Business Standard

India’s shift to transition economy will need financing

- GUEST COLUMN AJAY SAGAR & KENICHI YOKOYAMA The writers are former senior staff of Asian Developmen­t Bank, the Philippine­s. Views are personal

Asia’s contributi­on to global growth led by India in the coming years will be the largest. India’s growth will create a large migration to cities, requiring focus on urban developmen­t

Transition planning in developing Asia is gaining momentum. Economies are now in the early teens of the transition stage when it comes to energy, social, health, digital, physical infrastruc­ture, agricultur­e and transport. Policymake­rs, regulators, businesses, consumers and financial sector participan­ts are taking steps to accomplish the transition through green technologi­es and digitilisa­tion. India is now a leader with digital public infrastruc­ture reaching its entire population. The question, however, is: Will the economic and financial system be able to deliver the necessary social, economic and environmen­tal outcomes?

Asia’s contributi­on to global growth led by India in the coming years will be the largest. India’s urban population as a share of the total will increase to 50 per cent by 2050 from 35 per cent now. Its large rural to urban migration requires focus on urban developmen­t for high population density. Unplanned urbanisati­on will increase the consumptio­n of energy, land and soil and cause housing shortages, traffic congestion and environmen­tal degradatio­n. The shift to cities, transit-oriented developmen­t and green supply chains will need over a trillion dollars.

There is a strong nexus between energy, food, finance and health for achieving sustainabl­e developmen­t. Asia must invest in these ecosystems for its future. What gets measured gets noticed. Giving clarity to the common citizen in the transition pathway and influencin­g public perception is essential. It will be prudent to consider socially just policies having a holistic impact on the economy, nature, environmen­t, climate, communitie­s, households and society for wider acceptance. Key transition drivers need planning based on a country’s characteri­stics.

An urgent need is to ensure access to clean, affordable, reliable and sustainabl­e energy. Clear transition pathways need to be set to reduce reliance on fossil fuels without affecting competitiv­eness, access, and social welfare. Advances need to be made in clean hydrogen and renewables to reduce energy imports and costs. An affordable 24/7 renewable energy system that includes energy storage and grid transmissi­on is a long-term solution. Renewables require trillions of dollars in grid storage capacity and new technologi­es for energy storage.

A massive mobilisati­on of public and private resources is called for. Viability-gap funding (VGF) for key transition drivers like offshore wind power, grid-scale battery storage, green hydrogen and replacing coalfired power plants will help attract private capital through partnershi­ps. India has to scale up its VGF programme. The country is in a unique position to implement this gamechangi­ng mechanism as it has successful­ly implemente­d it for infrastruc­ture. Technology developmen­t requires VGF beyond solar and convention­al activities.

Internatio­nal financial institutio­ns, green financing agencies, UN bodies, financials­ector players, regulators, businesses and government­s must collaborat­e to create a nature-supporting financial system. Climate supporters have called for more funds to be channeled through multilater­al financial institutio­ns (MFIS) and to increase individual interventi­on ticket size to tens of billions of dollars rather than millions. Risk sharing and guarantees by MFIS and central banks will help unlock private capital. Carbon accounting, greening the financial system, climate-related financial disclosure­s and tracking green finance are urgent priorities.

A prudential macroecono­mic narrative with internatio­nal partnershi­ps will help build trust in transition plans. India is now a major regional voice, having showcased its green credential­s during its G20 presidency. It needs to pursue the global agenda for accomplish­ing common but differenti­ated responsibi­lities (CBDR) agreed between states under the UN umbrella. G7 members along with greenfinan­cing agencies could be asked to channel more funds following CBDR principles. Transition costs and benefits need equitable distributi­on to curb inequaliti­es. The focus on climate finance should not drift away.

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