India needs to grow at 8% to achieve targets

India needs to grow at 8% to achieve targets

New Delhi: India will need to grow at a constant 8% till 2020 if it has to achieve the targeted carbon emission cuts the government recently announced, according to a study.

The research paper, released at a seminar in Delhi organized by the National Institute of Public Finance and Policy, cautions that a lower growth rate would mean a slower decline in carbon intensity per unit of gross domestic product (GDP) than estimated.

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“Growth rate should not be tinkered with. The answer is clearly in favour of a fiscal instrument and not lower growth, if we want to decrease carbon intensity," said Ramprasad Sengupta, professor of economics, Jawaharlal Nehra University, and the author of the paper.

According to the paper’s projections, India can cut its climate-warming carbon emissions by 19.5-22% by 2020 if it grows at 8%, but only by 17% if the growth rate is 6%.

It analyses carbon intensities by 2020 and 2030 under various scenarios with differing energy prices, growth rates and other changes, but offers no conclusion on how much the measures would cost.

Sengupta said the government should not have committed to more than a 15-16% cut in Parliament. He said, “20-25% cut is a little uncomfortable, which will be possible under very tight assumptions and on a war footing."

The services sector, whose share of the GDP has grown from 37% in 1990 to 47.5% in 2005 and is projected at 51% in 2031, will see increased carbon emissions as it grows.

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Still, India’s push towards the services sector rather than manufacturing is responsible for its declining carbon intensity since 1990, the paper says.

It also says the decline in carbon intensity between pre-reform and post-reform periods is due to changes in energy conservation and only slightly from changes in carbon intensity in fuels. Though carbon and energy emissions have been dropping, the paper says the rate of decline between 2005 and 2031 will be slower.

“The question is, is this desirable? India might need to increase its manufacturing base to provide goods to its poorest, but that will increase its carbon intensity as well," said Sengupta.

The energy intensity of the residential sector too is set to rise from reduced poverty, an improvement in the quality of life and increased expenditure on commercial energy. The same is estimated for the agriculture sector as well due to “changing product mix and technology in the sector in favour of electric power and modern energy usage".

One of the research paper’s key conclusions is that an effective policy for low carbon growth is rationalization of energy prices by regularly revising taxes, royalties or tariffs so these reflect the real price of energy at a rate of 3% a year.

India should also not take any mitigation action before 2040, said Arvind Panagariya, a professor at Columbia University, New York.

“Mitigation is a costly activity and I am not very comfortable with the recent announcement. We can make a mess of this," he added, indicating that the real cost of measures such as fuel economy norms and green building codes are unknown.

“Who said this won’t cost anything? We need to think of alternatives and if cost is moderate then we can do it, but India needs to make a correct judgement," said Panagariya.

Graphics by Ahmed Raza Khan / Mint