Aakhya Weekly #34 | Investing in energy transition
Aakhya Weekly #34 | Investing in energy transition
In Focus: India Energy Week begins in Bengaluru
This week saw the first meeting the G20 Energy Transition Working Group in the city of Bengaluru, as well as the start of India Energy Week, which was flagged off by PM Narendra Modi on Monday, 6 February 2023. PM Modi highlighted the growing demand for energy in India which “offers opportunities for energy companies to invest in and collaborate with energy firms in the country”. India’s Minister for Petroleum and Natural Gas, Hardeep S Puri, who spoke at the inaugural session, underscored the fundamentally divergent perspectives of emerging markets and advanced economies on the issue of energy, and noted that where there was import dependency in emerging markets, the predicament was fourfold – with ‘security’ being chief among the concerns in addition to ‘access’, ‘affordability’, and ‘sustainability’.
The Minister also observed that conventional wisdom points to a “binary response” which is the “immediate removal of oil and gas and their replacement by low-carbon energy solutions”. However, he noted, nations possess different capacities to make these transitions. This is certainly true of many developing nations like India who are in an accelerated phase of their growth, relying heavily on fossil fuels for their immense energy requirements, and are now faced with the difficult challenge of balancing economic growth and public welfare with reducing carbon emissions.
In fact, it would appear that energy transition is proving to be a challenge even for advanced economies like the European Union, which currently finds itself locked in an internal debate over the Energy Charter Treaty (ECT). The ECT, which is regarded as “the most litigated investment agreement in the world”, is steeped in controversy in Europe due to obligations placed on its signatories to protect and promote foreign investments into energy (including renewables) that provide investors with direct access to arbitration against governments, mostly administered by the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). The European Commission in Brussels has recently recommended a collective exit by the EU from the treaty. In fact, many EU Member States like Germany, France, Spain, and the Netherlands had previously announced their intentions from the ECT in recent months, citing that commitments to foreign investors under the ECT are proving to be an obstacle to energy transition. It is worth noting here that India is not a signatory to either the ECT or the ICSID Convention. Regardless, it continues to maintain focus on climate financing and investments as the key to stable and inclusive energy transition and access to affordable energy for all.
Even so, it would appear that the first G20 Energy Transitions Working Group meeting has ended on a positive note, with several of India’s own domestic policies (Soubhagya, Ujala, and Ujjwala energy schemes) having received appreciation from delegates at the Working Group meeting. While consensus has emerged that fossil fuels would continue to be used in the next decade, the outlook remains optimistic on increased share of renewable energy in the same time frame.
Top Stories of the Week
Vivaad Se Vishwas Schemes Out
Last week, as part of her speech for the Union Budget 2022-23, Smt. Nirmala Sitharaman announced a barrage of measures to promote the ease of doing business in the country - particularly for small businesses. Prominent among these were a pair of ‘Vivaad Se Vishwas’ schemes, that were broadly targeted to reduce acrimonious relationships between the Government and industry. These follow from last year’s tax dispute resolution scheme, also named ‘Vivaad Se Vishwas’.
On Monday, February 6, the Department of Expenditure ordered the commencement of the first of these, the ‘Vivaad Se Vishwas-I’ scheme. As per the order, where MSMEs were unable to execute government contracts between February 19, 2020 and March 31, 2022, and were therefore required to foreit their bid / performance security or pay liquidated damages, departments or public sector entities must now refund 95% of the amounts surrendered. In all such cases, the Government shall give businesses the benefit of doubt, assuming that such failures arose due to the COVID-19 pandemic.
Soon thereafter, on Wednesday, February 8, the Finance Ministry also released a draft of the ‘Vivaad Se Vishwas-II’ scheme (available here). The scheme introduces a voluntary settlement procedure to address situations where a contractual dispute broke out between a business and the Government, and the arbitral award given was under challenge before a court. This, it is hoped, will bring down the backlog of litigation, while freeing up capital for further investment. In total, the scheme aims to settle 500 cases, which involve a whopping INR 1 trillion.
Two steps towards atmanirbharta in defence
This past week, India witnessed two significant developments in the quest for self reliance in defence - the maiden landing of LCA Navy and Mig-29K fighter aircraft onboard the indigenous INS Vikrant, and the inauguration of the country’s largest helicopter manufacturing facility — the Hindustan Aeronautics Limited (HAL) factory in Tumakuru district, Karnataka.
