📰 India gets first-ever U.S. crude shipment
‘Such supplies will help mitigate risks’
•The first ever shipment of U.S. crude oil of 1.6 million barrels, purchased by state-run Indian Oil Corporation (IOC), was received at Paradip Port on Monday.
•The shipment is a part of recent commitments to purchase U.S. oil by IOC, Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL). IOC has placed a cumulative order for 3.9 million barrels from the U.S. while BPCL and Hindustan Petroleum have placed orders for about 2.95 million barrels and one million barrels, respectively.
•“This marks the beginning of a new chapter in the history of Indo-U.S. trade, particularly in the oil and gas sector,” Sunjay Sudhir Joint Secretary (International Cooperation) in the Ministry of Petroleum and Natural Gas said after he took symbolic delivery of a sample of the oil.
•“The inclusion of the U.S. as a source for crude oil imports by India’s largest refiner will go a long way in mitigating the risks arising out of geo-political disruptions.
•“I hope that the new arrangement will also usher in price stability and energy security for India, which is witnessing robust growth in demand for petroleum products,” added Mr.Sudhir.
Bilateral trade boost
•U.S. crude oil shipments to India have the potential to boost bilateral trade by up to $2 billion, according to a. U.S. Embassy release. The crude oil shipment was delivered by MT New Prosperity, a Very Large Crude Carrier (VLCC) of capacity 2 million barrels of crude, which left the U.S. Gulf Coast on August 19.
•“This event marks a significant milestone in the growing partnership between the United States and India,” MaryKay Carlson, Chargé d’Affaires at the U.S. Embassy in Delhi said in the release.
•“The United States and India are elevating our cooperation in the field of energy, including plans for cleaner fossil fuels, renewables, nuclear and cutting edge storage and energy efficiency technologies. “We look forward to working together on further sales of U.S. crude and exploring opportunities to expand the role of natural gas in India.” Ms. Carlson added.
📰 I am very pleased for the fruit fly: Nobel winner Michael Rosbash
Humble insect receives praise from Michael Rosbach, one of the scientists to win the medicine Nobel
•Three Americans won the Nobel Prize in Physiology or Medicine on Monday for their discoveries about the body’s biological clock, opening up whole new fields of research and raising awareness about the importance of getting enough sleep.
•Jeffrey C. Hall, Michael Rosbash and Michael W. Young won the 9-million-kronor ($1.1 million) prize for their work on finding genetic mechanisms behind circadian rhythms, which adapt the workings of the body to different phases of the day, influencing sleep, behaviour, hormone levels, body temperature and metabolism. The work was done using fruit flies.
•“I am very pleased for the fruit fly,” said Mr. Rosbash, a 73-year-old professor at Brandeis University. He said he got the call about the award just after 5 a.m.
•“When the landline rings at that hour, normally it is because someone died,” he said. “I’m still a little overwhelmed.”
•He added, “I stand on the shoulders of giants. This is a very humbling award.”
•The awardees’ work stems back to 1984, when Mr. Rosbash and Mr. Hall, both at Brandeis, along with Mr. Young isolated the “period gene” in fruit flies. Mr. Hall and Mr. Rosbash found that a protein encoded by the gene accumulated during the night and degraded during daytime. A decade later, Mr. Young discovered another “clock gene.”
•The scientists “were able to peek inside our biological clock and elucidate its inner workings,” the Nobel citation said. “Circadian dysfunction has been linked to sleep disorders, as well as depression, bipolar disorder, cognitive function, memory formation and some neurological diseases,” according to a Nobel background report.
•Mr. Hall, 72, wryly noted that he was already awake when he received the call from Sweden about his Nobel because of changes in his circadian rhythm as he has grown older. “I said ‘Is this a prank?’ I didn’t really believe it. I didn’t expect it,” Mr. Hall recounted, speaking from his home in rural Cambridge, Maine.
Sleep hygiene
•The winners have raised “awareness of the importance of a proper sleep hygiene” said Juleen Zierath of the Nobel Assembly at the Karolinska Institute, which chooses the laureates. Carlos Ibanez, another assembly member, said the research was important in understanding how humans adapt to shift work. Michael Hastings, a scientist at the U.K. Medical Research Council, said the discoveries had opened up a whole new field of study for biology and medicine.
