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Covid-19: India needs a green economic stimulus | Opinion – analysis


The economic impact of coronavirus disease (Covid-19) is likely to be strong. This comes immediately after a widening economic slowdown in the country in the past three years. Recovery of growth will require an unprecedented stimulus package to address the collapse of aggregate household demand and the resulting supply shocks. In India, this stimulus should be “green”, addressing the risks of the climate crisis and at the same time addressing the economic consequences of the virus. Continuing business as usual at this juncture will compromise future economic growth as we lag behind in cheaper and cleaner technologies, investors divest from fossil fuels, and countries consider climate-related trade barriers. The government can start with steps in three key areas: electricity, transportation, and urban economy, to achieve broad-based growth and improve environmental outcomes.

Even before Covid-19 attacked, energy demand, a good indicator of economic activity, grew at its slowest pace in six years. The drop in electricity consumption due to the shutdown will further stress distribution companies (discoms), which remain in a precarious financial form and contribute to systemic risks across the financial ecosystem. The government’s move to allow telecommunications to suspend payments, as the temporary relief will create downstream problems from less renewable energy deployment and worsen the financial health of coal plants. For the latter, a long suggested path should be seriously considered with the creation of a specific “bad bank” in the electricity sector, a portfolio agency dedicated to owning and managing the troubled coal fleet. This move would free up ~ 2.5 trillion of books and speed loans to the post-Covid-19 economy. It also allows the government to set the pace to remove the oldest and most polluting coal plants. With demand for stagnant energy, there is no economic justification for new coal plants, either, particularly as the government is pushing ambitious targets for renewable energy (RE) capacity, which is increasingly dispatchable (with storage) and competitive. Instead, the focus should be on improving the use of the more flexible, low-carbon gas fleet, which can help integrate higher proportions of renewable energy into the grid. In general, improving the finances of discoms will also require creating new forms of electricity demand in urban areas, through related sectors such as transportation.

The blockade has generated clean air and clear skies in cities, highlighting how much vehicles contribute to air quality. Transport electrification has yet to take off as the Government of India’s Electric Vehicle (EV) policy has been inconsistent. India’s trajectory in electric vehicles need not replicate that of the rest of the world: most of the potential lies in two- and three-wheeled vehicles, which make up a considerable part of urban transport. An analysis by Carnegie Mellon with NITI Aayog shows how the high upfront costs for two-wheeled electric vehicles due to the cost of the battery packs can be reduced by domestic lithium-ion battery manufacturing under the Make in India initiative. Transportation electrification can be positive for discomfort with increased revenue and the potential to manage charging infrastructure. Utilities and telecommunications must develop proactive strategies on how urban electric mobility can help diversify ancillary sources of revenue and integrate charging infrastructure development with urban planning.

Future urban planning in India will face options to grow externally or vertically with a collective memory of the pandemic in the background. Indian cities fare poorly on all resilience metrics, whether in response to climate, public health or economic crises, which often share common stressors. We will come, if we have not already done so, to the diminishing returns from the expansion of megacities, and instead we should focus on Tier 2 cities with investments in human and physical infrastructure. New Indian cities should adopt transit-oriented, mixed-use urban planning with accessible public transportation and electric vehicles that extend the economic radius, free up productive hours trapped in worsening traffic, and reduce emissions and criteria pollutants. Services are easier to deliver and monitor compared to the ad hoc development that generally takes place. Top-down projects promoted by the Center and states remain short-term, narrowly focused, five years rather than holistic plans with immediate responsibility for local government. Public-private partnerships (PPPs) will be strained, especially in the post-Covid-19 economy with public spending having to do the heavy lifting. Once the economy stabilizes, a concerted effort is needed to clean up bad debt from banks, redesign PPPs, and create a strong municipal bond market.

As governments around the world move to restart economies, capital adequacy requirements, which became stricter after the financial crises and hurt developing countries like India, are loosening and guidelines. A wave of new capital is expected. The pandemic exposed many of the world’s flaws, but this may also be a new beginning for decarbonization. There are tools; technologies have not only been balanced, but have become cheaper; And people around the world appreciate the importance of the resilience necessary to deal with these complex crises.

Madalsa Singh is a doctoral student at Stanford University and works in energy and transportation systems.

Aniruddh Mohan is a presidential member and a PhD student at Carnegie Mellon University,

Department of Engineering and Public Policies.

The opinions expressed are personal.

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