As the world’s largest arms importer from 2017 to 2021, the push for indigenisation in defence has been a key priority for the government. INS Vikrant, which has an indigenous content of 76%, has been undergoing extensive trials since its commissioning last year to achieve ‘combat ready’ status. With the landing of LCA (Navy) on deck, India has now successfully demonstrated the capability to design, develop, construct, and operate indigenous aircraft carrier with indigenous fighter aircraft.
Spread over 615 acres, the HAL factory aims to be a one-stop solution for all helicopter requirments in India. The factory will manufacture up to 30 Light Utility Helicopters initially which will be scalable to 90 helicopters per year. The factory can also be augmented to produce Light Combat Helicopters and Indian Multirole Helicopters, as well as maintenance, repair, and overhaul of the helicopters.
This Week in Policy
Economy and Taxation
The RBI, by a 4-2 majority, decided to raise the benchmark lending rate by 25 basis points, to 6.5%. The rate hike, the sixth since May last year, is aimed at reigning in inflation, and core inflation in particular, which has remained persistent over much of the last year.
The GST Council may set up a GST Appellate Tribunal to ensure the expeditious redressal of disputes, and act as a common dispute resolution forum for the centre and states. Currently, appeals from the actions of authorities lie with High Courts, leading to inefficiencies.
Labour
As per CMIE data, January marks a four month low in unemployment rates, falling from 8.3% in December to 7.1% in January. While total number of people employed in the month was the third highest recorded since demonetisation, notably, 0.95 million fewer people were employed in January than in December, while 5.7 million people fell out of the labour pool altogether.
Agriculture and FMCG
Agricultural exports in first three quarters hit record $20bn in 12.6% jump year-on-year. Overseas shipments were boosted by basmati rice, which registered a 16% increase in value terms, a surprising 92% jump in exports of pulses and 25% in fresh vegetables, mainly to demand from the US, UAE and China.
Punjab not to allow commercial cultivation of GM mustard. However, Punjab Agricultural University (PAU) is conducting field trials of the GM seeds.
Healthcare
The Indian Government has launched a new portal, ‘U-WIN’, which facilitates tracking of pregnant women and children for vaccination. A pilot project testing the portal has been launched in the districts of Solan and Siimraur in Himachal Pradesh.
Foreign affairs
India will send two teams of National Disaster Relief Force (NDRF) with 100 personnel, dog squads, and other essential equipment for search and relief operations in earthquake-hit Türkiye.
External Affairs Minister S Jaishankar and his UK counterpart James Cleverly discussed bilateral ties ahead of the latter’s visit to India to attend meeting of G-20 foreign ministers on March 1-2.
Technology, Media and Telecommunications
New Delhi officials have announced use of distributed ledger technology (DLT) in criminal investigations through deployment of blockchain in its Forensic Science Laboratory.
MeitY has blocked 232 apps operated by offshore entities (including Chinese apps) for being involved in ‘unauthorised loan services’.
International trade and commerce
The Government of India is expected to roll out the much-anticipated foreign trade policy (FTP) with special focus on India’s long-term trade strategy by March end.
India this week is hosting the second round of negotiations of the Indo-Pacific Economic Framework (IPEF), a US-led initiative to counter Chinese influence in South and South-East Asia.
Banking, Finance and Insurance
SEBI writes to various custodian banks asking for beneficial ownership details of offshore funds and foreign portfolio investors.
SEBI proposes measures mandating daily upstreaming of all investor funds from stockbrokers to clearing corporations. At present, stockbrokers convert the surplus funds into bank guarantees or fixed deposit receipts which earns them extra income.
Manufacturing
The Telangana Govt has launched the Telangana Mobility Valley, India’s first new mobility-focused cluster, which aims to attract around Rs. 50,000 Cr in investments and generate upwards of 4 lakh jobs in the State in the next five years.
Prime Minister Narendra Modi laid the foundation stone to the Tumakuru Industrial Township Project, Southern India’s first industrial corridor project. The corridor will be spread over an area of 8,500 acres, and is expected to employ 88,000 people and draw investments of INR 7000 crore over 5-6 years.
Retail and e-commerce
Retail vehicle sales in India jumped 14% to about 1.8 million units in January, according to the Federation of Automobile Dealers Associations.
Logistics and Infrastructure
Minister of Railways, Sh. Ashwini Vaishnaw has announced the development of ‘Vande Metro’ trains, which will provide high speed transit to big cities those living in nearby towns. The announcement comes in the wake of the record INR 2.4 lakh crore capital outlay for the railways announced in the Union Budget 2023-24.
