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The Hindu Analysis | Free PDF Download

Date: 16 October 2019

IMF trims growth rate to 6.1% in 2019

  • The World Bank International Monetary Fund (IMF) annual meetings kicked off on a sombre note on Tuesday, with the IMF downgrading global growth in 2019 to 3%, the slowest since the financial crisis.
  • India’s growth projections have also been downgraded to 6.1% and 7% in 2019 and 2020, down by 1.2 percentage points and 0.5 percentage point relative to April projections, owing to weaker than expected domestic demand.
  • Globally, rising trade barriers, heightened uncertainty around trade and geopolitics, idiosyncratic factors that have strained emerging markets and structural factors, such as an ageing population in advanced economies, were the causes of a “synchronized slowdown”, the IMF said in its 2019 World Economic Outlook (WEO) report — Global Manufacturing Downturn, Rising Trade Barriers.
  • “This is a serious climbdown from 3.8% in 2017,” the WEO said of the 2019 global growth projection. World output is projected to increase to a modest 3.4% in 2020 — still lower by 0.2% than the April projection. Unlike the slowdown, this recovery is expected to be “precarious” and “not broad based” as per the IMF.
  • Emerging economies will show increased growth — from 3.9% in 2019 to 4.6% in 2020, while advanced economies will slow to 1.7% in 2019 and 2020.
  • The report called for defusing trade tensions, “reinvigorating” multilateral cooperation and “providing timely support to economic activity where needed”.
  • “In the case of India there has been a negative impact on growth that’s come from financial vulnerabilities in the non-bank financial sector and the impact that’s had on consumer borrowing and borrowing of small and medium enterprises,” the IMF’s chief economist Gita Gopinath said at a press briefing on Tuesday.
  • The projected growth in India’s case will be supported by lagged effects of monetary policy easing, cuts to corporate tax, measures to address environmental and corporate uncertainty, and government programs to boost rural consumption, as per the WEO. India’s growth rate in the April-June quarter had hit 5% , the lowest in six years, as per government data.

 Another grim reminder

  • Sharp cuts in growth forecast by the IMF and World Bank underline slowdown’s severity
  • The IMF on Tuesday followed the World Bank in reducing its forecast for India’s economic growth in the current financial year. While the IMF cut its July projection for real GDP growth by a substantial 0.9 percentage point to 6.1%, the bank slashed the estimate by as much as 1.5 percentage points to 6%. These magnitudes of reduction underscore the severity of the ongoing slowdown and affirm the welter of grim data and predictions from other forecasters, both global and domestic. Interestingly, by the bank’s own admission, its forecast is more optimistic than the average estimate of 32 Indian respondents who were polled as part of its South Asian Economic Policy Network Survey: these economists expect growth to be 5.7% this fiscal. The only significant issue of debate is over the cause of the malaise, with the World Bank largely echoing what the Centre’s economic mandarins have been saying — that this is a cyclical slowdown, exacerbated by global influences. A view, however, that neither the Indian experts surveyed, nor Moody’s Investors Service, broadly concur with. While Moody’s pared its projection to 5.8%, ascribing the downturn partly to “long-lasting factors”, only 10% of the respondents in the network survey considered it a “purely cyclical” development and as many as 25% saw structural factors as being solely responsible. The importance of an accurate diagnosis cannot be overemphasized since policy interventions to address the malady must be targeted appropriately to ensure enduring outcomes.
  • Crucially, the bank and the fund have flagged one area of structural weakness that could undermine any recovery if left unaddressed. Asserting that the weak financial sector is becoming a drag on momentum, with the country’s banks yet to regain vigour from the depressing burden of bad loans, the World Bank warned that non-banking financial companies’ significant share in total credit and their linkages with banks “pose broad-based contagion risks”.
  • Financial sector reforms, the bank suggests, would not only help resolve the sectoral infirmities but would also help put India back on a rapid growth path. The World Bank has also highlighted another key concern. Observing that a sharper-than-expected slowdown in major economies such as the U.S. and Eurozone could have severe spillover impacts, the bank noted that India was vulnerable to being affected immediately and over a longer duration by real GDP shocks in these advanced economies. In the case of a Chinese GDP shock, the onset of the impact on India would likely be delayed but substantially more pronounced. And while the IMF has urged structural reforms in labour and land laws to boost job and infrastructure creation, everyone agrees that becalmed domestic consumption demand is the biggest drag on momentum. It may, therefore, make a lot of sense to heed Nobel laureate Abhijit Banerjee’s prescription and put more money in the hands of consumers, especially those in the rural hinterland, to reinvigorate demand.
  • Govt. to probe ‘irregularities’ in M.P. Swachh survey Data fudged, performance of ULBs overestimated, says complainant The Union Ministry of Housing and Urban Affairs has initiated an inquiry into alleged irregularities during the Swachh Survekshan 2019 for Madhya Pradesh — declared the best in solid waste management, and boasting eight cities in the top 25, the most for any State — that helped upstage certain cities, while downplaying performances of others.
  • The inquiry is based on a complaint filed by a Gwalior resident with the Prime Minister’s Office in September which alleges fudging of data by urban local bodies (ULBs), overestimation of performance during field surveys by third-party assessors, arbitrary award of ranks despite similar declarations by ULBs and conflict of interest with regard to the role of the Quality Council of India (QCI).
  • After the complaint was forwarded to the Ministry, Vinod Kumar Jindal, Mission Director, Swachh Bharat Mission (SBM), on October 9 wrote to R. S. Jayal, Deputy Secretary, SBM Division, stating the case had been “referred for conducting inquiry to the officer concerned with Swachh Survekshan”.
  • Saying complainant Sandeep Sharma had been kept in the loop, Mr. Jindal requested Mr. Jayal to conduct the inquiry at the earliest and send a report to the SBM-2 section.
  • Report soon
  • “Letters had been sent to the third-party agencies, which are of repute, seeking their response. A report would be ready in 10-15 days,” said an official of the SBM, requesting anonymity.
  • Irked that the survey — touted as the world’s largest cleanliness survey — downgraded Gwalior’s performance to a rank of 59 instead of 32 it purportedly deserved, Mr. Sharma has challenged statuses of better placed cities like Singrauli (21), Pithampur (50), Jabalpur (25) and even Indore, the country’s “cleanest”. The survey, whose results were declared in March, was undertaken in four parts worth 1,250 marks each.

