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The Hindu 01-June-2019

1st June 2019- Daily Current Affairs : The Hindu Analysis

Editorial: 01-June-2019

AN AGENDA FOR ENERGY SECTOR TO FUEL GROWTH
(Live Mint)

In the next five years, expect continuity on the policy front with a focus on implementation.

The energy sector was at the centre of the Narendra Modi government’s development agenda in its first five years. The unprecedented expansion of universal energy access was achieved through schemes such as Saubhagya (household electrification) and Pradhan Mantri Ujjwala Yojana (cooking gas to the poor). The government also implemented UJALA (distribution of LED bulbs) and UDAY (turnaround of electricity distribution companies) schemes to improve energy efficiency.

India also committed to energy sustainability and signed the COP 21 Paris climate change agreement. It launched a massive renewable energy (RE) programme to achieve 175 GW of capacity by 2022. RE capacity grew from 32 GW in 2014 to 80 GW to date. The upstream oil and gas licensing regime was revamped through the Hydrocarbon Exploration and Licensing Policy (HELP) and Discovered Small Field Policy (HELP) and Discovered Small Field (DSF) bidding rounds. Strategic oil reserves were created and filled. India emerged as a key player in the geopolitics of energy.

The overall objective of reviving investment and creating jobs can be achieved by policy intervention in the energy sector. Some of these interventions are listed here:

•An RE capacity of 80 GW will have to be bid out in the next three years to achieve the 175 GW target by 2022. Recent RE bids were under-subscribed. This may be due to issues related to tariff caps, land availability in states with a high RE potential, and grid connectivity. These issues will be addressed. Utilities should also honour existing contracts and accept outcomes of bid processes.

•About 25 GW of gas-based generation capacity, running at sub-optimal levels, leads to a default to the banking system and the under-utilization of gas infrastructure. The government may consider using this capacity, along with RE power, to lower the overall carbon footprint and increase asset utilization.

•Stressed power projects continue to be the biggest concern in the power sector and a drag on the banking system. The central government should facilitate procurement of un-contracted capacity of these projects by pooling state utilities’ requirement and providing coal linkage.

•UDAY provided one-time relief to distribution utilities by restructuring 75% of the debt. This was to be accompanied by improvements in operations and the implementation of cost-reflective tariffs. Many utilities achieved good results. Of late, however, there are slippages in tariff hikes and efficiency gains are not in line with the plan agreed with the government of India. The government will have to revisit the UDAY monitoring mechanism and urge states to work according to the memorandum of understanding.

• After the successful HELP and DSF bidding rounds, the centre should ensure bidding rounds, the centre should ensure that the continuous decline in domestic oil and gas production is arrested and the prime minister’s vision of replacement of 10% imports is achieved. Enhanced oil recovery techniques must be deployed in ageing fields to improve production. A national biofuel policy is an important initiative from an energy security and sustainability standpoint. This will also generate local employment and help enhance farmers’ incomes.

• India has been struggling to increase the share of natural gas in the primary energy basket. Despite its target of raising the share to 15%, it has fallen to 6%. The government should bring in facilitating policies in user industries to increase the use of gas. The move will reduce carbon footprint and help fight pollution.

• In the past five years, India benefitted from a low-to-moderate crude oil regime. India should continue its global engagement and lead the charge in voicing the concerns of the consuming nations.

bidding rounds, the centre should ensure that the continuous decline in domestic oil and gas production is arrested and the prime minister’s v

ision of replacement of 10% imports is achieved. Enhanced oil recovery techniques must be deployed in ageing fields to improve production. A national biofuel policy is an important initiative from an energy security and sustainability standpoint. This will also generate local employment and help enhance farmers’ incomes.

• India has been struggling to increase the share of natural gas in the primary energy basket. Despite its target of raising the share to 15%, it has fallen to 6%. The government should bring in facilitating policies in user industries to increase the use of gas. The move will reduce carbon footprint and help fight pollution.

• In the past five years, India benefitted from a low-to-moderate crude oil regime. India should continue its global engagement and lead the charge in voicing the concerns of the consuming nations.

Success in the energy sector is crucial in “fuelling" growth in the economy and Modi Government 2.0 seems to be well placed to achieve it.