•“Until then, the body clock was viewed as a sort of black box,” said Mr. Hastings.
•“We knew nothing about its operation. But what they did was get the genes that made the body clock, and once you’ve got the genes, you can take the field wherever you want to.”
•“Our well-being is affected when there is a temporary mismatch between our external environment and this internal biological clock, for example when we travel across several time zones and experience ‘jet lag’,” the Nobel statement said. “There are also indications that chronic misalignment between our lifestyle and the rhythm dictated by our inner time keeper is associated with increased risk for various diseases.”
📰 Awry forecasts, but IMD sticks to models
It was off the mark in assessing rainfall in August and Sept.
•The India Meteorological Department (IMD) will review the computer models it used for preparing forecasts this year, but is unlikely to make any dramatic corrections, senior officials told The Hindu .
•India has ended up with “below normal” rain (less than 96% of the 50-year Long Period Average (LPA) of 89 cm), even as the IMD forecast near normal or 96% (of 89 cm) rain in April and then upgraded it to 98% in June. While that is arguably within the error margins of the statistical systems employed by the IMD to prepare the forecast, the organisation was way off the mark in assessing rainfall in August and September. These are the months that pool in about half the monsoon rain.
•On August 8, the IMD said in a press release that rain in that month would be 99% (of 26.1 cm) of what was usual. But India got only 87% of rain, well outside the 9% statistical error margins of the forecast models. In September too, when the country expects about 17.4 cm of rain, it got just 14.9 cm or 15% short. This even as the IMD said rain in these months combined would be “normal,” or at worst 6% (of 43.4 cm) short.
Yawning deficit
•It also — in its monthly assessments — failed to anticipate a yawning deficit over Central India, a key region that indicates the overall health of the monsoon.
•Earlier this year, there were worries that a looming El Nino could affect the “latter half [after August]” of the monsoon, but international agencies, including the IMD, ruled out its impact. June and July turned out to be months of excess rain.
📰 Justice Rohini to head sub-categorisation panel
The five-member panel will be headed by retired Chief Justice of Delhi High Court Rohini
•President Ram Nath Kovind on Monday appointed a commission to examine the sub-categorisation of Other Backward Classes (OBCs) to ensure that the more backward among the communities can access the benefits of reservation.
•The five-member panel will be headed by retired Chief Justice of the Delhi High Court G. Rohini.
•The Ministry of Social Justice and Empowerment said in a statement, “Sub-categorisation of the OBCs will ensure that the more backward among the OBC communities can also access the benefits of reservation for educational institutions and government jobs.”
•The decision, taken on the birth anniversary of Mahatma Gandhi, reinforces, in the spirit of his teachings, the government’s efforts to achieve greater social justice and inclusion for all, and specifically members of the OBC, the statement added.
•The Joint Secretary in the Department of Social Justice and Empowerment will be its secretary. J.K. Bajaj would be its member, while the Director of the Anthropological Survey of India and the Registrar-General and Census Commissioner are ex-officio members.
Terms of reference
•The terms of reference of the commission are to “examine the extent of inequitable distribution of benefits of reservation among the castes or communities included in the broad category of OBC with reference to such classes included in the Central list; to work out the mechanism for sub- categorisation.”
📰 Premium trains run with empty seats
Flight tickets are often cheaper than the fares in these services, thanks to the flexi fare system
•Railway Minister Piyush Goyal’s announcement last week that the public transporter was reviewing the scheme of flexi fares introduced in September last year, reflects the paradox of a surge in Railway revenue even as premium trains run with vacant seats.
•While Railway revenues have surged by Rs. 500 crore in the one year since the flexi fare scheme was introduced on premium and express trains, the number of passengers has dropped significantly.
•The scheme has resulted in premium trains such as the Mumbai-Delhi Rajdhani Express running with vacant seats. While earlier, bookings had to be done months in advance to ensure a confirmed ticket, following the introduction of the system, up to 30% of seats remain unoccupied on any given day, according to data from the Western Railway. Interestingly on most days, flight tickets are cheaper than the Rajdhani fares.
