty in accessing funds during this whole Covid period. The total potential liquidity injection amounted to Rs 13.6 trillion, about 6.9% of GDP, by March 31, 2021 (Table 2). The liquidity operations were a combination of market liquidity provisions supplemented by targeted ones in terms of both specified instruments and sectors.

Ways and means advances

As their banker, the Reserve Bank of India provides a facility of Ways and Means Advances (WMA) to the government of India and to state governments to help them tide over temporary mismatches in the cash flow of their receipts and payments. These advances are usually given at 2% above the repo rate, up to a specified limit announced every six months, and are repayable in each case in 90 days. In other words, this is an overdraft facility available to both the central and state governments.

In view of the nationwide lockdown imposed in late March 2020 and the consequent disruption in financial markets and in tax receipts, the WMA limit for the central government was increased from the initial Rs 1.2 trillion to Rs 2 trillion for the first half of FY 2021. The corresponding limit for the first half of FY 2020 had been Rs 750 billion.

Similarly, the limit for state governments was increased in stages by 60%, and extended to the second half of FY 2021. These measures did much to reduce the cash flow problems then being faced by both the central and state governments.

Asset purchases

The Reserve Bank is the debt manager for both the central and state governments. In principle, it acts as the front and back office of a conventional government debt office. The Ministry of Finance itself is formally the middle office. Since 2003, after the enactment of the Fiscal Responsibility and Budget Management Act, the RBI is no longer allowed by law to participate in the government securities primary market, except in very exceptional circumstances. Although some countries did choose this route as a consequence of Covid-induced fiscal stresses, and despite many pressures, the government of India and the RBI eschewed that route for financing the much-increased borrowing requirements of the government.

The RBI did, however, maintain an active programme of asset purchases of government securities in the secondary market through its open market operations (OMOs) amounting to about Rs 3.13 trillion, about 1.5% of GDP, through FY 2021. This accounted for about 30% of the central government’s total net market borrowings of about Rs 10.5 trillion. The RBI does not normally conduct OMOs in state government securities (known as State Development Loans, or SDLs). Because of the increased risk perception due to Covid, yields on SDLs started rising, so the RBI has also been conducting special OMOs in SDLs in order to help the state government market borrowing programmes and to constrain market SDL yields from rising.

In April 2021, the RBI put in place a secondary market government security (G-sec) acquisition programme (GSAP) with an upfront commitment to a specific amount of open market purchases of government securities to enable a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions.

Operation twist

Starting in December 2019, and continuing to the present, the RBI has been conducting special OMOs—through Operation Twist (OT)—involving the simultaneous purchasing of long-term government securities and selling corresponding short-term securities of similar amounts in a liquidity neutral fashion. “These operations were aimed at compressing the term premium and reducing the steepness of the yield curve. Moderation in the long-term risk free (g-sec) rates, in turn, gets reflected in other financial market instruments that are priced off the g-sec rate, thereby improving monetary transmission” (RBI 2021d: 48). The RBI conducted 19 such operations, usually of Rs 100 billion each, during 2020-21, amounting to a total of just over Rs 2 trillion.

As a consequence of all these measures, and as the debt manager of the government, the RBI succeeded in managing the highest ever level of the government’s market borrowing programme. The weighted average borrowing cost for the central government, at 5.79% during 2020-21, was at a 16-year low. The comparable cost in the previous year was 6.84%. The weighted average maturity of the stock of public debt is also at its highest level ever (RBI 2020i).

Corporate bond spreads also narrowed considerably across the maturity spectrum and rating categories and have reached pre-Covid levels. Moreover, in view of the lower rates, corporate bond issuance in the April to February period of FY 2021 exceeded that in the previous year’s comparable period by about 20%. The reduction in rates was across the board in all financial markets, including other instruments such as commercial paper (Table 3). This could give rise to financial stability issues if there is an increase in bond defaults consequent to lower-than-expected economic recovery.

Overall, although the RBI avoided direct funding of the substantially enhanced fiscal deficits of both the central and state governments, its multiple actions—encompassing much increased Ways and Means Advances, large asset purchases, a sizeable Operation Twist programme and occasional devolvement of bond auctions on primary dealers—amounted to substantial cooperation with the fiscal authorities. Its objective was clearly to successfully manage the government’s very large market borrowing programme while keeping borrowing costs low. The yield on ten-year g-secs was 6.5% at the beginning of FY 2021 and ended the fiscal year (March 2021) at 6.18%, averaging just under 6% (See Figure 3).The moderation of interest rates across the whole yield curve, including in particular the long-term rates, reduced the cost of borrowing for the government substantially. “Moderation of long term rates, in turn, softened interest rates across the spectrum of instruments and issuer category, which rekindled market activity and restored normalcy while maintaining financial stability”. (RBI 2021d: 50). This operation was made much easier thanks to the RBI’s role as debt manager of the government.

The possibility of increasing inflation in both India and the rest of the world, leading to potential hardening of US Treasury yields, will clearly challenge the RBI’s yield control objectives in the coming months.

Along with the extensive measures enacted by the RBI in terms of monetary policy, liquidity management and fiscal cooperation, a host of measures were put in place to help in the continued smooth functioning of financial intermediaries including banks and NBFCs. On the one hand, these policy measures were aimed at protecting and helping borrowers in this time of economic and financial stress brought on by the pandemic and the consequent lockdowns. On the other hand, measures were also put in place to provide regulatory relief to financial intermediaries in terms of their access to liquidity and regulatory forbearance to protect their balance sheets. The overall aim was to keep credit flowing despite all the disruptions being experienced by the economy and financial markets.

“These policy actions, which in the initial phase of pandemic, were geared towards restoring normal functioning and mitigating stress, are now getting increasingly oriented towards supporting the recovery and preserving the solvency of businesses and households” (RBI 2021a: 1). The emphasis now is to help the financial system to return to some degree of normalcy, while aiding the most affected sectors to recover from the crisis.

Credit enhancement measures

Taking cognisance of the total and sudden lockdown imposed by the government, right at the outset the RBI put in place a moratorium on the payment of instalments on all term loans that were standard prior to Covid. Similarly, payment of interest on working capital facilities was also deferred – banks were allowed to turn these into term loans. These measures were designed to provide temporary relief to borrowers facing liquidity stress due to the pandemic and also to provide banks with flexibility to deal with such borrowers.

Initially these moratoriums were allowed for a period of three months and then extended until August 31, 2020. The cessation of the moratoriums was stayed by the Supreme Court of India in early September. That stay has now been lifted in late March 2021, so the non-payment of instalments between September 2020 and now is in a state of limbo. Whereas regulatory forbearance was given to the banks for non-payment of instalments by borrowers during the moratorium, they will now[11] have to be classified as per the income recognition and asset classification norms after August 31. The Supreme Court has also prohibited the charging of interest on interest during the moratorium period.

A number of measures were also enacted to promote the extension of credit to micro, small and medium-sized enterprises (MSMEs). These include the extension of credit guarantees from the government to financial intermediaries for MSME lending,[12] some regulatory forbearance on classification of MSME stressed assets, and macroprudential regulations related to risk rates on MSME loans. There has been a general perception that MSMEs have been hit harder by the Covid crisis; hence these special measures to keep credit flowing to them.

In order to protect banks from excessive concentration of risk in exposure to a group of connected borrowers, the RBI places limits on such exposures. The existing limit was 25% of the eligible capital base of the bank. In view of difficulties faced by some large borrowers in accessing credit, this limit was raised to 30% to facilitate the flow of resources to such large corporate entities.

In order to preserve bank capital to encourage credit flow banks have been prohibited from giving any dividend payouts to the shareholders for FY 2020. 

Regulatory forbearance

It was expected that the unfolding of the pandemic and its associated economic impact on the overall macroeconomic environment would have a negative effect on the asset quality, capital adequacy and profitability of financial intermediaries, including banks. The unprecedented injection of abundant liquidity into the system, accompanied by the lowering of interest rates, helped to cushion financial institutions from the worst impact of the crisis. It was also felt necessary to buttress these systemic measures with corresponding regulatory forbearance. The general principle governing the new forbearance measures was that they would apply only to new stressed assets arising on account of Covid, and not to the legacy nonperforming assets (NPAs).

The Indian banking system has been under significant stress due to the accumulation of a large amount of NPAs over the last decade or so. Various policies and measures have been put in place for the resolution of these stressed assets over the last five years or so. The RBI had introduced a principle-based resolution framework for addressing borrower defaults under a normal scenario in June 2019 (RBI 2019). The outbreak of the pandemic led to new fears over the appearance of a significant financial stress among a number of borrowers who otherwise had a good track record, which could then lead to difficulties in their long-term viability. This could give rise to new financial stability risks.

The RBI felt that it would be helpful to allow lenders to implement resolution plans for such borrowers while keeping their loans in standard classification. It has therefore introduced a new resolution framework for such borrowers, “with the intent to facilitate revival of real sector activities and mitigate the impact on the ultimate borrowers” (RBI 2020d: 3). Covid-related stressed sectors were then identified for eligibility for the scheme by an RBI committee (RBI 2020h). These resolution plans are also available to NBFCs in addition to commercial banks. Forbearance was also extended through another scheme for restructuring needed by MSME borrowers facing stress the pandemic.