Editorial 01-06-2019

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The Hindu 02-June-2019

2nd June - Daily Current Affairs

Editorial: 02-06-2019

A Recipe for Growth

India should learn from its past, and speed up critical reforms.

A few numbers are useful to put in perspective the development challenge that India faces today. India’s current gross domestic product (GDP) is around $2.5 trillion while its GDP per person is $2,000. With an annual population growth of 1.1 per cent and aggregate GDP growth of 6.6 per cent, India’s per person GDP is currently growing at 5.5 per cent annually. At these growth rates, India’s per person GDP would be around $19,000 in 2060.

To put this scenario in perspective, Greece’s per person GDP today is around $20,000. Even if India manages to sustain an average growth rate of 7 per cent for the next 41 years, India’s per person GDP would still be barely above the current per person GDP of Greece. And, Greece isn’t exactly a development role model.

The uncertainties around these scenarios are also huge. If the average aggregate growth rate drops to 5.6 per cent, India’s per person GDP in 2060 would be around $12,000, which is only slightly above the per person GDP in China today. This is the risk inherent in India slipping even slightly from its current growth path and the scale of its development challenge.

Development is a challenge globally, not just in India. The per person GDP of the richest 5 per cent of countries in the world is over 50 times larger than the per person GDP of the poorest 5 per cent. What explains such large disparities across countries?

Output is produced by combining labour of different skill types, land, capital, energy and public infrastructure. Combining these inputs also requires entrepreneurship and management. For example, at the level of the firm, managers who are better at matching the skills of individual workers to tasks are able to generate higher revenues. This applies at the level of the country as well. It is the unmeasured X-factor that is commonly referred to as productivity.

A number of researchers have found that measured inputs account for at most half of the per person difference in output across countries. The remaining output gap is due to differences in productivity levels across countries. For some reason, the same measured inputs produce much more output in the richer countries, relative to poorer nations.

What is the secret sauce that richer countries use which makes them so productive? There are a few suspects. The first is clearly the policy environment in the country. Economies that encourage capital and labour to easily move across firms, sectors and countries towards their most productive use tend to be more productive. Economies where such mobility is restricted have more misallocation of labour and capital. There are many examples of these: Historians working as bankers, capital stuck in loss-making firms that cannot shut down due to exit policies and limited technology inflows due to import restrictions.

A second reason for differences in productivity across countries is the quality of institutions. The types of contracts that individuals and businesses are willing to sign depend hugely on things like the rule of law, the nature of laws, enforcement of contracts and property rights, reliability of public data and information, the independence of agencies that oversee law enforcement and dissemination of public information.

How does this apply to India? Clearly, there are many impediments to the supply of inputs. Businesses need land to build factories, and foreign partners for the latest technologies. Factories are needed to absorb the labour that India has. A large fraction of this labour is currently stuck in extremely distressed conditions in agriculture because not enough jobs are being created in other sectors. Moreover, current labour laws make large scale hiring costly for firms. Addressing these require reforms to India’s existing land acquisition and labour policies.

Businesses also need capital which they acquire from financial markets. This requires a healthy credit culture wherein debts are repaid, insolvencies are dealt with in a

quick and orderly way, and banks are free to lend to the most productive borrower. Our banking sector is mostly state controlled. Banks face myriad constraints on lending due to targets for priority sector lending, statutory liquidity ratio and informal pressures on directed lending. Repeated loan waivers have vitiated the credit culture making it harder for banks to recover loans. The introduction of the insolvency and bankruptcy code has been an excellent initiative but resolutions under it are still slow. All of this bids up the cost of funds for private businesses. Financial sector reforms, including bank privatisation, are clearly needed.

More generally, private businesses, locally and globally, need to feel that India is business friendly — its industrial and trade policies are not subject to sudden reversals, enforcement agencies are independent, public data is reliable, and the country values domain specialists in overseeing its market infrastructure. This is about generating confidence in the institutional structure of India to encourage greater investment and newer technology inflows through foreign direct investment.

As we saw above, relatively small changes in performance can induce wide divergence in potential outcomes over a sustained period. Forty years is the working life of a whole generation. The period from 1950 to 1990 already saw a generation barely experiencing any growth in incomes. India cannot let that happen again. Development is a long game. India needs to act now and stay the course.

Editorial 02-06-2019