•The flexi fare scheme came into effect on September 9, 2016 wherein only the first 10% of the seats are booked at the regular fare. Thereafter, the fare increases by 10% with every 10% of the seats booked. The flexi fare scheme is, however, not applicable for first class AC and executive class.
•The scheme is applicable to all premium trains including Rajdhani, Shatabdi and Duronto Express. As many as 42 Rajdhani, 46 Shatabdi and 54 Duronto trains are currently in operation.
•While passengers have raised concerns over the surge in fares, data suggest that passengers have chosen to fly instead of taking trains.
•Data for the Mumbai-Delhi Rajdhani Express show that while 8,256 passengers travelled in the 2AC coaches between July 1, 2016 and July 31, 2016, the number fell to 7,124 for the corresponding period in 2017. Similarly for the same period, on the August Kranti Express, the numbers dropped from 8,228 passengers in 2016 to 5,849 in 2017 for the 2AC coaches.
•Rajiv Singhal, member of the Divisional Railway User’s Consultative Committee, said, “It is high time the Railways thought they are a profit-making organisation rather than a service-oriented [one]. Many passengers have shifted to flights due to the dynamic fares.”
📰 The numbers game
The India Meteorological Departmentneeds to better tailor its forecast for farmers
•With the India Meteorological Department getting its monsoon forecast wrong this year, its modelling has necessarily come under the spotlight. In April, the IMD had predicted “near normal”, or 96%, rains and then upgraded the figure to 98% a couple of months later. These percentages refer to the proportion of rains to 89 cm, a 50-year average of monsoon rains. However, the country finally ended up with “below normal” rains (that is, less than 96% of the 50-year long period average). In itself, this is not a problem. Crop sowing is expected to be only a little less than last year, which saw a record harvest, with more districts posting deficient rain. Better drought management has over the years weakened the link between rain shortfall and food production, but the IMD continues to persevere with the meaningless practice of assigning a catch-all number to the quantum of rain expected during the monsoon. While initially conceived as a measure to bring rigour to the task of warning the government about a drought or weak rains, it has now become a numbers exercise, couched in statistical error margins and pedantic definitions, to ward off blame for getting its forecast wrong. While a single number, 96 or 95, has the power to brand rainfall as “near” or “below” normal, the IMD never admits to being in error. It relies on the security of generous error margins. Thus, a 98% forecast, say, implies a range from 94% to 102% and so could span “below normal” to “above normal”.
•The fallout of focussing on numbers to gauge a phenomenon as geographically and quantitatively varied as the Indian monsoon is that it has ripple effects of tricking everyone from policymakers to the stock markets that a ‘normal’ monsoon implies all will be well with rainfall distribution. So this year’s floods in Mumbai, Assam and Bihar, and the months-long drought in Karnataka and Vidarbha were all merged under an umbrella number. The Indian monsoon has over the centuries stayed remarkably consistent at around 89 cm during the monsoon months, give or take 10%. The challenge lies in capturing intra-seasonal variation or forecasting a sudden change in global weather (such as typhoons) that can affect rainfall over specific districts. Therefore, simply getting these blanket four-month forecasts right doesn’t really help. While more and more farmers are opting for crop insurance and have far greater access — via mobile phones — to news on weather patterns, what they seek are localised, actionable inputs to guide them on sowing or harvesting decisions. The IMD is increasingly relying on supercomputers and sophisticated models to warn of weather changes at the district level. These localised estimates aim to warn of threatening weather — and are operationally useful — rather than reduce rain to numerical jugglery. The IMD must give momentum to this shift.
📰 Chauvinist winds over India
The response to the Rohingya crisis is just one of many manifestations of a growing gracelessness
•Recent debates, whether over refugees, the right to dissent, or gender violence, suggest that India is becoming a nation devoid of compassion for those who are persecuted even to the point of murder. Are we such a graceless polity? Have we always been this way?
•Our forefathers tell us we were not so. In the great ethical exploration of theBhagavad Gita, Arjuna asked Krishna what, if anything, could justify taking a human life. He dismissed every answer Krishna gave and entered battle reluctantly, against his own dharma. Mahatma Gandhi qualified Arjuna’s words, saying we could take up arms if our own lives, or if the lives of others, were under attack. Guru Gobind Singh said it was our duty to come to the defence of all those who were threatened through no fault of their own.
