Daily Editorial Analysis for 18th June 2021

Global capital racing towards clean energy

Why in News

• The International Energy Agency’s Net Zero Emissions (NZE) roadmap by 2050 sets out the massive investment required to cut emissions and achieve the Paris goal of restricting global surface temperature increase to below 1.5 degree Celsius.

Net Zero Emissions (NZE)

• Under the NZE roadmap, the use of unabated fossil fuels declines sharply to just over a fifth of the total energy supply. More than two-thirds of the energy supply in 2050 will come from renewables and around a tenth from nuclear.
• To meet these targets, total annual energy investment will have to surge to $5 trillion by 2030, more than tripling from just over $500 billion annually over the last five years to more than $1,600 billion in 2030.
• Further, the NZE roadmap requires annual investment in transmission and distribution grids to expand from $260 billion in 2021 to $820 billion in 2030.
• Also, the number of public charging points for Electric Vehicles (EVs) will have to rise from around 1 million to 40 million during the same period, requiring annual investment of almost $90 billion by 2030.
• Global capital is already fleeing fossil fuels and moving towards more profitable clean energy — a shift that is now accelerating in response to net zero pledges last year by China, Japan and South Korea, a ratcheting up of climate ambition by President Biden’s administration and the recent announcement by G7 countries that they will exit all international coal financing by their export credit agencies.
• In the first quarter of 2021, assets in investment funds focused partly on the environment more than tripled in the three years, amounting to $2 trillion.
• Big banks and financial institutions with large funding portfolios in fossil fuel assets, such as BlackRock, JPMorgan Chase, Korea Development Bank and the Japan Bank of International Cooperation, are announcing coal exit policies in increasing numbers.
• India is experiencing the effects of global capital shifting away from fossil fuels. In 2020, in order to boost domestic coal production, the government invited bids for the public auction of 41 coal blocks to encourage private investment.
• However, absence of any international interest in these bids showed that such fossil fuel assets are no longer viewed as lucrative investments.
• In recent years, States like Maharashtra, Gujarat and Chhattisgarh and public and private sector developers like NTPC and Tata Power have announced pivots away from coal.

Energy outlook

• In February, the IEA published the India Energy Outlook 2021 which presented various scenarios including the Sustainable Development Scenario (SDS), wherein India will witness an early peak and rapid subsequent decline in emissions, consistent with a longer-term drive to net zero.
• This scenario illustrates the NZE roadmap for India, but the IEA has shifted the global goal post from 2070 to 2050.
• This implies that transition to renewable energy and firming capacity will have to accelerate relative to that mapped out in the SDS scenario.
• The expected annual investment for deployment of renewable energy, battery storage, electric vehicles and network expansion and modernization of the grid is $110 billion in the SDS for India.
• This is around three times the current annual investment ($40 billion) in these sectors, however, to achieve the NZE roadmap, the corresponding investment requirement will be much higher than the SDS.
• Given investors are guided by the profit maximization principle, as well as the desire to avoid high emissions stranded assets, investment will flow to where returns are maximized.
• A look at the share price performance and return of Adani Transmission, Adani Green and Coal India Ltd between July 2018 and June 2021 reveals Adani Green’s share price has increased 10 times and Adani Transmission’s by 8.5 times.
• Coal India, on the other hand, has halved its share price relative to three years ago.
• While India is rightly focussed on enhancing its energy security and for development reasons cites increasing use of its domestic fossil fuel resources, the availability of international capital is drying up for investment in high emissions sectors.
• India is a capital taker and so new capital is being invested in more bankable renewable energy, firming capacity and grid modernization.
• Investment into fossil fuels is a recipe for stranded assets and many banks and financial institutions in India face increasing pressure from international investors to no longer invest in dirty fuels.
• In India, there is also a false promise of ‘Second Life’ coal. Any new investment in the highly capital-intensive greenfield, speculative investment in carbon capture and storage (CCS), underground coal gasification (UCG), coal-to-gas, coal-to-oil, or coal-to-fertilisers projects, or any similar ‘second life’ pipe-dreams is a myth predicated on huge carbon emissions, and should be avoided for the environmental and financial risks
• With the availability of renewable energy at ₹2/kWh level in India and further with deflationary prices of renewable energy, battery storage and electric vehicles, the competitiveness of fossil fuels will be further compromised.
• The contrast to the inflationary nature of fossil fuel firms is illustrated by the likely 15-20 per cent wage rise facing Coal India in 2021.
• There is a temporary rise in the price of solar modules and thus solar energy in India, in the face of import duties and commodity price rises to-date in 2021. However, to IEEFA the long-term pricing of solar energy is likely to see a record low of ₹1/kWh within the next decade.
• With the G7 countries’ coal finance exit, the likely introduction of a carbon border adjustment mechanism by the Europe administration (and possibly replicated by the US) and the ratcheting up of climate goals by the Biden administration in US, the direction of funds has changed irreversibly.
• India is no exception and while there may be a last tranche of investment into fossil fuel development available, increasingly there will be shift away from fossil fuels and the rising stranded asset risks.
• Economic, social and governance (ESG) investing has become part of the mainstream of the global financial system and increasingly more ESG labelled funds are coming up in India. ESG funders are constantly ratcheting up their ambitions and goals in the clean energy financing space.
• With the Reserve Bank of India now joining the Network for Greening the Financial System, policies should be designed to fully incorporate environment and climate risk management in our country’s finance sector, steering limited public and private sector investments towards a green recovery for a more sustainable economy.