ODF+ tag

  • Though Gwalior, Singrauli and Pithampur had applied for just an open defecation-free (ODF) + certification, the latter two secured an ODF++ tag. This is despite their application and advertisement for just an ODF+ tag in newspapers, according to the complaint and documents perused by The Hindu.
  • The ODF++ tag, the highest category, is accorded to a ULB if not a single person defecates/urinates in the open, all public toilets are functional and faecal sludge and sewage is treated there. A third-party agency carries out observations at randomised sampled locations to verify claims.
  • Singrauli doesn’t treat its sewage and has a network coverage of 18.8 %, while Pithampur too doesn’t treat its sewage and its network covers just 19% of the area, according to data quoted in the report from the survey and the Atal Mission for Rejuvenation and Urban Transformation website. “This shows the third-party agencies didn’t accurately represent the true picture and overestimated some ULBs,” Mr. Sharma said.
  • The SBM ODF Plus and SBM ODF Plus Plus protocols that are planned to be launched are geared towards this objective. While the SBM ODF Plus protocol focuses on sustaining community/ pubic toilet usage by ensuring their functionality, cleanliness and maintenance, the SBM ODF Plus Plus will focus on achieving sanitation sustainability by addressing complete sanitation value chain, including safe containment, processing and disposal of fecal sludge and septage.

Project size and cost

  • Today, thermal generation capacity accounts for about two-thirds the installed generation capacity in the country. This shows that though there is increasing awareness about the environmental impact of fossil fuels, the reliance on thermal plants is unlikely to end any time soon. (Table 1 underlines the two major advantages that thermal power plants enjoy relative to solar and wind power plants).
  • Thermal plant capacities are large and therefore targeted capacity additions can be achieved by constructing fewer such plants. On average, it would take 18 solar or wind projects to generate the same quantity of power as one thermal plant. For the same reason, switching from fossil fuel to renewables will remain challenging as the administrative overheads that would have to be incurred in setting up the multiple projects could significantly add to the cost.
  • Not surprisingly, infrastructure projects have an inverse relationship between size and unit cost, indicating economies of scale.
  • As the capacity of power plants increases, the average cost of power per MW reduces. The average cost per MW for a thermal plant is about 25% lower than that of a solar plant. In order to surmount the cost advantages that large thermal plants enjoy today, we must focus on developing larger solar and wind power plants that can also exploit similar economies of scale.