The RBI mandates a ‘statutory liquidity ratio’ (SLR) by which commercial banks have to hold a minimum percentage of their assets in government securities. This ratio is currently mandated to be 18% of their NDTL. Securities held under this mandate are given ‘held- to-maturity’ (HTM) status, protecting banks from losses that could occur from market- to-market valuation arising from increases in yields. In view of the enhanced government market borrowing programme, the HTM ratio has been increased from 19.5% of NDTL to 22%, allowing banks to hold a larger proportion of government securities while shielding them from potential losses leading to financial stability risks. In fact, however, banks’ portfolios of government securities now amount to about 30% of NDTL, thereby placing them under significant risk in the event of g-sec market yields rising.

The implementation of the last tranche of 0.625% of the capital conservation buffer (CCB) was scheduled to take effect from April 2020. This was first deferred to April 2021, and then again to October 2021, in order to “aid in the recovery process” from Covid-induced stress (RBI 2021b).

Macroprudential measures

In the couple of years preceding the 2008-09 North Atlantic Financial Crisis (NAFC), the RBI had undertaken various macroprudential measures in the interest of preserving financial stability. Having had this positive experience, the RBI has once again put in place a few macroprudential measures in the light of Covid.

As prescribed by existing Basel III guidelines, differential risk capital charges are applied to debt instruments held by banks directly that are lower than those applied to similar instruments held indirectly through mutual funds, since the latter are seen to have an equity element. These risk capital charges have now been harmonised with the expectation of helping the operation of the bond market (RBI 2020f).

Under Basel guidelines, a bank’s aggregate exposures included in retail portfolios attract a lower risk weight of 75% as long as individual exposures do not exceed a specified relatively low limit. This measure helps in reducing the cost of credit to individuals and small businesses. As part of the overall strategy of enhancing the flow of credit to MSMEs, the RBI has increased the limit of aggregate exposures from Rs 500 million to Rs 750 million (RBI 2020f).

In previous episodes of potential financial instability, macroprudential measures were used to curb housing finance through the counter-cyclical increase in risk weights applicable to certain categories of housing loans. In the current situation, however, retail investment in housing has suffered a downturn following lockdowns and other Covid- induced economic disruptions. The RBI has therefore tweaked risk weights to make them more favourable for certain categories of housing loans depending on specified loan-to-value (LTV) ratios, in order to ease bank lending for housing (RBI 2020f).

The Bank for International Settlements (BIS) has compiled a database on central banks’ monetary responses to Covid-19. A perusal of the database shows that the RBI has used most of the tools and measures listed except for the purchase of private sector assets (Cantu et al. 2021: Table 1). Policy intervention by the RBI can be evaluated as relatively comprehensive and broad-based. Just like other central banks, its skills in managing such a crisis had been honed during the NAFC in 2008-09. While, unlike advanced economy central banks, it did not have to practice unconventional monetary policy at that time, it was able to learn from their practices in designing its policy response this time.

There was one dog that didn’t bark. Unlike during previous episodes of global economic and financial instability, there were no capital outflows except in the few weeks after the onset of the pandemic; in fact, the opposite took place. India has received enhanced capital flows in FY 2021, leading to significant accretion of its forex reserves through the RBI’s normal forex interventions. There were no new capital flow measures. However, going forward, in the event of hardening yields of advanced economy treasury bonds, particularly those of the United States, there could be a potential outflow necessitating substantial forex intervention à la 2008 and associated domestic liquidity measures. One positive feature of the enhanced forex flows in FY 2021 is that debt inflows, which are usually the first to exit, were negligible.

Overall, the RBI, in cooperation with the Government of India, has succeeded in achieving its overall objective of keeping financial intermediaries, financial markets and the financial system as a whole sound, liquid, and functioning smoothly. It has maintained financial stability despite initial conditions of the Indian financial intermediaries being stressed as a consequence of legacy problems. But very significant challenges remain as this crisis unfolds further, both in India and the rest of the world.

It has also protected households as well as small and large businesses from experiencing acute financial stress. It remains, however, to be seen what will happen as the impact of the lifting of the debt moratoriums starts to be felt. It is estimated that around 40% of the amount of all outstanding loans took advantage of the moratorium. MSMEs, in particular, were outliers with almost 70% of their debt being in this category, while only about a third of corporate loans used the moratorium.

Transmission of the highly accommodative monetary policy, and the corresponding liquidity management, put in place right at the beginning of the Covid crisis has been largely successful. Interest rates have fallen across the board and g-sec yields are at almost record lows, as are private sector bond market and commercial paper yields and bank deposit and lending rates (Table 4). However, the RBI’s liquidity injection has been so large that there has been an almost consistent systemic liquidity surplus of about Rs 6 trillion (about 3% of GDP) that needs to be absorbed on a daily basis. This liquidity injection is a consequence of the RBI’s aggregate domestic asset purchases of around Rs 3 trillion and forex interventions amounting to over Rs 5 trillion over FY 2021. Therefore, the target money market interest rate (WACR) has been somewhat below the reverse repo rate.

The key positive consequence of this monetary policy and liquidity management strategy has been the successful completion of the much-enhanced government borrowing programme at low cost. Corporate bond markets have also responded because of the low cost and corporate bond issuance was in fact higher than in the previous year.

However, despite all the measures implemented to promote the flow of credit to all segments of the market, credit growth has continued to be sluggish except for a significant increase to the SMSE sector (Figure 4). Hence there is a mismatch between the performance of the real sector and financial markets. This could potentially lead to enhanced stresses experienced by both lenders and borrowers, leading to potential financial instability. As estimated by the RBI’s Financial Stability Report (RBI 2021a), the gross NPA ratio of Indian commercial banks could increase to 13.5% by September 2021, as compared with 7.5% in September 2020. Thus, financial stability challenges remain for the Indian financial system and its regulator in the months to come.

Cantú, C., Cavallino, P., De Fiore, F. and Yetman, J. (2021). A Global Database on Central Banks’ Monetary Responses to Covid-19, BIS Working Paper No. 934, Bank for International Settlements.

Government of India. (2021). Economic Survey 2020-21, Volume 1 (www.indiabudget.gov. in/economicsurvey/).

Mohan, R. and Ray, P. (2019). Indian Monetary Policy in the Time of Inflation Targeting and Demonetization, Asian Economic Policy Review 14: 67-92.

Reserve Bank of India (2019), Prudential Framework for Resolution of Stressed Assets.

Reserve Bank of India (2020a), Governor’s Statement – Seventh Bi-monthly Monetary Policy Statement, 2019-20, 27 March 2020.

Reserve Bank of India. (2020b). Monetary Policy Report, April.

Reserve Bank of India. (2020c). Statement on Development and Regulatory Policies, June.

Reserve Bank of India. (2020d). Statement on Development and Regulatory Policies, August.

Reserve Bank of India. (2020e). Monetary Policy Report, October.

Reserve Bank of India. (2020f). Statement on Development and Regulatory Policies, October.

Reserve Bank of India. (2020g). Annual Report 2019-20.

Reserve Bank of India. (2020h). Report of the Expert Committee on Resolution Framework for Covid-19 Related Stress, September.

Reserve Bank of India. (2020i). Governor’s Monetary Policy Statement, December.

Reserve Bank of India. (2020j). Statement on Development and Regulatory Policies, December.

Reserve Bank of India. (2021a). Financial Stability Report, Issue No, 22, January.

Reserve Bank of India. (2021b). Statement on Development and Regulatory Policies, February.

Reserve Bank of India. (2021c). Report on Currency and Finance.

Reserve Bank of India. (2021d). Unconventional Monetary Policy in Times of Covid-19, RBI Bulletin, March, pp. 41-56.

Reserve Bank of India. (2021e). Monetary Policy Report, April.

H. Supervisory measures

• All supervised entities (SEs) were directed to implement their operational and business continuity plans for the smooth conduct of business processes in the wake of the Covid-19 pandemic.
• Special advisories were issued for management of cyber security risks with a focus on securing sensitive data such as customer and payment system data, among others.
• Reduction of compliance burden for brief period by granting flexibility in audit coverage and in furnishing supervisory data.
• All SEs were also advised to conduct stress tests to quantify and estimate the impact of Covid-19 on their financial projections so as to strengthen their capital adequacy positions accordingly.
• Companies are allowed to park the unutilised ECB proceeds in term deposits with AD Category-I banks in India for a maximum period of 12 months. This period has been extended to March 1, 2022 for ECB drawn down before March 1, 2020.

The post The Response of the Reserve Bank of India to Covid-19: Do Whatever it Takes first appeared on CSEP.

DOWNLOADS

• Download the Working Paper

Abstract

This paper introduces the concept of a Sustainable Mining Attractiveness Index to evaluate the mining sustainability in the districts of the Indian state of Jharkhand. While the state has extensive resources of coal and major minerals, it is one of the most impoverished states in the country. It ranks poorly on various metrics, including per capita gross state domestic product, the Sustainable Development Goals, the Human Development Index, and per capita power availability (despite being a major coal producer).

The National Mineral Policy 2019 emphasises the importance of environmental and social responsibility in mining, which is especially important given the numerous controversies surrounding the sector.