What do the GDP numbers mean for our economy?

Why in News

• Due to the second wave of Covid infections the National Statistics Office (NSO) stated that the pandemic had caused the Indian economy to decline by 7.3 per cent in FY21, the lowest ever registered since Independence.
• The contraction was expected to be closer to 8%. It was the better-than-expected performance of the economy in Q4, of 1.6 per cent, that helped in improving performance in the previous fiscal.

NSO Data mean to Economy of nation

• At the outset, it would be useful to consider the areas in which the Indian economy performed relatively better in Q4.
• In three sectors, Q4 numbers were significantly better than those recorded in the previous quarters. The manufacturing sector grew by almost 7 per cent over the corresponding period in 2019-20, while electricity, gas, water supply and other utility services recorded a 9 per cent growth.
• Construction was the best performing sector, having expanded by 14%. But while these sectors recorded their highest quarterly growth rates in Q4, agriculture, the only sector to have kept itself away from the gloom, expanded by just 3.1 per cent, the slowest growth across quarters during the financial year just gone by.
• Some words of caution need to be added while interpreting the sectoral growth numbers, especially for the three “better” performing sectors mentioned above. All these sectors had performed poorly in Q4 of 2019-20, and therefore the so-called “base effect” had influenced the NSO’s latest set of numbers.
• This was particularly true for manufacturing, which had contracted by over 4 per cent in the closing quarter of the previous financial year due to a steep fall in output of close to 23 per cent in March 2020.
• The contraction was partly due to the impact of the lockdown announced in the last week of the month, but it was also due to the structural infirmities besetting India’s manufacturing that had caused this sector to contract in three quarters during 2019-20.
• It was in response to the falling fortunes of the manufacturing industries that the government had decided to take an important step for their revival through the Production Linked Incentive (PLI) Scheme.
• With regards to agriculture, while there is no assessment on whether the ongoing farmers’ agitation has had any impact on the growth performance of the sector, it may be difficult to argue that this development has left India’s farms untouched.
• Appropriate policy measures like the PLI Scheme can go a long way in improving the supply side constraints, but these may turn out to be less than adequate if the demand side continues to remain sluggish.
• The Indian economy is consumption-led, with private final consumption expenditure (PFCE) enjoying a share of 57-58 per cent of the GDP in recent decades.
• However, since 2017-18, the annual growth of PFCE had declined from 7 per cent to 5.5 per cent, and with consumers demanding less, most sectors faced uncertainties even before the pandemic-induced crisis had set in.
• The across-the-board impact of the Covid crisis on livelihoods had seriously impacted PFCE during the previous fiscal, resulting in its decline by 9.1 per cent and reducing its share in the GDP to 56 per cent, the lowest ever.
• According to the CMIE, the unemployment rate was 14.7 per cent in the third week of May and it was the first time since the lockdown in 2020 that it was in double digits.
• More worrying was that labour force participation had virtually stagnated at 40 per cent, indicating the deep catharsis in the labour market.
• Moreover, the RBI’s bi-monthly Consumer Confidence Survey has been reporting that consumer sentiments have consistently remained downbeat.
• In the latest survey for May 2021, a majority reported that their expectation was that the economy will worsen one year ahead, while nearly half felt that the employment situation will worsen.

