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Last Updated : Mar 29, 2019 10:51 AM IST | Source: Moneycontrol.com

A trade crisis looms for India, and how the sun and waste can prevent it

This article is an attempt to suggest how the worsening balance of payments (BoP) situation can be remedied.

Within the next three months, a new government will gather the reins of power. Once again, government officials will try and resume work on economic issues that have been put on the backburner. Unfortunately, elections tend to have this impact. Overall, the tamasha is so compelling that innocent bystanders are sucked in to watch the acrobatics, all the while trying to make sense of the events being played out.

Three issues will immediately grip the attention of policymakers. The first will be jobs. India needs them urgently.

The second will be the worsening financial situation – especially when it comes to banks. They have been buffeted by loan waivers on one hand, while on the other they have been pressured to give away imprudent loans. Despite war cries against corruption, there is enough evidence that suggests the old corrupt ways continue. Bank managements continue to be arm-twisted to bail out airlines and favour industrialists.

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The third challenge will be to find out ways in which the worsening balance of payments (BoP) situation can be remedied.

This article is an attempt to suggest how the third objective can be achieved, and in doing so, how the first objective could be addressed.

But a caveat is needed here. There are many ways to cope with the looming BoP problem. There are short-term solutions, long-term, and more sustainable solutions. But if a solution can meet the short-term requirement and unleashes long-term benefits, that would be wonderful.  That is what this article explores.

Let's take a look at the country's balance of payments. The author has deliberately opted to look at data offered by the last Economic Survey for two reasons. The rupee figures given by the government and RBI recently could be misleading, because the rupee has depreciated significantly since then. It is better to stick to dollar-denominated numbers instead.

2019-03-24_India-BoP

The second reason is that the numbers show how imports have now begun growing faster than exports. And this trend is likely to continue in the coming years. There is a global economic slowdown that is beginning to take firmer roots than ever before.

Moreover, trade barriers are being raised by countries to which India had conventionally exported substantial quantities. This includes the US, and the EU. India will have to refocus its attention on countries in Africa, South East Asia, or even Russia and China.

This is because the latter two countries could enjoy synergies with India that the rest of the world may not offer. Singapore may have a role to play here. But more on that another time.

It is these three countries that could be primarily responsible for actually causing the centre of gravity for global trade to shift to the East.

However, India will have to adopt other strategies as well. At a time when export growth cannot be pushed up easily, the country will have to find ways to reduce its import bills, without sacrificing growth. And this is where the author has been constantly pushing the case for boosting rooftop solar and converting waste to energy.

There's money in waste

Waste to energy alone has the potential of generating methane (which is similar to LNG or PNG as cooking or vehicle fuel). Just human and animal waste being converted into methane has the potential to generate around Rs 18 lakh crore worth of methane. Agro-waste has the potential to generate two or three times this amount.

One needs to look at the work Swedish commercial vehicles manufacturer Scania has done in Karnataka. It has set up small digestors in a few villages and has trained villagers to operate and maintain them. They are encouraged to sell rotten vegetables to the digestor at Re 1 per kg. The volumes collected produce enough methane to offer free cooking gas to households in the village on a daily basis. This way, farmers get money for vegetables as well, which could not be marketed earlier. And households can cook food without breathing in noxious fumes from burning cool can cause respiratory ailments.

If one goes by the Economic Survey of  2016-17 (Vol 2, para 5.22, the "negative impact on the respiratory system, cardiovascular diseases, neurological effects, etc" by just coal is tremendous.

Moreover, the report said, "The annual number of deaths linked to coal-based power plants pollution is estimated to be around 115,000 and the total monetary cost is around $4.6 billion." Multiply this by a factor of 10 because of the widespread nature of burning firewood, and the economic cost to India can be appreciated.

Now take a third of the potential for methane generation that India has through agro-waste and human and animal waste, and you then begin to realise that India can reduce its fuel import bills almost entirely. It could generate revenues of over a quarter trillion dollars. Surplus methane can be compressed, bottled and sold to other South East Asian and African countries. The savings on healthcare costs is a big bonus.

The sun is a healer

Nothing is a better antiseptic than sunlight - that is what most people often say. For India, the sun could improve its economic health. As pointed out in a recently-published column, there is no better solution for transforming India into rooftop solar.

What is interesting is that adopting the rooftop solar power strategy could create almost 80 million jobs within a few years. In fact, it has sometimes taken chief ministers to actually lobby with the Union power minister to let them adopt rooftop solar power in their respective states.

Now look at the other table. It is about the country's principal imports.  Watch the number for petroleum, oil and lubricants. This number is easily the biggest import bill that India has to pay.

2019-03-24_India-Principal-Imports

What is amazing is that both waste to energy or methane generation and solar power can help India reduce this bill significantly. Moreover, the scale of operations that rooftop solar will involve would easily allow India to master technologies relating to smart micro-grids and solar power management. These are skills that much of South East Asia and almost all of the African continent will be looking for. India could begin positioning itself as an exporter of such technology besides exporting methane.

That would take care of two of the biggest headaches the new government will have to confront – employment and balance of payment.

But what about the poor finances of banks and the financial system. Unfortunately, that has less do with strategy and more to do with the venality of India's policymakers. If only there were a short cut solution to integrity, and transparency.

The author is consulting editor with Moneycontrol.com.

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First Published on Mar 29, 2019 10:47 am
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