The Sustainable Mining Attractiveness Index, constructed for Jharkhand by the Centre for Social and Economic Progress, provides stakeholders with a holistic understanding of the potential of mineral resources-led development in the state; identifies factors that encourage and discourage mining investments; suggests government-led policy actions that enable sustainable mining jurisdictions; and provides mining companies benchmarks for guiding investment decisions.

The Index has been constructed by evaluating the 24 districts of Jharkhand based on various secondary data normalised and aggregated under five pillars: (1) mining potential and performance; (2) socio-economic status; (3) policy and governance; (4) infrastructure; and (5) environment. The scores of the five pillars have been averaged to give each district a final sustainable mining attractiveness score and rank (Index).

Dhanbad, East Singhbhum, and West Singhbhum have emerged as the top three districts. While they have performed well on mining potential and performance (ranking second, third, and first, respectively), they have not done as well on the environment and socio-economic status pillars.

Based on each district’s performance, this paper recommends policy focus areas to improve the attractiveness of these districts for sustainable mining.

Jharkhand: A mineral-rich state

The state of Jharkhand was part of Bihar until the year 2000. In November 2000, the Bihar Reorganisation Act carved out about 79,000 square kilometres (sq. km) from the erstwhile state of Bihar to form India’s twenty-eighth state, Jharkhand. Today, Jharkhand has a population of 38 million, and accounts for more than two-fifths of the mineral wealth of the country—including 27 percent of its coal resources, 26 percent of its iron-ore resources, and 18 percent of its copper ore resources (Planning-cum-Finance Department, 2020). It is the only Indian state which produces uranium, coking coal, and pyrite. It leads the country in the production of coal, mica, kyanite and copper, and produces close to one-fourth of the nation’s steel, including auto-grade categories.

Supported by Tata Motors, Jharkhand produces sophisticated auto components, including axles, shafts and radiators. The state has vast potential for industrialisation. The Indian Institute of Technology (Indian School of Mines) is located in Dhanbad, a major coal-producing district of Jharkhand. The underlying ecosystem for expanding mining does therefore exist, and can be expanded and improved upon relatively easily.

Poor in income and human development

Despite being rich in minerals, Jharkhand is one of India’s most impoverished states. Its per capita gross state domestic product (GSDP)—Rs 90,475 at current 2019–20 prices—is 37 percent below the national average, and its GSDP accounts for a mere 1.6 percent of India’s gross domestic product (GDP). In per capita GSDP terms, Jharkhand ranks 25 out of the 28 Indian states (Manipur, Uttar Pradesh, and Bihar rank below it). The Economic Survey of Jharkhand, 2019–20 (Planning-cum-Finance Department, 2020), reveals that during 2014–15 to 2019–20, while India’s GDP grew by 6.7 percent per annum, Jharkhand’s GSDP posted a lower growth at 6.2 percent per annum. In the same period, Jharkhand’s per capita GSDP grew at 4.5 percent per annum, compared to the national average of 5.7 percent per annum.

The United Nations Development Programme’s (UNDP) latest Subnational Human Development Index (HDI; for 2018) puts Jharkhand at 0.599, the third-lowest in India. Uttar Pradesh is slightly lower at 0.596, and Bihar at 0.576. The average HDI is 0.647 for India, with Kerala posting the highest value at 0.779. Jharkhand thus lies at the lower spectrum of the Medium HDI, which ranges from 0.500 to 0.699 (Global Data Lab, 2020).

NITI Aayog launched its Sustainable Development Goals (SDG) Index 2019–20 in December 2019. The Index is based on the quantitative progress of 16 out of 17 SDGs (the 17th SDG is based on a qualitative assessment—partnerships—to achieve the goal). According to this SDG Index, Jharkhand scored the second-lowest value of 53 and performed abysmally in six of the goals—SDG-1 No Poverty; SDG-2 Zero Hunger; SDG-4 Quality Education; SDG-5 Gender Equality; SDG-12 Responsible Consumption and Production; and SDG-13 Climate Action (Niti Aayog, 2019)

Despite being a coal-rich state, Jharkhand has the lowest per capita power availability—938 kilowatt-hours (kWh) in 2018–19—compared to the national average of 1,181 kWh in the same period. The corresponding values for two other mining-rich states—Chhattisgarh and Odisha—are 1,961 kWh, and 1,628 kWh, respectively (Press Information Bureau, 2019).

Overall, therefore, Jharkhand is among the more socio-economically backward states in India and needs to invest in infrastructure and services that are more accessible. Resources being a major constraint, its mining economy can help generate surpluses for all-round investment in the state’s inclusive growth.

The rest of this paper is as follows. Section 2 provides a discussion on the growth and development of Jharkhand with mining as the focus sector. Section 3 portrays the mineral inventory in the state’s 24 districts. The objectives of this study are outlined in Section 4. Details on the methodology of the study and its data sources are described in Sections 5 and 6, while Section 7 discusses the five pillars used to index the districts for their mining attractiveness. The results of the study are presented in Section 8, and the policy implications in Section 9.

With its vast reserves and mineral development potential, Jharkhand’s mining sector can create the necessary momentum for sustained and inclusive growth in the state and the country. The sector is tied to several key industrial sectors such as steel, cement, fertilisers, chemicals, and electronics, providing the raw materials. If supported by State government policy, Jharkhand’s mining sector can become a key driver towards achieving the Government of India’s vision of a $5 trillion national economy by 2025.

Sustainable mining is especially important considering the controversies that the mining sector has been embroiled in, which has affected its economic performance. Moreover, environmental and social liabilities are increasingly becoming an area of focus among businesses, including those in the mining sector. The new National Mineral Policy (NMP) proposed by the Government of India in 2019, lays much emphasis on proper ‘exploration’, ‘streamlining regulatory mechanisms’, and on operating with the utmost environmental and social responsibility. The NMP envisions India doubling its production of major minerals by 2025 and reducing its trade deficit in the sector by 50 percent.

This paper focuses on ranking (indexing) the districts of Jharkhand as per their sustainable mining potential. The paper indexes not just the mining potential of the district, but also the socio-economic, environmental, infrastructural, and governance considerations critical to sustainability and business operations. While the indices are the outcome of the study, perhaps much more important is identifying and quantifying gaps that prevent each district from achieving its full potential.

The findings and outcomes are based on a collection of secondary data on the ‘five pillars of sustainable mining’—(1) mining potential and performance; (2) socio-economic status; (3) policy and governance; (4) infrastructure; and (5) environment. All 24 districts have been scored on each pillar, and the aggregate scores of each district have also been computed. The findings will enable informed decision-making on policy, on new and ongoing mining investments, and on operational viability within mining districts.

The computation of such a district-level Sustainable Mining Attractiveness Index (SMAI) provides an overall understanding of each district’s preparedness for facilitating responsible mining operations, including the shortcomings that exist at present. The ‘CSEP-SMAI: Jharkhand’ is thus a comprehensive snapshot of the state’s mining environment. It includes policy recommendations to improve the mining sector state-wide, along with socio-economic and environmental outcomes.

Jharkhand: Mineral inventory

Mining in Jharkhand includes coal and non-fuel mining of major and minor minerals.[1] Mining activity differs across all 24 districts (see Map 1). Thirteen districts—Bokaro, Chatra, Deoghar, Dhanbad, Giridih, Godda, Hazaribagh, Jamtara, Latehar, Pakur, Palamu, Ramgarh, and Ranchi—account for about 26 percent of the total coal inventory in India. In 2018–19, these districts produced 18.5 percent of the total production of coal in the country (Coal Controller’s Organisation, 2020).

Besides coal, resources of other non-fuel minerals in Jharkhand include bauxite, copper ore, graphite, iron ore, kyanite, gold, limestone, and manganese ore (Indian Bureau of Mines, 2019). The significant non-fuel mineral reserves are distributed across districts as follows:

• Bauxite: Dumka, Gumla, Latehar, Lohardaga and Palamu districts have reserves, but only Gumla, Latehar and Lohardaga districts were producing bauxite in 2018–19. Primary exploration for bauxite and other associated minerals was carried out in Gumla district in 2017–18.
• Copper: East Singhbhum and Hazaribagh districts have reserves of copper ore. In 2018–19, only East Singhbhum was producing copper in the state. Further exploration is underway.
• Graphite: Palamu is the primary source of graphite in Jharkhand, but there are some reserves in Latehar district too. In 2018–19, graphite was produced in both Latehar and Palamu districts. Further exploration of the mineral is being done in Ranchi and Palamu districts.
• Iron ore: Available and produced only in West Singhbhum, where there is ongoing exploration for new iron ore resources.
• Kyanite: Reserves are found in West Singhbhum and Seraikela Kharsawan districts, but there was no production and exploration done in 2017–18.
• Limestone: Reserves are found in nine districts (Bokaro, Dhanbad, East Singhbhum, Garhwa, Giridih, Hazaribagh, Palamu, Ranchi and West Singhbhum). Of these nine, only West Singhbhum reported production of limestone in 2018–19. Exploration of the mineral is being carried out in Garhwa and Ranchi.
• Manganese ore: There is potential in East and West Singhbhum districts, but only West Singhbhum district produced manganese ore in 2018–19.
• Gold ore: East Singhbhum has reserves of gold ore and produced 2,134 tonnes of gold ore in 2018–19.