•We defended by opening our doors. More often than going to war, we gave refuge to the persecuted.
Stance on Rohingya
•By contrast, we are told today that we should not offer sanctuary. Our own government is in the Supreme Court defending its decision to deport Rohingya refugees. Intelligence agencies say all Rohingya are a threat because some amongst them are terrorists and/or criminals. The Home Ministry says they are illegal immigrants, and many opinion writers say we must put security above concern for refugees. Government spokespersons say defensively that India has neither signed the 1951 Convention of the UNHCR (the United Nation’s Refugee Agency) nor its 1967 protocol, and so it is not bound to take refugees.
•That there are Rohingya terrorist groups is already proven. Some Rohingya have also been guilty of killing Hindus and Buddhists in Myanmar’s Rakhine state. But that does not mean we can tarnish all Rohingya with generic suspicion. If Indian intelligence agencies have identified terrorists and/or criminals amongst the refugees, they should arrest and hand them over for trial in Myanmar, or try them in India’s own courts. But India cannot, or should not, deport all Rohingya because some are criminal. Nor can India call Rohingya refugees illegal immigrants when 16,000 of them are registered with the UNHCR and are clearly fleeing from the pogrom conducted in the Rakhine state. That India is not a signatory to the UNHCR convention is a matter of shame, not a just defence. The UNHCR is one of the few stellar non-governmental institutions whose work is a credit to all of the UN. The UNHCR’s efforts with Syrian and Rohingya refugees deserve support, especially since the organisation was critical to India’s support for refugees during the 1971 Bangladesh war, and helped ensure their safe return. The Congress party bears the blame for not signing the UNHCR convention, but why is the present anti-Congress government falling back on the Congress’s failure?
•Despite India not signing the convention, the UNHCR has generally praised India as a host country. Indeed, as the present government at the Centre says, the country’s track record in the past has been good. The people of Tripura opened their homes for refugees from East Pakistan in 1971, as did the people of Tamil Nadu for Sri Lankan refugees. Tragically, the issue of Rohingya refugees gained salience in Jammu, which has a glorious tradition of hosting refugees that dates back to the 18th century. And just by way of perspective, the number of Rohingya refugees in India is estimated to be 40,000 while the UN warns of an exodus of close to a million.
Worsening polity
•India’s position on Rohingya refugees is only one sign of the country’s worsening polity. Trolls defend journalist and activist Gauri Lankesh’s murder as justified. We should not mourn the the death of “a witch”, they say. A year earlier they told us we should not mourn the lynching of Muslims suspected of eating or selling beef because anyone who kills a cow deserves to be punished. And these opinions are not just voiced by trolls — Bharatiya Janata Party MPs and MLAs voice them too, in footage captured by journalists. Communalism, misogyny, and hate appear to go hand in hand. Last week, a local BJP leader in Aligarh slapped a Hindu girl for having the temerity to go out with a Muslim. She has not been suspended from the party. Nor have the innumerable MPs or MLAs who voice similar opinions.
•Sadly, there is considerable social sanction for these opinions. Seventy years ago, when introducing the draft Constitution of India, B.R. Ambedkar warned that democracy “is only a top-dressing on Indian soil which is essentially undemocratic.” Our elected representatives, he said, would have to work hard to give people the education, income, and opportunity that would enable them to display tolerance towards each other. Successive generations of political leadership have clearly failed this duty. However, condemnable as their dereliction is, what we see today is new. Never before has India been subjected to such a barrage of illiberal opinion by elected representatives, even to the extent of justifying violation of the law.
•True, the shift towards chauvinism is not unique to India’s polity. Waves of similar and more extreme chauvinism swept the U.S. and Europe from the 1990s on — first in response to refugees from the Balkans war and then to 9/11, and post-9/11 to the rise of Islamist terrorism and refugees from the wars in West Asia. India’s own neighbourhood has long been communal towards religious minorities, whether they are Hindus in Fiji, Pakistan, Sri Lanka and Bangladesh; Muslims in Myanmar and Sri Lanka; or Christians and Ahmadis in Pakistan.