Project ownership

  • The next point is that of ownership. Over the last two decades, 63% of the total planned generation capacity has come from the private sector. Private investment has been even more pronounced in renewables, accounting for almost 90% of investment in wind and solar projects. So has private investment helped?
  • Table 2 has the answer. Private sector plants have an average cost per MW that is 12-34% lower for all categories except solar. Lower capacity cost has a direct impact on electricity tariffs.
  • Electricity tariffs broadly consist of two components: fixed capacity costs and operation and maintenance costs, which include fuel expenses.
  • In general, capacity costs account for more than 90% of the levelized cost of electricity, irrespective of the fuel type. If we are able to create additional capacity at lower cost, then it will play a big role in keeping electricity tariffs low.
  • Private investment in the power sector has not only helped in augmenting capacity but has also helped in lowering cost.
  • Marginal capacity costs
  • Even as total capacity in generation has been growing, the cost of installing additional capacity has fallen (Table 3). The reasons for the decline could be as follows:
  • First, advances in technology have resulted in the construction of larger power plants. Compared to the 15- year period before 2013, power plants installed in the past six years have on average been significantly bigger, even twice as large in the case of hydel power. The economies of scale in power generation appear to have been dramatic.
  • The second point could be the increasing share of private sector investment. The share of private sector in capacity creation has been 70% in the last decade as compared to 46% in the decade before that. And, as indicated previously, private sector capacity has lower costs.
  • Falling marginal costs suggest that retiring some existing high-cost capacity plants with newer plants could be explored.
  • With economic growth, the demand for power in India is only going to increase further. To put things in perspective, China added generation capacity that was equal to a third of India’s total installed capacity in 2018.
  • As India continues to ramp up capacity, it is imperative to create generation assets with the lowest unit cost by optimising plant capacities and encouraging private sector investment.
  • Declining marginal cost for capacity provides opportunities for replacing existing capacity with newer capacity that are more efficient. However, the challenge of replacing fossil fuel-fired plants with renewables prevails.

 For a wider food menu

  • Dependence on a few crops has negative consequences for ecosystems and health
  • Announcing in his Mann Ki Baat address that September is to be observed as ‘Rashtriya Poshan Maah’, Prime Minister Narendra Modi urged people to support the government’s nutrition campaign to ensure a healthier future for women and children. He said that both poor and affluent families are affected by malnutrition due to lack of awareness.
  • Concerted efforts by the government have led to a decline in malnutrition by two percentage points per annum. However, according to the 2017 Global Burden of Disease Study by the University of Washington, malnutrition is among the leading causes of death and disability in India, followed by dietary risks including poor diet choices.
  • The Food and Agriculture Organization (FAO) estimates that 194.4 million people in India, about 14.5% of the total population, are undernourished.
  • The Global Hunger Index 2018 ranks India 103 out of 119 countries on the basis of three leading indicators:
  1. The prevalence of wasting and stunting in children under five years of age,
  2. Child mortality rate under five years of age, and 3. The proportion of undernourished in the population.
  • Poshan Abhiyaan, India’s flagship programme to improve nutritional outcomes for children, adolescents, pregnant women and lactating mothers, is an amalgamation of scientific principles, political fortitude and technical ingenuity. The key nutrition interventions and strategies, which form the core of it, contribute to the targets of the World Health Assembly for nutrition and the Sustainable Development Goals, particularly the goal of “zero hunger”.
  • Achieving zero hunger requires not only addressing hunger, but also the associated aspect of malnutrition. World Food Day is observed annually on October 16 to address the problem of global hunger. The theme this year is ‘Our Actions are our Future; Healthy Diets for a #ZeroHunger World’. Consumption patterns
  • Healthy diets are an integral element of food and nutrition security. Food consumption patterns have changed substantially in India over the past few decades. This has resulted in the disappearance of many nutritious native foods such as millets.
  • While foodgrain production has increased over five times since Independence, it has not sufficiently addressed the issue of malnutrition. For long, the agriculture sector focused on increasing food production, particularly staples, which led to lower production and consumption of indigenous traditional crops/grains, fruits and other vegetables, impacting food and nutrition security in the process. FAO’s work has demonstrated that dependence on a few crops has negative consequences for ecosystems, food diversity and health. Food monotony increases the risk of micronutrient deficiency. So, we must make food and agriculture more nutrition-sensitive and climate-resilient.

Agricultural biodiversity

  • Overreliance on a few staple crops coupled with low dietary diversity is a leading cause of persistent malnutrition. Additionally, intensive, monoculture agricultural practices can perpetuate the food and nutrition security problem by degrading the quality of land, water and the food derived through them. Those who have the capacity to make active food choices will have to be more conscious of their choice of food and its traceability. Those who cannot choose must be enabled to exercise that choice. Lifestyles in cities pose other dietary problems. Urban food planning needs to incorporate nutritional security and climate resilience.
  • Agricultural biodiversity ensures a wider food menu to choose from. Small farmers, livestock and seed keepers in India are on the front-line of conserving the unique agrobiodiversity of the country. The loss of globally significant species and genetic diversity has an adverse impact on diets. FAO supports the government’s efforts to synergise biodiversity conservation, agricultural production and local development for healthy diets and a healthy planet.