Eight districts (Bokaro, Chatra, Dhanbad, Godda, Hazaribagh, Palamu, Ramgarh and West Singhbhum) out of the 24 have significant mining activity. These eight districts accounted for 34 percent of the state’s geographical area, 40 percent of its population and 87 percent of its mineral royalties in 2018–19.

Three districts (Khunti, Koderma and Simdega) do not have reserves or resources of major minerals. Of these three, Simdega has no reserves of minor minerals (other than sand and stone) but has some resources of granite, while Khunti has no reserves or resources of minor minerals (other than sand and stone).

CSEP-SMAI: Objectives

The CSEP-SMAI abides by the principle that mining should benefit the economy, improve livelihoods in local communities, be environmentally responsible, and remain economically viable for the mining companies.

The purpose of the survey and this paper is to provide stakeholders with a holistic understanding of the potential of mineral resources-led development; identify factors that encourage and discourage mining investments; suggest government-led policy actions that enable sustainable mining jurisdictions; and, provide mining companies benchmarks for guiding investment decisions.

As discussed in Section 2, the paper analyses the performance of the 24 districts under the following five pillars: (1) mining potential and performance; (2) socio-economic status; (3) policy and governance; (4) infrastructure; and (5) environment.

Each pillar has five indicators, except for socio-economic status, which has six indicators. Each indicator has multiple sub-indicators, which are normalised to make them unit-free, falling in the range of 0 to 100 (where 100 represents the best performing district, and 0 the worst).

All five pillars are given equal weight when calculating the overall CSEP-SMAI score. The weighted geometric mean is used to calculate the final score. Details of the indexing method and the weighting diagram are given in Annex-B.

This pioneering CSEP-SMAI study has drawn upon methodologies used by other institutions and agencies, both Indian and international, to determine opportunities and barriers for mining investments, and to undertake sustainable mining in various jurisdictions. The approaches under consideration include the Annual Survey of Mining Companies by Fraser Institute (Canada) (Stedman, Yunis, & Aliakbari, 2020), and the State Investment Potential Index by the National Council of Applied Economic Research (NCAER) (National Council of Applied Economic Research, 2018).

The five pillars: Various secondary sources have been used for getting information on the five pillars (mentioned above) of the CSEP-SMAI. These sources include government data and reports, legislation and regulation, and other papers and reports published by accredited agencies. A detailed list of sources may be found in Annex A.1.

Coal: Some of the critical data required for the computation of CSEP-SMAI—such as district-level data on coal reserves, resources, and production—are not available. The Coal Directory of India 2018–19 provides information on state-wise and coalfield-wise reserves and resources, as well as company-wise and state-wise production of coal (Ministry of Coal, Government of India, 2020).

Information on the area of each coal mine (in hectares) and the leaseholder’s name is available on the website of the Department of Mines and Geology (DMG), Jharkhand (Department of Mines & Geology, Government of Jharkhand, 2020). Using this, along with the ‘production by leaseholder’ data (taken from the Coal Directory of India), coal production values have been divided by district, in the ratio of the area of the mines. This assumes that each of the coal mines produces the same amount of coal per sq. km of the area of the mine.

In order to estimate the reserves and resources of coal by district, the locations of Jharkhand’s coalfields were mapped. The coal reserves and resources were apportioned based on the districts the coalfield spanned and the area of those districts.

Minerals and ores: Data for production of major minerals was available, but the data for production of minor minerals is not published by the Indian Bureau of Mines (IBM) or DMG, Jharkhand. Instead, the number of minor mineral mines was used as an indication of the production value of minor minerals. These mines were divided into two categories: sand and stone mines; and other minor mineral mines. This division is required since the IBM does not provide information on reserves or resources for sand and stone.

These sand and stone mines make up the maximum number of minor mineral mines in the state and hence, are important indicators of mining activity in the district. The underlying assumption is that each minor mineral mine produces the same (average) amount of minor minerals.

CSEP-SMAI pillars and their indicators

The CSEP-SMAI study involves quantitative and qualitative evaluation of several factors that are central to the mining sector’s business attractiveness and economic viability. The study is based on the five pillars, each having several indicators (see Figure 1). A comprehensive list of sub-indicators and data sources is given in Annex A.1.

Mining potential and performance

The mining potential of a district refers to the documented values of its reserves and resources of coal and non-fuel minerals. The number of mining leases (working mines in particular), as well as the mineral production, are indicators of the district’s ongoing mining performance.

Mineral resources, reserves, and production: The United Nations Framework Classification (UNFC) of mineral reserves and resources considers three dimensions—geological assessment, feasibility assessment and economic viability. It defines a mineral reserve as the economically mineable part of a measured and/or indicated mineral resource (Indian Bureau of Mines, 2009). The production of ores indicates how well the resources and reserves were explored and mines were made operational.

As discussed in Section 3, districts with significant coal reserves include Dhanbad, Ramgarh, Hazaribagh, Sahibganj, Ranchi, Chatra and Bokaro. Substantial reserves of bauxite are found in Gumla, Lohardaga and Palamu districts. Copper and gold reserves are found in East Singhbhum (it is the only district to have gold reserves), manganese, limestone and iron-ore reserves in West Singhbhum, and significant limestone reserves are in Garhwa and Palamu. Almost all the districts are endowed with reserves of minor minerals. Gumla and Lohardaga are two important bauxite producing districts.

Mining leases and working mines: It is a matter of grave concern that only 22 percent of the 3,825 mining leases in Jharkhand are currently operational, implying substantial underutilised investments in the mining sector. Sahibganj has the highest number of mining leases (419), followed by Pakur (339), Dhanbad (267), Dumka (245), and Giridih (209).

Godda, Koderma and Lohardaga have the lowest shares of working mines at 12 percent each. Ranchi and West Singhbhum are just a little better, at 13 percent. The share of working mines is high in Latehar (43 percent), Palamu (39 percent), and Dhanbad (35 percent).

Dhanbad and West Singhbhum provided the highest royalty revenues in 2018–19, contributing 23 percent and 21 percent, respectively, to the total state collection of Rs 5,978 crore.

Socio-economic status

While it is essential to make the best use of each district’s mining potential, it is equally desirable to relate this to the district’s socio-economic status and progress. District socio-economic status is gauged by measuring performance on various sub-indicators, including per capita income, demographics in terms of the sex ratio, labour force participation rate (LFPR), participation by women in the workforce, and outcomes in education and health.

Per capita income: The latest district-level data available is for 2008–09, and shows Bokaro, Dhanbad, East Singhbhum, Pakur and Sahibganj as high per capita income districts, while Godda, Garhwa, Latehar, Palamu and Simdega lie at the lower end of the spectrum.

Sex ratio (females per 1,000 males): Data was available for 2015–16 and reveals that the sex ratio is above 1,000 in the state. However, nine districts—Bokaro, Deoghar, Dhanbad, Jamtara, Khunti, Palamu, Ranchi, Sahibganj and Seraikela Kharsawan—show a sex ratio of less than 1000, with the lowest being Dhanbad and Seraikela Kharsawan (947 each).

LFPR: Jharkhand’s LFPR stood close to 45 percent in 2017–18, and more than 50 percent in Bokaro, Chatra, Giridih, Gumla, Jamtara, Latehar and Pakur. Among these high-performing districts, Gumla (61 percent) and Jamtara (54percent) fared the best. Five districts—Deoghar, Dumka, Hazaribagh, Koderma and Palamu—posted an LFPR of 40 percent or less, and Koderma and Hazaribagh (both 26 percent), were the lowest.

Participation of women in the workforce: This stands at about 15 percent overall, with 10 of the 24 districts reporting a participation rate of less than 10 percent—the lowest being Godda (2 percent), followed by Dumka, Koderma and Latehar (4 percent each). A more positive scenario was seen in Gumla, Jamtara, Khunti, Bokaro, Giridih, and Ranchi—with each reporting rates of more than 20 percent. Gumla reported the highest rate (47 percent), followed by Jamtara (39 percent), and Khunti (37 percent).

Literacy rate: The level of education of the people at the district level is an essential indicator of labour productivity. While the NSS 75th Round (July 2017–June 2018) indicates comparable levels of educational achievement in many districts of Jharkhand, five districts (Sahibganj, Pakur, Lohardaga, Khunti, and Chatra), have the lowest literacy rates in the state (Ministry of Statistics and Programme Implementation, Government of India, 2020).

Health: Unlike in education, where achievements are fairly uniform, there are stark differences among districts in health achievements. Health indicators include maternal and infant mortality, anaemic women in the age group of 15–49, and stunted, wasted, and underweight children below the age of five. Findings are abysmal in the seven districts of Dumka, Gumla, Khunti, Latehar, Lohardaga, Simdega and West Singhbhum, but are far better in another seven districts—Bokaro, Dhanbad, Giridih, Godda, Koderma, Palamu and Ramgarh.

Policy and governance

Mining companies prefer jurisdictions that have supportive policies and good governance. While many policies and governance issues are common across the districts of a state, some factors are idiosyncratically aligned with districts—such as, the capacity of the regulatory authorities, left-wing extremism, law and order, land records, and land under industrial area.