•But there is a strong fight back in many of these countries. In the U.S., state governments, the courts and civil society have mounted a fierce challenge to the Trump administration’s attempts to deport refugees and immigrants. In Germany, Angela Merkel has been re-elected Chancellor though many feared that her generous and unpopular stand on admitting refugees would cost her votes. In Bangladesh, Prime Minister Sheikh Hasina is battling chauvinists who have murdered dissenters. The Sri Lankan government has embarked on a slow and painful process of reconciliation with their Tamils, supported by provincial governments.
•Are either our Central or State governments fighting back? Why are they not asking we sign the UNHCR convention right away, and implement our constitutional safeguards against communalism and misogyny?
📰 Tackling the economic slowdown
Greater public investment must now flow into the repair and reconstruction of infrastructure
•“All hat and no cattle” goes the Texan description of posturing without economic heft. The government of Narendra Modi should be prepared to receive such a verdict on its economic policy if things continue to go the way they are right now. Economic growth has slowed for five consecutive quarters, that is from late 2015-16 onwards. By now growth is slower than it was in the quarter in which it assumed office. For a government that had promised to turn around the economy through decisive governance, this must serve as a wake-up call.
Why growth matters
•Why should it matter to us if the economy is growing more slowly? Growth matters in India as a large number of persons have to make do with far too few goods and services as it is, which is how poverty is defined. Note that these goods also include public goods or goods that are accessed by the entire populace of a country, such as parks, roads and bridges. Since these public goods are provided by government, the government needs tax revenues to supply them, and these depend upon national income. Then there is employment. A demand for labour exists only when there is a demand for goods. So growth is necessary if employment is to be assured.
•In India we not only have a pool of unemployed persons to absorb but we also need to provide employment to youth continuously entering the labour force. From this point of view, the slowing of the economy is a source of concern. An economy that has been slowing for five quarters is unlikely to turn around quickly. Also, it may not be able to do so on its own.
•Replying to the suggestion made that the economy needs a shot in the arm in the form of a fiscal stimulus, the government’s spokespersons have responded by saying that it is working on ‘transforming’ the economy, and that its policies will have long-term favourable consequences. Its transformative approach may be expected to fructify only with a lag, we are told. While the government itself has not ruled out expansionary macroeconomic policy, writers in the media, including an editorial in this newspaper, have poured cold water on the very proposal, championing instead structural reforms. This challenge must be met.
•The first thing that comes to mind when ‘more structural reforms’ is proposed is that reforming is what all governments have been claiming to do for more or less a quarter of a century now. Since 2014, in particular, “the ease of doing business” has received great attention from this government. The economy today is far less regulated than it was in 1991. It would be correct to say that labour market reforms have not been taken up yet in Parliament and that exit is necessary for a dynamic economy. Labour laws in India make exit difficult, and complying with requirements with respect to the hiring of labour is time consuming and therefore costly. It is possible that the share of manufacturing will rise if the labour market is liberalised. And, though only a one-time gain, this could even benefit labour. However, it is not clear how this relates to the situation today which is one of slowing growth.
Landing an excuse
•It is when it comes to the land market that the argument for more reforms is least obvious. Apart from restrictions on conversion of agricultural land, no policy stands in the way of private parties transacting with one another. Surely, we can’t treat the issue of the alienation of agricultural land so casually as to remove all discretion vesting with government. If the argument is that the government must ensure as much land to private industry as they seek, though at a price, this is an intervention out of sync with a market economy. In this context, it may be said that an intervention that government in India should avoid is facilitating land acquired for industry to be alienated from manufacturing activity. Cases in question range from land owned by public sector units in Bengaluru, private mills in Mumbai and private industry in rural Kerala.
•For credibility, the argument made for land and labour market reforms as a pre-requisite for accelerating growth today must be able to account for how the economy came close to achieving 10% growth in the late 1980s and during 2003-08 when the policy regime was no more liberal than it is now. Equally, it would be difficult to relate slowing domestic growth to sluggish world trade as data show 2016-17 to be a year of a major turnaround in exports. On the other hand, capital formation as a share of output has declined almost steadily for six years now. In 2014-15 it rose slightly, as if in cue to Mr. Modi’s arrival, but soon resumed its sliding at a faster rate. The government appears to make light of this development. Actually, it contributed to the downward trend by reversing the rate of growth of expansion of public capital formation from 2015-16.
