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Subject: General Studies (Paper 3 - Technology, Economic Development, Bio diversity, Environment, Security and Disaster Management)

Topic: Inclusive Growth and Issues (Part -2)

PROMOTING GREENER GROWTH

Rapid economic growth in India in the past two decades has brought tremendous benefits, yet it has also accentuated the demand for energy and natural resources. While continued growth is essential for further improving living standards, meeting India’s poverty reduction objectives, as well as food and energy access requirements, it should be made greener. Efforts are therefore needed to increase energy and resource efficiency, notably through lower fossil fuel subsidies, and accelerate the adoption of clean technologies.

India has incorporated sustainable growth as a focus area in its growth strategy plan within the 12th Five-Year Plan (2012-2017) Faster, Sustainable and More Inclusive Growth. India’s priorities for green growth centre on providing food and energy security, including also actions on sustainable agriculture , waste management, resource efficiency and energy access , sustain able water provision , sustainable transport and green housing. The National Action Plan on Cli mate Change (NAPCC) from 2008 outlines existing policies and programmes, as well as eight “national  missions” focussed on the promotion of solar energy, energy efficiency, sustainable habits, water efficiency, and the preservation of the Himalayan Ecosystem.

Revenues raised from environmentally related taxes were equal to approximately 1.2% of GDP in India in 2010, down from 1.45% of GDP in 2005. There is scope for increasing India’s environmentally related taxes, in particular energy taxes, given higher levels of such taxes in some other emerging economies, such as China and Brazil.

The total cost of indirect and direct subsidies for food, fertilizers, irrigation, electricity and fossil fuels, was recently estimated to be around 9% of GDP, with a high proportion accruing to households well above the poverty line. Fossil fuel subsidies are especially large compared with other fuel- importing countries at 3.5% of GDP in 2008. Reducing these subsidies, in particular fossil fuel subsidies, could release public resources while reducing the incentives for environmentally harmful consumption and production habits. These subsidies could be replaced by a system of cash transfers or coupons for other goods, such as food, to address any potential social impacts.

India has taken some steps in this direction , including efforts to wards the deregulation of gasoline pricing as well as efforts aimed at moving away from the current system of subsidies on kerosene and liquid petroleum gas towards direct cash payments for people with incomes below the poverty line.

India has one of the lowest per capita levels of electricity consumption in the world, with about 7% of the level of OECD countries ; a quarter of the population still lacks access to electricity. Demand is however rising quickly, driven by India’s demographic and economic growth, new modern lifestyles and higher electrification rates. This puts energy supply security at risk since India depends heavily on imported coal to meet its needs (coal represents nearly 42% of total primary energy demand and about 56% of installed power generation capacity). Current trends will drive up imports of fossil fuels, local pollution and greenhouse gas emissions. Energy security has also become a major concern for businesses.

India is the reform pursuing multiple policies to promote more efficient and less carbon intensive energy production and consumption. The Bureau of Energy Efficiency (BEE) has launched multiple policies addressing the main energy consuming sectors. Under the NAPCC, India launched in 2010 the National Mission for Enhanced Energy Efficiency (NMEEE) to enhance energy efficiency using market mechanisms. Notably since 2011 under the Perform, Achieve, Trade (PAT) scheme, energy-efficiency improvement targets are assigned to the eight most energy-intensive industrial sectors, covering 65% of India’s total industrial energy consumption. Industrial entities that exceed their benchmarks will be issuing energy saving certificates.

which can then be sold to entities which fail to meet the set targets. Expected savings are 19 GW of energy and a reduction of emissions by 98 million tonnes a year, once the scheme is implemented. Other policy initiatives aim to facilitate risk sharing and reduce barriers for financing of energy efficiency investments through the creation of a partial risk guarantee fund and a venture capital fund. In addition, the “Energy Efficiency Services Limited Company” is tasked with developing a viable market for energy service companies to promote energy efficient technology, financing to various sectors and offering training and capacity building.

India also adopted various programs to decarbonizes its carbon-intensive power sector; their implementation is essential. India had the world’s fifth largest installed wind capacity in 2011 and its share of renewable in electricity generation (excluding hydro) reached about12% . Yet its vast potential in renewable energy remains largely underutilized. The Electricity Act of 2003 introduced essential elements of a preferential tariff for renewable -based electricity and amendatory renewable purchase obligation (RPO) for power utility companies. This led to the introduction of the Renewable Energy Certificate (REC) scheme in 2010 to enable state electricity distribution companies to fulfill their RPO by trading the RECs.

Under the NAPCC, the Jawaharlal Nehru National Solar Mission (JNNSM) was launched in 2010, setting out ambitious targets for expanding solar energy in India. The on-grid solar PV capacity increased significantly from 32 MW in January 2011 to 979 GW in May 2012. The 12th Five Year Plan (2012-17) will likely envisage an ambitious capacity expansion of renewable energy in the power sector.

LOWERING POVERTY AND INEQUALITY

India has made impressive progress in reducing absolute poverty over the past decades, but inequality is rising. In 2009-2010, 33.8% of the rural population and 20.9% of the urban population lived below the Government’s official absolute poverty line, down from 42% and 25.5% , respectively, in 2004-2005. This is the continuation of long-term trends underway since the 1970s. Economic growth has played a pivotal role in poverty reduction, particularly since major economic reforms were initiated in the early 1990s. Nevertheless, while India strides towards absolute poverty reduction, it has experienced a significant rise in inequality, similar to that seen by other major Emerging Economies, including China, Russia and South Africa .

One important pattern emerging since the early 1990s has been the rise of inequality within both urban and rural areas. While similar trends are seen in China, other large emerging economies, such as Brazil and Indonesia, report declining inequality in urban and, especially, rural areas. This evolution of inequality between rural and urban are as causes concern in India. Between 1995 and 2005, the growth of real consumption for those in the two highest income deciles in urban areas has been about 1.5% per year 23 faster than for those on median incomes. Incomes at the lower end of the labour market increased more modestly, reflecting the enormous over- supply of unskilled labour typical of a rapidly developing country. In rural areas, income growth has been less unequal, closer to that of the lower income groups in urban areas.

Strong group-based inequality, reflecting India’s traditional caste system as well as gender issues, is a serious impediment to further poverty reduction. Government data shows that scheduled tribes and castes exhibit much higher poverty rates than the average population, with women and children suffering the highest incidence of poverty as well as poorer health and education outcomes.

The Government’s recent Approach to the12th Five Year Plan recognizes that further lowering the incidence of poverty and reversing the pattern of growing inequality will require a comprehensive strategy. Many key elements of this multi - dimensional approach are addressed in the other chapters of this document, including policies to improve health, nutrition and education al outcomes .In addition, labour market reforms could help reduce the segmentation between formal and informal employment .The tax system delivers only modest redistribution. In the context of the ongoing reform of direct taxation, increasing the tax free-threshold could increase the redistributive effects of the system .

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