Sustainability
PM Modi says India's energy strategy being developed in four verticals. The pillars include increasing domestic exploration and production; diversification of supplies; expansion of alternative energy sources such as bio fuels, ethanol, compressed biogas and solar; and decarbonization via EVs and hydrogen.
India joins UAE and France to form trilateral on clean energy. The initiative will “serve as a forum to promote the design and execution of cooperation projects in the fields of energy, with a focus on solar and nuclear energy, as well as in the fight against climate change and the protection of biodiversity, particularly in the Indian Ocean region.”
Tracking the G20
This past week saw the conclusion of the three different working group meetings. The first Sustainable Finance Working Group meeting in Guwahati discussed three priority areas: (a) mobilisation of timely and adequate resources for climate finance, (b) enabling finance for the Sustainable Development Goals, and (c) capacity building of the ecosystem for financing toward sustainable development. Meanwhile, the first Employment Working Group also concluded in Jodhpur, with the focus of discussion on the three priority areas of: (a) addressing global skill gaps, (b) the gig and platform economy, and (c) social protection and sustainable financing of social security. Lastly, the Energy Transitions Working Group deliberations concluded with shared views and consensus on priority areas. Alok Kumar, Secretary (Power) said that the member countries responded positively to the need for energy security and diversified supply chains. Participants, however, shared the view that the energy transition pathway should be different for each country depending on its energy base and potential.
Upcoming Events
7th International Sustainability Conclave
February 14-15 | FICCI Federation House, New Delhi
FICCI is organising the 7th edition of International Sustainability Conclave on February 14-15 at FICCI Federation House, New Delhi. This year the conclave will focus on the importance of corporate sustainability in the context of Sustainable Development Goals (SDGs), environmental concerns and threats increasingly becoming a risk to business continuity, and embedding sustainability in corporate goals and strategies as an imperative for companies to build their business resilience. More Information | Registration Link
Uttar Pradesh Global Investors Summit 2023
February 10-12 | Lucknow, Uttar Pradesh
Uttar Pradesh Global Investors Summit (UPGIS) 2023 scheduled from 10-12 February 2023 at Lucknow, is the flagship Investment Summit of the Government of Uttar Pradesh. The 3-day long Investors Summit will bring together policy makers, corporate leaders, business delegations, academia, think-tanks and Political and Government leadership from across the globe, to collectively explore business opportunities and forge partnerships. More Information | Registration Link
Churchill and India: Manipulation or Betrayal?
February 14 | Virtual
The Centre for Social and Economic Progress (CSEP) organising its flagship dialogue on the book, Churchill and India: Manipulation or Betrayal? on February 14, 2023. This Dialogue will feature a conversation between the author, Kishan S Rana, and Ramu Damodaran, Non-Resident Senior Fellow, CSEP. A brilliant orator and a powerful leader, Winston Churchill’s failure to understand India and decolonization, and his manipulation of events on the subcontinent add a different dimension to the man. But how does postcolonial history view him? Rana studies the extraordinary connection Churchill had with India using archival sources. More Information | Registration Link
A Few Good Reads
In the last of his excellent series on emerging markets, Noah Smith looks at the Indian economy, what is going for it, and what holds it back.
Cutting through the hysteria, what does the Hindenburg report on Adani stocks truly tell us? What should Indian markets, as a whole, learn from the debacle? Ashwath Damodaran takes a look.
Why do some countries have more slums, and some countries less? Poverty? Income inequality? As always, there is more nuance to it, which Anup Malani details.
Sovereign debt restructuring can sometimes resembled a geopolitical poker table, as Theo Maret finds in the case of Sri Lanka.
Are we under-counting the number of women in our workforce? After a hint from the Economic Survey last week, Bibek Debroy details the argument.
Tweets of the Week
Through excerpts from the late Shinzo Abe’s memoir, Ken Moriyasu takes one on a whirlwind tour of great power diplomacy:
Watch as defence start-up Redon Systems successfully tests loitering munitions:
Why are the Gangetic plains the most densely populated region on Earth? Tomas Pueyo breaks down the geographical “accident” that got us here:
Key Notifications
TRAI releases Indian Telecom Services Performance Indicator Report for the quarter ending September, 2022. This Report provides a broad perspective of the Telecom Services in India and presents the key parameters and growth trends of the Telecom Services as well as Cable TV, DTH & Radio Broadcasting services in India.
Ministry of Finance releases draft Vivad se Vishwas II (Contractual Disputes) scheme framework. Comments can be emailed to sanjay[dot]aggarwal68[at]nic[dot]in by 8th March, 2023.