•It is generally the case that it is capital formation, or investment, that drives growth in the economy. Investment is an immediate source of demand as firms that invest buy goods and services to do so, but it also expands the economy’s capacity to produce. Of the two sources of investment, namely private and public, the first has been depressed for some years. In a slowing economy, private investment is unlikely to revive in the absence of some external force. This is so as investment involves committing funds for a long period under uncertainty. It is for this reason that economic theory prescribes the stepping-up of public investment when private firms are unwilling to invest more. Not only does increased public investment increase demand and quicken growth but it may be expected to encourage private investors, as the market for their goods expands.
•Other things being the same, increased public investment leads to a higher deficit, which is the gap between the government’s expenditure and its receipts. Among economists themselves there is resistance to governments running a deficit for fear that it may be inflationary. But in any such assessment, the increase in inflation must be offset with the increase in growth that would have been achieved due to greater public investment. In India, the increase in inflation that could come with higher growth would be due to the shortage of agricultural goods. So any plan for increasing the rate of growth, not just at the present moment but in general, must reckon with agricultural shortages. We have not yet fully solved this problem in India, whichever the party at the Centre.
Don’t be afraid of deficits
•The government is urged by some to refrain from increasing the deficit. While it is right to be concerned with the consequences, the correct approach would be to aim to balance the budget over the growth cycle. That is, the deficit may be increased as the economy slows and contracted as the economy quickens. To object to an increase in the deficit irrespective of the state of the economy is to be dogmatic. Since 2014 the government has focussed aggressively on the supply side by making it easier for private firms to produce. But we are now facing a demand shortage in the economy. The immediate thing to do is to expand public investment in infrastructure. The argument found in the media that there are “no shovel ready projects” is to encourage lazy governance. Repair and reconstruction of India’s creaking infrastructure is the direction in which greater public investment must now flow. It is the most direct and potent measure that can be undertaken to address the slowdown the economy is experiencing.
📰 The cost of electricity
What India needs to do for reliability, securityand affordability of electric supply
•The cost of electricity can be divided into plant-level costs, grid-level costs, and other costs. Plant-level costs consist of capital, operation and maintenance, and fuelling cost. Capital cost is reflected in the cost of generation by way of interest on debt and return on equity. For nuclear power plants, capital cost is high, but fuelling cost is low. For coal-fired power plants, capital cost is low, but fuelling cost is high. The capital cost of solar and wind is continuously decreasing; fuelling cost is nil.
•Electricity reaches a consumer through the grid. Laying a grid needs significant investment. A distributor buys electricity from a generator, adds transmission and distribution charges, a charge to recover technical losses, operating expenses, and his profit to determine the tariff to be charged from a consumer. Since several generators are connected to the grid, interaction with the grid and grid-management policies influence the working of a generator. At present, electricity markets do not assign any price to system effects, that is, to the complex interactions among various generators connected to the grid.
•In recent years, a large capacity based on variable renewable energy (VRE) sources has been connected to the grid. These sources are intermittent, but get priority feed-in due to nil fuelling cost. A grid manager must ensure that enough dispatchable generation capacity is connected to the grid to meet the peak load in the evening when solar power is not available. Dispatchable generation is provided by baseload technologies like coal and nuclear, and by large hydropower.
•Grid-level costs have several components: grid connection, grid extension and reinforcement, short-term balancing costs, and long-term costs for maintaining adequate back-up supply. VRE sources demand much higher back-up, grid connection and reinforcement costs. This aspect needs attention during policy formulation.
•In December 2016, the Central Electricity Authority issued a draft national electricity plan (DNEP), which refers to system effect and resulting system cost at several places.
