Policy research firm Council on Energy, Environment and Water (CEEW) and the National Institute of Public Finance and Policy (NIPFP) have released a report titled “Jobs, Growth and Sustainability: A New Social Contract for India’s Recovery” from the coronavirus pandemic. It argues for a new social contract between the state, citizens and enterprise.
Dr Arunabha Ghosh, CEO CEEW and Dr Rathin Roy, director, NIPFP spoke to CNBC-TV18 about the report.
Your report talks about a new social contract between the state, citizen and the enterprise, what does it entail? What is it that the stakeholders need to focus on now to ensure that the we focus both on the fiscal front as well as the healthcare system?
Ghosh: The new social contract rests on two pillars: a commitment to jobs, growth and sustainability; and building resilience against tail-end risks, which have low probability but devastating impacts. The immediate attention remains on the humanitarian emergency — for health services and relief to patients, stranded workers and vulnerable communities.
But in parallel, India is charting its road to economic recovery, with a strategic shift in focus to a robust domestic production and supply chain. This journey also critically depends on the exit strategies from the lockdown. Post-lockdown public finance would have to focus on two areas: a fiscal stimulus to alleviate the adverse impact on firms, self-owned enterprises and migrant workers, and structural economic recovery through stabilisation of financial institutions and inflation rates, and increased rate of economic growth. Our report presents several practical ideas on both fronts.
Let me talk about the first part of the social contract, jobs, we have seen labour migration, most of them cater to the informal sector, what do you suggest should be done? How will the system proposed, MISHRII help the same?
Ghosh: Distributing financial aid and devising targeted policy interventions for India’s MSMEs [micro, small and medium enterprises] and informal workforce is difficult due to the challenges with identifying and targeting those most in need.We have proposed the creation of a nationwide, centralised digital platform, MISHRII: MSME Information System for Holistic and Real-time Identification, Incentives and Support.
MISHRII would collect data on the size, distribution, and economic contribution of MSMEs and their workers to the national output, and seed details such as occupation, days of employment and monthly income into their Aadhaar-linked profiles. Access to real-time, credible information about MSMEs would allow their inclusion in formal business and banking systems; ensure efficient, targeted delivery of aid and incentives, and in the long run, allow tracking of compliance.
We have been a victim of natural disasters over the last couple of years, whether its drought, floods or cyclones, India has seen it all. How prepared are we as a country to tackle this and what changes are required? And what would the impact of those changes be on the economy?
Ghosh: India must evolve its emergency preparedness by building resilient physical and digital infrastructure, training relief personnel, and inculcating social and behavioural changes in citizens. We recommend that the government launches an Environment and Health De-Risking Mission to focus on risks posed by climate change, air pollution, chemicals, and antimicrobial resistance. For this, India must develop a Climate Risk Atlas covering critical vulnerabilities (coasts, urban heat stress, water stress, crop loss, vector-borne disease, and biodiversity collapse).
We also recommend a nationwide, centralised and real-time Integrated Emergency Surveillance System (IESM) to facilitate a systematic and sustained response to emergencies and rapid restoration of business-as-usual operations. A Unified Emergency Response Framework (URF), comprising a set of standard operating procedures (SOPs) for the public, should be mandated in school and university curricula, as well as community, corporate, and institutional training, to create an understanding of risks and inculcate behavioural adaptation to stress situations in citizens and communities.
There is so much dependence on coal in the country, what are your suggestions to create a market for renewables and change the power sector framework?
Ghosh: Coal-based sources account for 70 percent of India’s power generation; 20 percent of this comes from thermal power plants older than 25 years and constitutes a significant fixed cost burden for the discoms. It is economically prudent to reduce fixed costs of older plants, bring in financial solvency for the many new, disused plants, and free up low-cost coal for efficient generators. We estimate savings in the range of Rs 12,000-Rs 18,000 crore ($1.6 to 2.4 billion) through this decommissioning, which can be shared among participating discoms.
The renewable energy (RE) industry has taken a big hit from the lockdown and requires urgent support on sectoral issues. In this report, we have proposed a rethink of the structural framework of India’s power sector: this includes setting up a multi-stakeholder National Electricity Council (NEC), making an Integrated Energy Resource Plan (IERP), establishing a National Renewable Energy Corporation (NREC), and eventually, notifying a National Renewable Energy Policy (NREP).
Accelerated RE deployment will also save forex from reduced coal imports. Even if half the generated renewable power is used to replace imported coal, India can save over Rs 6.75 lakh crore and abate over 4,650 MTCO2 emissions as compared to business as usual between 2020 and 2030.
You spoke about how low crude prices can be used into LPG subsidy savings. In May, LPG subsidy was already zero, there is a possibility of that trend to continue due to the current environment. Do you think subsidy distribution in the country is inequitable, what should the government do to encourage people to use gas as an energy source?
Ghosh: As part of the COVID-19 relief package, the government has announced three free LPG refills for PMUY [Pradhan Mantri Ujjwala Yojana] beneficiaries until March 31, 2021. India could turn the low crude prices into LPG subsidy savings and provide up to six LPG refills to PMUY households in FY2021. The extra free refills may need additional subsidy of around Rs 6,000 crore — one-sixth of the current subsidy budget — which is already committed under PMGKY [Pradhan Mantri Garib Kalyan Yojana]. This proposal allows savings between Rs 5,500 crore and Rs 25,000 crore, accounting for the extra margin of OMCs [oil marketing companies] for refills where the cost of a refill is lower than its estimated market price. This would increase the disposable income of these households in these stressed times, and extended use of LPG would prevent a slide back to traditional biomass-based fuels.
The government right now is facing a dilemma of containing the outbreak and saving lives, and on the other hand to preserve businesses, to deliver the new social contract and ensure balance between the stakeholders, what do you suggest the immediate action by policymakers be?
Roy: The government has put in place an economic recovery package. The immediate effort, as I see it, is to ensure that businesses, farmers, and service providers who require resources to tide over the rather sharp slowdown have access to such resources. Other actions on the demand side would be desirable as the report highlights, especially with a focus on jobs.
In these testing times, how do you expect MSMEs to come ahead and take charge of the situation, they have been facing issues even before the pandemic and as your report pointed out, they are not a part of the formal economy?
Roy: The MSMEs require targeted support. A national cookie-cutter approach will not work precisely because of their informality and the diversity of their supply chains and customers. In the case of service sector MSMEs, the matter is especially complex when it comes to informal services which are an important contributor to GDP. States need to take the lead here and the Centre needs to support the states through appropriate financial and policy support in this endeavour.
Do you really think India has the fiscal space to go for all these additional investments in health, disaster management infra, climate change? Of course, it is very important, but considering the current situation, how reasonable is it?
Fiscal space has to be found and I have elsewhere indicated a calibrated approach to the problem. This is a multi-year effort and so we urgently need a medium term fiscal framework that can present a clear roadmap of how fiscal space can be generated and employed, consistent with macroeconomic stability.