Can exports provide the growth trigger for the Indian economy?

• This is distinctly possible as most of the major economies are well on their way towards recovery.
• But then, the government and business must work on ways to facilitate exports, including through improving the efficiencies of Indian industry, thus enabling it to increase its footprint in global markets.

A place for disruptive technology in India’s health sector

Why in news

• As frontline warriors fighting COVID­19, the medical community has been selfless, but also losing a number of staff in the process.
• Nurses and attendants, on full­time duty, donning mainly masks and gloves as the only protective gear have been exposed to great risk. It is in such a situation that the relevance of disruptive technology and its applications comes into focus, potentially helping to reduce the chances of hospital staff contracting the infection.
• There are reports in the global media of established innovative field hospitals using robots to care for COVID­19 affected patients.
• There are hospitals, in China, that use 5G­powered temperature measurement devices at the entrance to flag patients who have fever/fever­like symptoms. Other robots measure heart rates and blood oxygen levels through smart bracelets and rings that patients wear; they even sanitise wards.
• The critical aspect is how new technologies can improve the welfare of societies and reduce the impact of communicable diseases, spotlighting the importance of technologies such as artificial intelligence (AI), autonomous systems, blockchain, cloud and quantum computing, data analytics, 5G. Blockchain technology can

help in addressing the interoperability challenges that health information and technology systems face.

• The health blockchain would contain a complete indexed history of all medical data, including formal medical records and health data from mobile applications and wearable sensors. This can also be stored in a secure network and authenticated, besides helping in seamless medical attention.
• Big data analytics can help improve patient-based services tremendously such as early disease detection. Even hospital healthcare facilities can be improved to a great extent.
• AI and the Internet of Medical Things, or IoMT (which is defined as a connected infrastructure of medical devices, software applications, and health systems and services) are shaping healthcare applications.
• Medical autonomous systems can also improve health delivery to a great extent and their applications are focused on supporting medical care delivery in dispersed and complex environments with the help of futuristic technologies.
• This system may also include autonomous critical care system, autonomous intubation, autonomous cricothyrotomy and other autonomous interventional procedures.
• Cloud computing is another application facilitating collaboration and data exchanges between doctors, departments, and even institutions and medical providers to enable best treatment.

Furthering UHC

• According to the World Health Organization, Universal health coverage (UHC) is the single most powerful concept that public health has to offer.
• It is a powerful social equalizer and the ultimate expression of fairness. The question is about how UHC can be achieved through the application of digital technologies, led by a robust strategy integrating human, financial, organizational and technological resources.
• Studies by WHO show that weakly coordinated steps may lead to standalone information and communication technology solutions, leading to a fragmentation of information and resulting in poor delivery of care.
• India needs to own its digital health strategy that works and leads towards universal health coverage and person-centered care. Such a strategy should emphasise the ethical appropriateness of digital technologies, cross the digital divide, and ensure inclusion across the economy.
• ‘Ayushman Bharat’ and tools such as Information and Communication Technology could be fine­tuned with this strategy to promote ways to protect populations. Online consultation through video conferencing should be a key part of such a strategy, especially in times when there is transmission of communicable diseases.

Using local knowledge

• Community nurses, doctors, and health workers in developing countries do act as frontline sentinels. An example is the Ebola virus outbreak in Africa, where communities proactively helped curtail the spread much before government health teams arrived.
• Another example is from Indonesia, where the experience of backyard poultry farmers was used to tackle bird flu.
• Primary health Centres in India could examine local/traditional knowledge and experience and then use it along with modern technology.

Possible challenges

• In the developing world, and this includes India, initial efforts in this direction should involve synchronization and integration, developing a template for sharing data, and reengineering many of the institutional and structural arrangements in the medical sector.
• Big data applications in the health sector should help hospitals provide the best facilities and at less cost, provide a level playing field for all sectors, and foster competition.
• The possible constraints in this effort are a standardisation of health data, organisational silos, data security and data privacy, and also high investments.
• However, there is no doubt that disruptive technology can play an important role in improving the health sector in general.