Capacity of regulatory authority: The distance from district headquarters to the nearest state pollution control board (SPCB) office is a proxy for the capacity of the regulatory authority. Eight districts in Jharkhand—Bokaro, Deoghar, Dhanbad, Dumka, East Singhbhum, Hazaribagh, Pakur, Ranchi and West Singhbhum—have an SPCB located at their respective headquarters. However, three districts are overseen by SPCBs that are quite a distance away—Garhwa (209 km), Palamu (173 km), and Sahibganj (166 km).

Left-wing extremism: This has adversely affected local communities and normal business operations in the past. However, the study found that the frequency of adverse incidents caused by left-wing extremism has fallen sharply in Jharkhand—from 537 in 2008–2015 (66 cases per year), to 166 during 2016–2020 (33 cases per year).

The total number of cases from 2008 to 2020 stand at 703: the worst suffering districts being Gumla (100 cases), Khunti (80 cases), Latehar (70 cases), Palamu (55 cases), and West Singhbhum (53 cases). Data shows that the districts of Deoghar, Godda, Jamtara, Koderma, and Sahibganj have been nearly free of such incidents—only two incidents or less in the last 13 years.

Law and order: Police deployment and the maintenance of law and order are critical to the smooth functioning of business operations and the safety of local communities. Jharkhand witnessed 165 cognisable crimes per lakh population (crime rate) in 2019. Data reveals a relatively high crime rate in the districts of Sahibganj (319), Ranchi (265), Garhwa (264), Deoghar (231), and Hazaribagh (208). The three districts that have much lower crime rates are Pakur (90), Simdega (85) and West Singhbhum (70).

The distribution of police stations per million persons is quite uneven across districts and is 13 per million population on average. Lohardaga, Simdega and West Singhbhum have a relatively higher number of police stations per million persons, as opposed to districts like Deoghar, Dumka, Giridih, Godda and Gumla, Koderma, Palamu, and Ramgarh.

Land records: Valid land ownership records are a significant attraction that draws business investment. Nineteen districts in Jharkhand have more than 90 percent cadastral maps linked to the record of rights. The coverage in the remaining five districts varies widely from 86 percent in Ranchi, to just 1 percent in Hazaribagh.

Land under industrial area: The Jharkhand Industrial Area Development Authority (JIADA) manages the development of industrial land in the state, which includes developing facilities in these areas (such as water supply and electricity), with the goal of attracting new industries and facilitating the ease of doing business. There are currently four regional offices of JIADA, located in Adityapur (for East Singhbhum and Saraikela Kharsawan), Bokaro (for Bokaro and Dhanbad), Santhal Pargana (for Sahibganj, Deogarh, Dumka, Jamtara, and Godda), and Ranchi (for Ranchi, Khunti, Ramgarh, Lohardaga, Gumla, Palamu, Hazaribagh, and Koderma). All districts—barring Chatra, Pakur, and Simdega—have some industrial area plots available.

Infrastructure

Infrastructure provides logistics support to business operations and mining operations are no different. As Jharkhand is a landlocked state, a district with adequate rail, road, air, and seaport connectivity is preferred to set up businesses. The presence of mining cargo dealers and power availability are yet other essential determinants.

Rail connectivity: The railway density in Jharkhand is 35 km per 1000 sq. km. The districts of Dhanbad, Ramgarh, Sahibganj, and Bokaro have higher railway density, especially Dhanbad at 141 km and Ramgarh at 120 km per 1000 sq. km. Railway density is low (under 10 km per 1000 sq. km) in the districts of Gumla and Chatra.

Road connectivity: The average density of national highways in Jharkhand is 31 km per 1000 sq. km. The density is relatively high in Dhanbad, Hazaribagh, Deoghar, and Ranchi, with Dhanbad at 66 km and Hazaribagh at 59 km per 1000 sq. km. The average density of the state highways is 28 km per 1000 sq. km. Districts with a high density of state highways include Ramgarh, Deoghar, Ranchi, Palamu, Khunti, and Latehar—with Ramgarh at 51 km and Deoghar at 48 km per 1000 sq. km. Godda has just 2 km per 1000 sq. km of state highways, making it the worst-performing district in this sub-indicator.

Saraikela Kharsawan has the highest road density, followed by Simdega and Dhanbad, while Godda has the lowest road density. Ramgarh has, by far, the highest density of city and village roads, followed by Deoghar and Hazaribagh, with Dumka and Sahibganj performing the worst.

Distance from the nearest airport (domestic and international): As Jharkhand is a landlocked state without a seaport of its own, access to airports becomes an even more essential requirement for businesses. However, only the state capital, Ranchi, has an airport (the Birsa Munda Airport) and caters to domestic flights. The state does not have an international airport as of now and the remaining districts do not have easy access to an airport. Thus, Ranchi is the main point of access to and from Jharkhand by commercial airlines. The two nearest airports to Jharkhand are Patna (in Bihar) in the north and Kolkata (in West Bengal) in the east.

Mining cargo dealers: Cargo dealers provide critical support for storage, trading and processing activities. On average, there are 31 mining storage depots, 117 mining traders and 144 processing units per district in Jharkhand.

Storage depots: Four districts—Dumka, Hazaribagh, Koderma and Sahibganj—have a high concentration of storage depots. Sahibganj is a central hub with 253 storage depots.

Mining traders: Ramgarh, with 1,023 mining traders, is the hub, though there are a large number of mining traders in Bokaro, Chatra, Deoghar, Dhanbad and Hazaribagh as well.

Mining processing units: Again, Ramgarh is the hub, with 1,233 active processing units. Other districts with many mining processing units are Dhanbad, Pakur, and Palamu.

Power availability: The data on rural power availability shows variations across districts. Giridih and Godda get lower power availability compared to most other districts.

Environment

Environment conservation is an essential component of sustainable mining. Issues of importance include groundwater availability and consumption, availability of safe drinking water, pollution caused by particulate matter (PM) 2.5 in the air, protection of forest cover, and mining wastelands.

Groundwater: The average district-level availability of groundwater was found to be 156 cubic metres (cu. m) per annum, with an average utilisation rate of 26 percent. Chatra, Khunti, Lohardaga and Simdega have relatively high per capita water availability. Simdega, at 452 cu. m, has the highest estimated per capita water availability.

Safe drinking water: Schemes run by the state’s Department of Water and Sanitation, under the National Rural Drinking Water Programme, stand at an average of 14 schemes per 1,000 people; the districts with the most schemes per 1,000 people are Dumka, East Singhbhum, Gumla and Sahibganj (more than 24 schemes each). Chemicals contaminate an average of 24 percent of drinking water sources in Jharkhand. East Singhbhum, Ranchi, Sahibganj and Simdega suffer from relatively high shares of contaminated drinking water sources.

PM 2.5 pollution levels: Godda and Sahibganj suffer from relatively high levels of PM 2.5 concentration, while Gumla and West Singhbhum have the lowest PM 2.5 concentrations.

Protecting the forest cover: 29.6 percent of Jharkhand’s total geographic area is covered by forests. Of this, 3.2 percent has very dense forests, 12.2 percent moderately dense forests, and 14.2 percent open forests.[2] The total forestry cover varies across the 24 districts of Jharkhand, from 5.6 percent in Jamtara to 56.1 percent in Latehar. All but four districts experienced an increase in total forestry cover between 2017 and 2019.

Mine closures and wastelands: Mining wastelands make up as much as 0.40 percent of Jharkhand’s geographic area, reflecting poor mining closure practices used in the state. Land restoration needs to be an integral part of mining for it to be sustainable. Dhanbad district has the highest share of mining wasteland (3.93 percent) of its geographic area. The remaining districts have values under 1 percent, with Khunti being the only district with no mining wastelands.

Overview

The pillar-wise and overall indices for 24 districts are given in Table 1. The top five districts overall are: Dhanbad (1), East Singhbhum (2), West Singhbhum (3), Ranchi (4) and Ramgarh (5). The five lowest-ranked districts are: Deoghar (20), Koderma (21), Garhwa (22), Simdega (23) and Godda (24). Table 2 provides the scores (pillar-wise and overall) for each district.

Differentials in the pillar-wise indices have important policy implications. Some extremities are apparent. As Table 1 shows, the top-performing district Dhanbad (1), is ranked the lowest on the environment pillar (24). Similarly, East Singhbhum (2) also performs relatively poorly on the environment pillar (9) when compared to its ranks for the other pillars (all in the top 10), while West Singhbhum (3) lies low on the socio-economic status (22) and infrastructure (10) pillars.

On the other hand, two of the lowest-ranked districts—Garhwa (22) and Simdega (23)—rank among the top 10 on the environment pillar. Lohardaga (17), also does well on the environment pillar. Similarly, Jamtara (19), is a relatively better performer on the socio-economic status, policy and governance, and infrastructure pillars.

Sahibganj (8) stands out. It ranks low on three pillars—socio-economic status (16), policy and governance (20), and environment (23)—but ranks high on the mining potential and performance (4) and infrastructure (3) pillars.