•The emphasis on VRE sources without any investment in energy storage has converted daily load profile for dispatchable generating stations into a “duck curve”, that is, with a reduced electricity load during the day when solar is available and a rapid ramp up in the evening. This lowers the capacity factor of dispatchable generators. The DNEP acknowledges technological and operational challenges posed by the integration of VRE into the grid. It highlights the loss of generation efficiency, high maintenance cost, and higher emissions of combined cycle plants due to cycling and ramping. It details grid integration cost of VRE in qualitative terms.
•A recent report by the Department of Energy, U.S., highlights another element that is smoothening of transients in the grid by the inertia of the rotating mass present in thermal power plants, while solar plants have no such feature.
•System costs have been quantified by the Nuclear Energy Agency of the OECD and differ across countries depending on the extent of presence of sources like natural gas. According to this quantification, system cost of VRE sources is much higher than nuclear and coal. True parity of VRE sources will be achieved only when the sum of generation cost and system cost matches with that from dispatchable sources.
Other costs
•Other costs include those arising from the influence of electricity generation on health, influence on existing generation capacity due to adding new capacity, cost of accidents, security of supplies and net energy gain for society.
•In the Economic Survey 2016-17 (Volume 2), an attempt has been made to estimate grid-level costs and some other costs. The survey uses the term ‘social cost of carbon’ to represent economic cost of greenhouse gas emissions. It also adds health costs, costs of intermittency, opportunity cost of land, cost of government incentives and cost arising from stranded assets. It, thus, includes not only system cost, but a significant part of other costs as well. It estimates that the total social cost of renewables was Rs. 11 per kWh, around three times that of coal.
•Conventional metrics like levellised cost of electricity generation cannot be relied on to compare intermittent and dispatchable electric supply options. India’s electricity requirements are enormous. It doesn’t need a ‘technology versus technology’ debate, but a policy framework that integrates all low-carbon energy technologies with coal in a manner that ensures reliability and security of electric supply along with affordability and climate-resilient development.
📰 The fiscal myth
Government spending is not a magic wand to revive the economy
•Slow growth in the last few quarters, with growth in GDP dropping to 5.7% in the June quarter, has led to widespread speculation that the Central government might resort to increased spending to boost the economy. While there has been no official announcement of a fiscal stimulus yet, both the Finance Minister and Chief Economic Adviser have confirmed that the government is looking at ways to revive the economy. Many have justified the idea saying that in the absence of sufficient help from a hawkish Reserve Bank of India, the Central government is right to take things into its own hands.
•However, the argument that government spending can revive the economy and put it on a high-growth path is based on weak economic logic. Support for aggressive fiscal stimulus measures usually comes from the belief that it can put more money in the hands of citizens, thus spurring them to spend and boost demand in the economy. This is the famous Keynesian “multiplier effect” that economists talk about as a tool to counter economic downturns. Apart from the fact that citizens do not necessarily have to spend the money they receive from the government, the logic of fiscal spending is found wanting on various other levels.
Disruption in production
•For one, contrary to Keynesian orthodoxy, insufficient demand is often not the primary reason behind an economic slowdown. Instead, it is only the side effect of production shocks, like the chaos induced by the implementation of the goods and services tax (GST), that cause the income levels of people to drop and, in turn, affects their ability to spend. Fiscal stimulus does nothing to address the root of the problem, which is disruption in production rather than insufficient demand. Two, fiscal spending is a zero-sum game, wherein resources are misallocated from their original use towards other ends. Taxes that the government collects to spend on the economy, for instance, come out of the pockets of citizens who would otherwise spend it according to their own tastes. Such taxes also weigh negatively on an economy that is already reeling under the impact of other disruptions to production. On the other hand, when the government borrows from the credit markets to fund its spending habits, it distorts the spending and saving decisions of citizens. Even when additional fiscal spending is funded out of thin air, for instance through deficit spending funded by the central bank, the misallocation of resources is unavoidable. Three, while fiscal spending is praised for its ability to employ idle resources, it should be remembered that it also impedes the movement of such resources towards more productive employment. In fact, fiscal spending can artificially prolong a recovery by delaying economic adjustment.
•In order to foster genuine recovery, the government must undertake pro-market reforms that can help the economy quickly recover from the shocks of demonetisation and GST. Anything less will only expose the Centre’s inability to carry out tough economic reforms.
