How can we weaken the link between growth, energy demand and environmental pollution? The finance ministerís budget speech must take on this question
The finance minister will go through the annual budgetary rite of passage later this month. He will do so against a backdrop of unprecedented economic buoyancy and optimism. His speech will strike a note of triumphalism, and justifiably so. The macro economy has seldom looked so solid. Growth has averaged around 8 per cent over the past three years and 9 per cent in the first two quarters of FY 2006-07. The combined deficit of the Centre and states has come down from double digit numbers to around 7 per cent of GDP now; savings rates are close to 30 per cent; merchandise exports have increased at an annual rate in excess of 20 per cent and have doubled from $50 bn in 2002-03 to over $100 bn in 2005-06, and this despite a 9 per cent appreciation of the rupee against the dollar; interest rates, nominal and real, have been moderate; and foreign exchange reserves are today a healthy $170 bn.
Indian businesses have reengineered, reorganised and redesigned. An eclectic list of companies including cars, two-wheelers, consumer products and media is growing at rates faster than software. Several companies, not just the large ones like Tata & Reliance but also smaller and medium-sized groups are seeking a global footprint. They are scouring the world for acquisition opportunities bolstered by healthy balance sheets and a ballooning self-confidence in their managerial and entrepreneurial capabilities. One of the most positive indices of the recent economic performance is that 30-40 per cent of GDP growth has been due to rising productivity.
The FM can claim justifiable credit for moving the economy onto this higher growth trajectory. Of course, he does know better than most that this growth has not been inclusive and that huge challenges remain. The Planning Commission has estimated that there are currently 35 million unemployed and that an additional 10 million youngsters enter the labour force every year. This means that the government has to forge a growth path that will generate around 80 million jobs over the next 5 years. Given that economic growth of 8 per cent has only led to employment growth of 2.6 per cent and that today there are only 35 million employed in the organised sector (of which 21 million are in government service, 13 in the private sector and only 1 million in IT), the minister will on budget day undoubtedly set out the guideposts for shifting the economy onto a more job intensive pathway. My one hope is that in setting them out he will also lay out clear signages for tackling the now indubitable problem of global warming and climate change.
The recent report of the Intergovernmental Panel on climate change is the latest affirmation of the scientific consensus that anthropogenic (man-made) activities have been responsible for the steady climb in global temperatures. And that the world is fast reaching a tipping point beyond which further increases will have severe and irreversible consequences. Sea levels will rise and swamp low-lying regions; weather cycles will get more extreme and natural habitats will become inhospitable. The science is clear, but not the politics. There is scant evidence that despite the headlines the gap between politics and science is narrowing.
The Indian stand is straightforward. We are not to blame for the current crisis. After all, our per capita annual consumption of energy in 2003 was 594 kwh as against 14057 kwh in the US. Britain produces 48 times more carbon dioxide than India. The developed world, particularly the US, must put its house in order before lecturing India. They must bear a disproportionate share of the costs of such profligacy.
This is a solid and defensible position. But international politics and in particular US politics being what it is, it is unlikely to lead to any tangible measures in the near term. We must, therefore, also ask the question: What can we do to weaken the link between our economic growth, energy demand and environmental pollution? We must not let the laggardly responses of the developed world be the reason for shifting the spotlight away from domestic action. This is particularly because we would be among the most severely affected if the forewarnings of the scientists did come to pass.
In the hierarchy of actions that we should be pursuing, the enhancement of the efficiency of domestic energy usage offer the most highest returns. We are today among the most inefficient users of energy. We consume an incremental 1.5 barrels of oil per day for every $1000 increment in GDP. The comparable figure for France and Italy is 0.75 barrels. Next in rank order should be the development of alternative and renewable energy sources and investment in R&D for the development of cleaner fossil fuels and technologies for mitigating carbon emissions like carbon capture and storage.
China has placed energy efficiency, conservation and renewables on its national agenda. In 2005, it enacted a national renewables law and is aggressively promoting wind, hydro and nuclear energy. They have embarked on a nationwide campaign for energy savings and they have laid out nationwide standards for emissions. We must take a cue from Chinaís sense of urgency.
So what should the FM say on budget day? One, he should drive the governmentís stake on global warming firmly into the ground by stating it as a national priority in his budget speech and not simply as part of the fine print that is distributed later. Two, he should set out a framework of incentives and regulations to encourage companies to invest more in R&D; to shift to alternative and renewable energy sources to conserve and to enhance their efficiency of consumption. This will not be easy. How do you price carbon? How do you reconcile the competing interests of auto companies, oil producers, builders and consumers? Rather than seek to be the arbiter I would suggest that the FM look to the market for providing the direction. The gap between the science of global warming and politics is wide. The FM should use his moment of triumph to bring them closer.
The writer is chairman, Shell Group in India. The views are personal