A look at the scores for each district—pillar-wise and overall—explains the divergence in ranks. Sahibganj’s good performance on the pillars of infrastructure and mining potential and performance has led it to register a high SMAI score despite its poor performance on the other pillars.

Jamtara (ranked 19 overall) is another interesting case as it gets an above-average ranking on all pillars barring mining potential and performance (21). Jamtara’s scores in the other pillars are not high enough to differentiate it from the remaining districts. Still, its score on the mining potential and performance pillar is much lower than other districts, which brings down its overall rank.

Mining potential and performance index: Top 10 districts

This section examines the top 10 high-performing districts with regard to the mining potential and performance pillar (see Table 3 (by index), and Table 4 (by scores)). This section also discusses some relevant indicators that affect the sustainability of these districts (the detailed breakdown of indicator rankings is provided in Annex C). The sub-indicator scores and ranks provide a deeper understanding of why a district performs poorly on a particular pillar. This would help determine what the district administration should particularly focus on to improve the district’s overall index.

West Singhbhum: Though the top-ranking district in mining potential and performance, its poor rankings on two pillars—socio-economic status (22) and infrastructure (10)—caused the district to slip to third place in the overall ranking.

The district is pulled down by its poor performance on health indicators (infant, maternal, and child health), and in higher secondary-level and graduate-and-above education, which has affected its score on the socio-economic status pillar. Its poor performance on the infrastructure pillar is the outcome of its low road density and poor connectivity to airports.

Dhanbad: The district comes second on the mining potential and performance pillar. Also—though first on the overall index—it ranks last (24) on the environment pillar. The district has the lowest groundwater availability per capita and the highest consumption of groundwater as a share of availability in the state. It also has the highest mining wasteland area as a percentage of its total area.

On the plus side, though it has a comparatively low density of all categories of forests, it is the best performing district in terms of percentage increase of forest cover between 2017 and 2019. Nevertheless, cumulatively, Dhanbad is the worst-performing district in the environment pillar.

East Singhbhum: Ranked high (3) in mining potential and performance, the district’s good performance in all other pillars raises its overall rank to 2. Its relatively poor performance on the environment pillar (9) is due to its low groundwater availability and contaminated rural drinking water sources.

Sahibganj: From ranking 4 on the mining potential and performance pillar, Sahibganj slips to 8 in the overall index. This is due to its poor performance on the pillars of policy and governance (20), environment (23), and its below-average performance on socio-economic status (16).

Sahibganj does poorly on the environment pillar due to the high levels of pollution in the district. It is the worst-performing district on indicators such as groundwater contamination, drinking water contamination (chemical and bacteriological), and PM 2.5 concentrations. Furthermore, it was the worst hit of the three districts in Jharkhand that saw forest cover shrink between 2017 and 2019. Sahibganj’s law and order situation is also amongst the worst in the state, with the highest number of cognisable crimes per lakh population, and the third-lowest number of police stations per lakh population.

Palamu: Though ranked 5 on the mining potential and performance pillar, Palamu drops to 13 in the overall index, because it performs poorly on all other pillars. It takes last place (24) on the policy and governance pillar. Palamu is also among the few districts that are farthest away from their SPCB office. In Palamu’s case, the closest SPCB office to Daltonganj (its district headquarters) is located in Ranchi, 174 km away. Palamu has also suffered multiple incidents of left-wing extremism over the last decade, and has among the lowest number of police stations per lakh population in the state.

Pakur: This district ranks 7 overall and does relatively well on all pillars—policy and governance (4); mining potential and performance (6); infrastructure (11); socio-economic status (10); but on the environment pillar, it ranks 22. This can be attributed to its performance on various environment sub-indicators. It ranks in the bottom 10 in 9 out of 12 sub-indicators, and in the bottom 5 in 5 sub-indicators. It is one of the few districts with polluted groundwater, has high levels of PM2.5 concentrations resulting in high air pollution, and has among the highest percentages of mining wastelands in the state. Nevertheless, Pakur performs well in the consumption of groundwater—it shows only 20 percent consumption of groundwater, with 80 percent available for future usage. It also has no bacterial contamination in its water sources, but 19 percent of its water sources have chemical contamination.

Ranchi: The district that contains the state capital ranks well overall (4) and on three pillars—socio-economic status (2), infrastructure (5), mining potential and performance (7)—but ranks in the middle on policy and governance (12) and environment (14).

Ranchi, however, performs poorly in three out of nine sub-indicators of the policy and governance pillar. It suffered a very high number of left-wing extremism incidents in the period from 2008 to 2015. Ranchi also recorded the second-highest number of cognisable crimes in 2020. Additionally, only 86 percent of the cadastral maps are linked to land records, placing Ranchi among the bottom five districts for this sub-indicator. Ranchi also ranks at the bottom in 4 out of 12 environment pillar sub-indicators—for instance, about 37 percent of its drinking water sources are contaminated with chemical agents, and the district has a relatively lower forest cover compared to other districts.

Gumla: The top-performing district on the environment pillar (1), it also ranks fairly high (7) on the socio-economic status pillar (7), and on the mining potential and performance pillar (8), getting an index of 10 overall. However, it performs very poorly on the policy and governance (21), and infrastructure (22) pillars. With regard to policy and governance, Gumla shows the highest number of left-wing extremism incidents from 2008 to 2020 and performs poorly on all sub-indicators, except two—it has a low cognisable crime rate and 100 percent of its maps are linked to land records.

It also performs poorly in 12 out of the 14 infrastructure sub-indicators. The district has the lowest railway track density, as well as a low number of active mining traders. But it does show a high district road density and is in close proximity to the domestic airport.

Chatra: This district ranks 9 on the mining potential and performance pillar and ranks 11 overall. While Chatra performs well on the environment pillar (7), it does not perform too well on the remaining three pillars. The district also has a low gross district domestic product (GDDP), a high percentage of malnourished children (stunted and underweight), and a high rate of maternal death. It performs well only on one sub-indicator each, in the policy and governance pillar (cadastral maps linked to record of rights), and the infrastructure pillar (number of mining traders active). It has a low railway track density and no industrial plots.

Ramgarh: This district ranks 10 on the mining potential and performance pillar and 5 overall. It performs well on each pillar, except environment (18). It ranks in the bottom 10 on most of the environment sub-indicators except groundwater pollution, bacterial contamination of drinking water and the percentage of mining wastelands in the district. It records consumption of available groundwater at about 70 percent, which is the highest consumption level after Dhanbad (76 percent).

Overall assessment

The indexing of the five pillars (mining potential and performance; socio-economic status; policy and governance; infrastructure; and environment), and the comprehensive Sustainable Mining Attractiveness Index (SMAI) carry not just policy implications for the district administrations and the Government of Jharkhand, but also provide benchmarks for guiding mining investment decisions in the state.

A holistic understanding of mineral resources-led development: The CSEP-SMAI study portrays a holistic overview of 24 districts of Jharkhand with regard to the five pillars. While the mining potential of a district may be an important incentive for mining investments, the miner would also consider the policy and governance, and infrastructure issues. The district government should be equally concerned about both these issues, as well as about the socio-economic status and environmental sustainability of mining.

Slack in exploration: The lack of exploration has been one of the most significant factors in keeping India’s mining sector’s performance behind its peers. While much of the discussion relates to the national-level mining policies, the state government can also play a significant role through its own parameters. For example, two strategic minerals, beryllium and tungsten, are yet to be excavated in Jharkhand (Lele, 2019).The Jharkhand State Mineral Development Corporation Limited (JSMDC), has outlined the state mineral policy as follows:

To facilitate systematic, scientific and planned utilisation of mineral resources and to accelerate the mineral-based development of the State, the Jharkhand Industrial Policy has incorporated relevant policy guidelines. The policy aims to ensure optimal utilisation of available mineral resources, development of vast mineral potential, generate revenues for socio-economic development, impart boost to the economy of the State and enhance the employment opportunities. (Jharkhand State Mineral Development Corporation Ltd., 2020)

Interplay of pillars affects district’s CSEP-SMAI: The overall index of the districts provides an overview of the interrelationships between the pillars, as well as the interplay of the pillar-wise performance on a district’s overall rank. For instance, a district like Palamu ranked 5 on the mining potential and performance pillar but slid down to an overall rank of 14. The findings make it clear that this is because Palamu’s performance on the other four pillars is relatively low, with the policy and governance pillar posting the lowest rank of 24—an alarm bell for the Palamu district administration as well as the Government of Jharkhand.

Guiding mining investments: This paper is a pioneering attempt to present a consolidated ‘mining attractiveness scenario’ across the 24 districts of Jharkhand. It helps potential mining investors gain an insight into the status of the critical five pillars for each district examined in the course of the study. Mining investors may find guidelines to steer their future policies accordingly. Of course, all developments are subjective, depending on the state and national mineral policies.

Emerging issues from the top 10 mining potential and performance districts

The results of the study portray a cumulative evolution of the past. While the analysis is a harbinger of mining prospects, it also highlights the need to minimise slack which might have adversely impacted the growth of sustainable mining.

Some clear policy messages are emerging from the discussion in Section 8. Ten of the top mining potential and performance districts could have done much better on sustainable mining, but for the slack in some of the other four pillars, viz. socio-economic status, policy and governance, infrastructure, and environment (see Annex C).

