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Business News/ Opinion / Government has to be efficient with its resources

Government has to be efficient with its resources

Ultimately, programme design has to weave in appropriate pricing of natural capital and resources

In order to reduce the adverse health impacts of chulha cooking, a provision of `2,000 crore initially targets 15 million LPG connections to BPL households. Photo: MintPremium
In order to reduce the adverse health impacts of chulha cooking, a provision of `2,000 crore initially targets 15 million LPG connections to BPL households. Photo: Mint

The Union budget strengthens India’s commitment towards sustainable development. But action on broader commitments needs appropriately designed policies and follow-through on implementation. Merely budgeting funds will not be enough.

Continuing the tradition of doubling the clean energy cess on coal, the government has raised it to 400 per tonne of coal, while expanding the scope of the fund for broader environmental purposes and accordingly given it a new name—the clean environment cess. While this further boosts India’s efforts to disincentivize fossil fuel-based energy, it also raises a pertinent question about the utilization of already accumulated funds under the original National Clean Energy Fund (NCEF). Originally envisaged as a fund to promote research and development of clean energy technologies in the country, very little of the corpus has been used for the purpose.

Until April last year, the overall funds used for renewable energy-related projects were less than 1,000 crore, against an accumulated 16,017 crore. Now, with a broadened scope, the fund could be used to promote clean coal technologies, pollution control equipment and super-critical power plants. Yet, it would compete with other demands (cleaning rivers or toxic sites, for instance). A clearer governance structure for how to use the funds effectively is not just desirable, but essential.

The introduction of an infrastructure cess on private cars has brought the problem of traffic congestion and air pollution to the forefront. Again, while these are offered as the ostensible rationale, it would be important to monitor how the money is actually used. A more appropriate approach could have been a recurring annual tax towards the use of private cars, to manage both pollution and traffic.

The government’s continued commitment to scaling up renewable energy is reflected in an allocation of 10,193 crore, which is more than three-and-a-half times the 2015 allocation. Half of this is marked to come from the NCEF. New programmes to be funded through this project include a programme on energy storage and another on biofuels, as well as new and innovative projects like the National University of Renewable Energy and a World Renewable Energy Museum.

Of the total allocation to the ministry for new and renewable energy (MNRE), 4,000 crore is earmarked for solar energy programmes, in comparison to 400 crore allocated for the wind energy programme. Interestingly, 3% of the budget for MNRE has been marked for publicity and awareness generation, which is crucial if the government increasingly promotes rooftop solar systems in residential and commercial buildings.

Augmenting finance for infrastructure projects is another focus. The budget allows the Indian Renewable Energy Development Agency Ltd, among several other agencies such as the National Highways Authority of India and National Bank for Agriculture and Rural Development (Nabard) to issue bonds of up to 31,300 crore, which could significantly boost financial inflows into renewable energy. Additionally, a need to deepen the corporate bond market has been identified. Instruments to enhance the credit rating of infrastructure projects could play an important role in enabling the nascent market for green bonds.

The government has also exempted solar lamps and improved cookstoves from excise duty. The implication would be a direct saving of the order of 12.5% on the appliance cost, improving the affordability of decentralised renewable energy for energy-deprived communities.

In order to reduce the adverse health impacts of chulha cooking, a provision of 2,000 crore initially targets 15 million liquefied petroleum gas (LPG) connections to below poverty line households, with a plan to provide 50 million such connections in the next three years. Research by the Council on Energy, Environment and Water (CEEW) highlights that affordability of the upfront connection cost is a major barrier for poor households to transition towards LPG. Therefore, the proposed move would definitely help increase penetration of clean cooking fuels. However, the programme should focus beyond just providing connections. The government should also focus on raising awareness about health benefits over using a chulha, smaller-sized cylinders for the urban poor, and improved availability and access to fuel.

On water, a major programme for groundwater management, is expected to be funded through multilateral channels. However, the budget missed another opportunity to attend to the management of waste water. Our analysis has found viable business models to reuse urban waste water for industrial purposes, but a policy/budgetary nudge is necessary.

The government has allocated 5,500 crore towards the Pradhan Mantri Fasal Bima Yojana, to protect farmers from adverse impacts of the vagaries of nature. Moreover, the government has also revised the norms of assistance under the National Disaster Response Fund to support farmers in the aftermath of natural calamities. With the rising risk of extreme climatic events, due to climate change, these initiatives are only the first step towards adding a layer of protection to farming communities. India needs a much more comprehensive approach to its agrarian crisis.

Resource efficiency has to be the foundational mantra for any budgetary exercise. But India has to be efficient with both financial as well as its natural resources. Ultimately, programme design has to weave in appropriate pricing of natural capital and resources. Without this, distortions continue in energy, water and other markets, resource use remains inefficient, the poor remain deprived, and the vulnerable face the brunt of our collective resource profligacy.

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Updated: 01 Mar 2016, 12:57 AM IST
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