West Singhbhum ranks 1 with regard to the mining potential and performance pillar. However, it needs to boost up its social sector (health and education), and infrastructure (road density) performance. Dhanbad has the top-most score overall and ranks 2 on mining potential and performance. However, it performs abysmally on the environment front (24). It has to reclaim its vast mining wasteland area as well as increase its forest cover. East Singhbhum, ranked 3 on the mining potential and performance pillar, needs to pay attention to increasing its groundwater availability and lowering contamination levels in its rural drinking water sources.

Sahibganj ranks 4 on the mining potential and performance pillar but needs to improve its performance on other pillars (socio-economic status, policy and governance, and environment), paying particular attention to reducing air and water pollution levels. Palamu, ranking 5 on the mining potential and performance pillar, needs to strengthen its policy and governance since it is heavily affected by left-wing extremism. It is one of the districts that has the lowest number of police stations per lakh of population in the state. Pakur, which ranks 6 on the mining potential and performance pillar, performs poorly on the environment pillar. It needs to take care of its groundwater and air pollution issues.

Ranchi ranks 7 on the mining potential and performance pillar but has slack on the policy and governance and environment pillars. The district needs to enhance its policing, since it is severely affected by left-wing extremism and cognisable offences. It also needs to address the problem of its contaminated drinking water sources. The district of Gumla—8 on the mining potential and performance pillar—lacks on infrastructure and policy and governance, and suffered the highest number of left-wing extremism incidents between 2008 and 2020. Ranked 9 on the mining potential and performance pillar, Chatra district needs to improve almost all indicators of the policy and governance, infrastructure, and socio-economic status pillars, with a focus on health outcomes in children under five.

Ramgarh, ranked 10 on the mining potential and performance pillar, ranks 5 overall, but sits towards the bottom 10 in most of the environment sub-indicators, due to poor groundwater availability and consumption, and the lack of increase in forest cover area between 2017–2019.

All these findings lay out clear directions and benchmarks to be attained, if Jharkhand is to attain its true potential in mineral and mining-led development.

Perception-based pillar: The CSEP-SMAI computed in this study is based on five pillars constructed using secondary data. It would be pertinent to have a sixth pillar based on the way stakeholders perceive the mining sector in Jharkhand. Collection of perception data requires visits to the state and the holding of focus group discussions (FGDs) with the Government of Jharkhand, district administrations, mining companies, civil society, and, most importantly, local communities. The perception-based pillar aims to capture opinions regarding externalities affecting the environment, the well-being of local communities, ease of mining operations, and enforcement of regulations. While such visits were on the study team’s agenda, COVID-19 restrictions precluded collecting primary data for this pillar.

Expanding the study to more states: It is proposed to expand the CSEP-SMAI study to other major mining states in India—starting with Odisha and Rajasthan. Besides indexing the districts within these states, it is further proposed to construct a cross-state, ore-specific sustainable mining attractiveness index. For example, the iron ore-rich districts shall be compared across major ore-bearing states, including Odisha, Jharkhand, and Chhattisgarh.

CSEP-SMAI dashboard: The study team proposes to publish the data collected to an online dashboard, which would allow users to adjust the weights given for the sub-indicators and create alternative indices. Such information would be useful for researchers, governments, local communities, civil society, and mining companies.

As an example of what can be done through this proposed dashboard, the study team aggregated five pillars into three groups, with equal weights given to the pillars in the second and third groups: 1) Mining Potential and Performance, 2) Policy and Governance, and Infrastructure, and 3) Socio-Economic and Environment. These groupings reflect three broad and different aspects of the districts. For example, the mining companies may be more interested in the first two groups and the district administration the latter two. Table 5 shows the results of this computation. Similarly, other pillar groups can be constructed, with the option of choosing different weights for each pillar.

Coal Controller’s Organisation. (2020). Coal Directory of India 2018-29. Ministry of Coal, Government of India. Retrieved from http://www.coalcontroller.gov.in/writereaddata/files/download/coaldirectory/CoalDirectory2018-19.pdf

Department of Mines & Geology, Government of Jharkhand. (2020, 11 1). Department of Mines & Geology. Retrieved from Department of Mines & Geology: http://jharkhandminerals.gov.in/

Forest Survey of India. (2020, Novemeber 1). Scheme of Classification. Retrieved from https://www.fsi.nic.in/scheme-of-classification

Global Data Lab. (2020). Subnational Human Development Index 4.0. Institute for Management Reserach, Radboud University. Retrieved from https://globaldatalab.org/shdi/2018/indices/IND/?levels=1%2B4&interpolation=0&extrapolation=0&nearest_real=0

Indian Bureau of Mines. (2009). Guidelines Under MCDR for United Nations Framework Classification of Mineral Reserves / Resources. Nagpur: Indian Burea of Mines. Retrieved from http://ibm.nic.in/writereaddata/files/07042014175101unfc.pdf

Indian Bureau of Mines. (2019). Indian Minerals Yearbook 2018 (Part-I): State Reviews. Ministry of Mines, Government of India. Retrieved from https://ibm.gov.in/writereaddata/files/02042020163844Jharkhand_2018.pdf

Jharkhand State Mineral Development Corporation Ltd. (2020, November 1). Jharkhand Mineral Policy. Retrieved from https://www.jsmdc.in/web/JharkhandMineralPolicy.php

Lele, A. (2019). India’s Need for Strategic Minerals. National Security, 2, 247-263. Retrieved from https://www.vifindia.org/sites/default/files/national-security-vol-2-issue-2-article-Alele.pdf

Ministry of Coal, Government of India. (2020). Coal Directory of India 2018-19. Kolkata: Coal Controller’s Organisation. Retrieved from http://www.coalcontroller.gov.in/writereaddata/files/download/coaldirectory/CoalDirectory2018-19.pdf

Ministry of Statistics and Programme Implementation, Government of India. (2020). Household Social Consumption Education in India. New Delhi: MoSPI. Retrieved from http://mospi.nic.in/sites/default/files/publication_reports/Report_585_75th_round_Education_final_1507_0.pdf

National Council of Applied Economic Research. (2018). NCAER State Investment Potential Index 2018. New Delhi: National Council of Applied Economic Research. Retrieved from https://www.ncaer.org/publication_details.php?pID=296

Niti Aayog. (2019). SDG India: Index & Dashboard 2019-20. Governemnt of India. Retrieved from https://niti.gov.in/sites/default/files/SDG-India-Index-2.0_27-Dec.pdf

Planning-cum-Finance Department. (2020). Economic Survey of Jharkhand 2019-20. Ranchi: Centre for Fiscal Studies, Government of Jharkhand. Retrieved from https://openbudgetsindia.org/dataset/jharkhand-economic-survey-2019-20-2020-21/resource/f1f9ec50-6388-4f0b-84a2-df54c49fbe20

Press Information Bureau. (2019). Electrification of Villages. Ministry of Power, Government of India. Retrieved from https://pib.gov.in/Pressreleaseshare.aspx?PRID=1592833

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

The post CSEP sustainable mining attractiveness index: District-level study of Jharkhand first appeared on CSEP.

DOWNLOADS

• Download the Working Paper

Executive Summary

In India, an estimated 480 million people—1.5 times the entire population of the United States —live in cities and towns and this is expected to increase to about 600 million by 2030. Other than the scale, there is not much to cherish about the quality of life Indian cities offer to an average city dweller. 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. Similarly, water availability is about 70 lpcd in urban areas compared to 135-150 lpcd required for hygienic living, and the list goes on. However, a low level of service delivery is not fait accompli for a lower middle-income country like India. In 2011, an Indian government appointed High Powered Expert Committee (HPEC) noted that “the state of urban service delivery in India’s cities and towns is far poorer than is desirable for India’s current income levels.” (HPEC, 2011, p.43)

There is widespread realisation in India of the need to undertake fundamental reforms in urban governance, planning and funding to enable cities to provide globally accepted service delivery levels. Poor service delivery, despite being a multifaceted problem, is often attributed largely to lack of funding. India’s municipal revenue as a percent of GDP has remained constant at 1% since 2007-08. This is very low compared to other developing nations such as Brazil and South Africa whose ratio stood at 7.4% and 6% respectively in 2010.

Estimates suggest that India needs to spend six to eight times more per capita on urban infrastructure, every year, for the next 15-20 years to be able to provide acceptable levels of service delivery across key urban services. Around 80%[1] of this estimated spend is required to build capital intensive urban infrastructure like affordable housing, mass rapid transit systems like metro network, more roads, etc. and relatively little is needed to provide services like solid waste management (SWM), which keep cities clean, but are not capital intensive. Since capital intensive urban infrastructure in most Indian cities is not financed by the urban local bodies (ULBs) anyway, it begs the question, is lack of funding really the primary reason Indian cities are not able to provide acceptable levels of services such as SWM. Furthermore, is it true that higher the spending on SWM, better the service delivery?

We probe these questions by comparing revenue expenditure[2] that our sample of 27 cities are incurring on SWM services, relative to what they ought to spend[3] to provide acceptable levels of service delivery, with their current performance on cleanliness.[4] The results are counterintuitive. Lack of funding is not a binding constraint in every city to deliver acceptable levels of SWM services. Nineteen out of 27 cities spend more than the required amount, yet none has a perfect cleanliness score. Nine out of these 19 spend at least 1.5 times more than the benchmark amount. Secondly, while expenditure has a significantly positive influence, it explains only 23% of the variation in performance, indicating the importance of non-monetary factors such as better city governance.

While there is overwhelming evidence that city finances need to be strengthened significantly, the findings of this paper suggest that there is an equally important need to map the expenditure and outcomes achieved across a range of urban services. This would help establish where funding is a real constraint, and where lower service delivery could be due to other reasons such as inefficient and ineffective usage of funds. This will increase transparency and accountability and improve allocation of funds across services within a city. It will also help unearth best practices amongst Indian cities, which may be easier to adopt than global best practices since they are located within our political economy. Early observations suggest the key role that stable city leadership, effective public-private partnerships, and citizen engagement have played in providing better SWM services. For example top performing cities such as Indore has had the same mayor and commissioner since 2015 and has involved 850 Self-Help Groups (SHGs) for citizen awareness campaign on waste segregation; Amdavad and Pune municipal corporations have adopted a PPP model to collect and transport waste from the city. Focus on expenditure and outcomes assumes even greater importance due to the fiscal stress caused by COVID-19, making devolution of funds to the third tier all the more challenging.

India is urbanising rapidly; the urban share of population has steadily increased from 18% in 1971 to about 34% by 2020. It is expected to touch 40% by 2030, amounting to approximately 600 million urban inhabitants. Increasing urbanisation is a systemic phenomenon observed globally, characterised by the workforce moving away from agriculture to non-agriculture jobs and people moving away from villages to cities in pursuit of better livelihoods. While urbanisation has followed the standard script, the same may not be true with respect to how much value India has derived from this rural-urban shift. The urban share of Net Domestic Product (NDP) was 38% in 1971, which grew steadily to 52% by 2000. However, from 2000 to 2012, the urban share of NDP has remained constant at 52%. Since the urban population has increased steadily from 2000 to 2011, the constant urban share of NDP implies that per capita urban NDP growth has been lower than rural growth during this time period. This may be an indication that urban centres are not able to create enough high productive jobs and/or not allowing existing inhabitants to increase their productivity fast enough. It is noteworthy that increasing share of urban NDP between 1971-2000 and stagnant share between 2000 to 2012 is accompanied by increasing share of rural manufacturing, which steadily increased from 26% of overall manufacturing in 1971 to 51% by 2012 (Chand, Srivastava, & Singh, 2017). It would be interesting to observe whether urban share of NDP increases over time to around 60% by 2020 as estimated by multiple credible sources.

Low and deteriorating levels of basic civic services could be one of the reasons for lower productivity growth in urban areas compared to the countryside in the more recent years. As shown in Figure 2, in an ideal scenario, 100% of the solid waste generated must be collected. For Indian cities, currently only 78% of solid waste is collected. Poor service delivery is not only a problem pertaining to SWM. The acceptable level of water supply should be between 135-150 litres per capita per day in an urban setting; at present, Indian cities provide about 70 litres per capita per day (Ministry of Housing and Urban Affairs, 2019). This hampers their ability to create gainful employment for a large share of the population and provide services necessary for a dignified human life.

A low level of service delivery is not a fait accompli for a lower-middle-income country such as India. In 2011, a government appointed High Powered Expert Committee (HPEC) had noted that “the state of urban service delivery in India’s cities and towns is far poorer than is desirable for India’s current income levels.” (HPEC, 2011, p.43).

Literature suggests improvements in planning, governance and funding, coupled with innovative practices and use of technology as the key building blocks to improve service delivery (MGI, 2010). While efforts have been made to improve on these, implementation remains woefully inadequate and largely on paper. For example, the 73rd and 74th Constitutional Amendment Act (CAA) of 1992, which recognised Panchayats and urban local bodies (ULB) as the third tier of government, was a step in the right direction. However, nothing much has changed on this front over the last 20-30 years. “Key problems in urban governance include weak legal and institutional framework within which the ULBs operate and their poor capacity including lack of professional and sensitised cadre, to perform their development and regulatory functions” (Planning Commission, 2011,p.2). Likewise, the Fifteenth Finance Commission report for 2020-21 recommended that 4.31% of the divisible revenue pool should be allocated to local bodies, up from 3.54% in 2019-20. Despite this higher provision, ULBs are largely dependent on Central and State grants which constrain their ability to invest in infrastructure and improve quality of service delivery. Municipal tax revenue as a share of GDP has declined from 0.30% to 0.25% between 2010 and 2018. During the same period, the combined tax revenue of Centre and States as a share of GDP has increased from 16% to 18% (Ahluwalia, et al., 2019).

The existing work on service delivery by Indian municipalities can be classified into three broad strands. The first focuses on the fundamental reforms to improve service delivery, most often concluding that increasing funding is the most crucial aspect. A second set of studies focuses on the input side of service delivery, giving primacy to municipal governance. The third strand links input indicators with outcomes achieved in terms of service delivery. This paper adds to the third strand of literature by linking expenditure with service delivery and its performance.

Fundamental reforms to improve service delivery, especially higher funding: Two major reports on urban reforms in India, McKinsey Global Institute (2010) and High Powered Expert Committee (2011) defined urbanisation as an inevitable outcome of the faster rate of growth to which the India economy has transited, and yet cities are failing their residents in providing basic quality of life. These reports conclude that one of the most critical puzzles to solve is to generate adequate funding for building and maintaining urban infrastructure to improve service delivery. India’s municipal revenue as a percent of GDP has remained constant at 1%, which is very low compared to other developing nations such as Brazil and South Africa whose ratio stood at 7.4% and 6% respectively in 2010 (Ahluwalia, et al., 2019). MGI (2010) estimates that India needs to spend US$1.2 trillion on urban infrastructure over the following 20 years and suggested that a large chunk of this expenditure can be financed by cities themselves, especially by the larger ones. Majority of this investment requirement is for capex intensive activities; In MGI (2010), 82% of $1.2 trillion investment is devoted to urban roads, mass transit and affordable housing.  In HPEC (2011), 70.3% of INR 30.9 trillion is devoted to urban roads and urban transport. This infrastructure spend was estimated keeping in mind urban inhabitants by 2030 and how much does it cost on a per capita basis to provide for acceptable service delivery levels for each of the key urban services. Successive Finance Commissions have also endorsed higher financial devolution to cities, resulting in share of urban bodies increasing from 0.78% of the divisible revenue pool in the Eleventh Finance Commission to 4.3% in the just concluded Fifteenth Finance Commission (Aiyar, 2021).

Weak governance constrains decision making and financial sustainability of ULBs: There is a lack of stable and sound decision-making at the municipality level (Glaeser, 2019; Janaagraha Centre for Citizenship and Democracy, 2017). Janaagraha’s annual survey of India’s city system (ASICS), which scores cities based on their quality of life, policies and institutional processes to evaluate the quality of governance, finds 10 months to be the average tenure of a municipal commissioner, which is too short to make any meaningful contribution to a city’s functioning. About 54% of cities do not generate enough revenue to meet their salary costs and 70% of the cities had budget variance of over 30%, pointing to instability in management and resource allocation. Despite the benefits attached to having an independent source of revenue, municipal revenue has remained stagnant at 1% of GDP between 2007-08 and 2017-18. Moreover, ULBs in India are heavily dependent on higher-level government transfers and are not empowered to mobilise financial resources through raising taxes or levying user fees or unlocking land value. The current user charges are insufficient to cover Operation and Maintenance (O&M) expenditure and absence of business models eliminate possible private investments (Ahluwalia, et al., 2019). The State Finance Commissions (SFC) make recommendations regarding sharing of taxes and revenues between the state and its respective Municipalities and Panchayats, and formulate action plans for the cities on various fronts. However, the latest fifth SFC report refers to different time periods for different states.[5] Furthermore, even if majority of the suggestions are accepted by the state government, they are not actually implemented (Gupta & Chakraborty, 2019).

Linking input and output of service delivery: There is relatively less literature for this third strand linking input with outcomes. Bandyopadhyay (2014) in a study covering 718 ULBs in Tamil Nadu, finds that ULBs with better revenue-generating ability have higher efficiency in resource utilisation and service delivery. Similarly, ‘Municipal Performance Index’ (MPI), one of the latest initiative by Ministry of Housing and Urban Affairs, Government of India, ranks cities based on an index comprising of various input and outcome indicators. It evaluates 111 municipalities across five broad verticals, namely: Governance, Technology, Planning, Services, and Finance. MPI’s findings suggest that municipalities without financial autonomy have weaker governance and poorer service delivery.

The current paper contributes to this third strand of literature by attempting to establish a link between expenditure incurred and outcomes achieved on SWM services. It is worth pointing out that the major studies (MGI, HPEC) that focused on urbanisation challenges in India and offered recommendations on how to correct these issues including the need to significantly increase urban infrastructure did not look at existing efficiency or sufficiency of expenditure across key services and whether there is scope to achieve better service delivery without spending more. Since India is still a lower middle-income country, it is imperative to optimize efficiency and this paper is an attempt in that direction.