10 DECEMBER 2018
Current account woes
Proper structural reforms are needed to boost exports, reduce dependence on imported oil
The latest trade figures published by the Reserve Bank of India confirm the damage caused by high global oil prices in the last few months. India’s current account deficit (CAD) widened to 2.9% of gross domestic product (GDP) in the July-September quarter, a four-year high, under increasing pressure from the oil bill. This is in contrast to the same quarter a year ago when the CAD was only 1.1% of GDP. The widening of the CAD was due to an increase in the trade deficit, which jumped to $50 billion in the September quarter as compared to $32.5 billion a year ago, due to a higher import bill. The government, however, may not be too worried about the widening CAD figures as the major factor that was behind the phenomenon has abated; global oil prices have dropped sharply since early October. Brent crude is down almost 30% from the high it reached in early October. So the size of the deficit is likely to come down in the quarter ending December. This is not to suggest that all is fine. As usual, medium to long-term risks to the external sector remain. For one, there is the threat of price volatility faced by heavy importers of oil. Unless India manages to diversify its energy base by tapping into local sources of energy, this will remain a perennial threat to economic stability.
A widening current account deficit per se should not be a cause for worry as long as foreign capital inflows into the economy are brisk enough to fund its huge import needs. The trouble arises when foreign inflows dry up and restrict the ability to purchase essential imports. So as liquidity conditions continue to tighten across the world, India’s heavy import dependence is a cause for concern. Meanwhile, when Western central banks tighten their monetary policy, the RBI will be forced to tighten its own policy stance in order to retain investment capital and defend the rupee. This will impact domestic economic growth negatively. Each time the external account has come under pressure, the government has simply tried to bring in piecemeal emergency measures, such as a little opening up of the capital account or ill-advised restrictions on imports. Such a policy obviously manages to only kick the can down the road rather than bring a permanent solution to the problem. In order to bring about any meaningful change, the government should also try implementing proper structural reforms that can boost exports, thus helping fund imports through means other than capital inflows, and end the over-reliance on imported oil.
Death in the air
It is time clean air is made a front-line political issue
As an environmental scourge that killed an estimated 1.24 million people in India in 2017, air pollution should be among the highest policy priorities. But the Centre and State governments have tended to treat it as a chronic malaise that defies a solution. The deadly results of official apathy are outlined in the Global Burden of Disease 2017 report on the impact of air pollution on deaths, disease burden, and life expectancy across the states of India, published by The Lancet. Millions of people are forced to lead morbid lives or face premature death due to bad air quality. India’s national standard for ambient fine particulate matter, or PM2.5, is notoriously lax at 40 micrograms per cubic metre, but even so, 77% of the population was exposed to higher levels on average. No State met the annual average exposure norm for PM2.5 of 10 micrograms per cubic metre set by the World Health Organisation. If the country paid greater attention to ambient air quality and household air pollution, the researchers say, people living in the worst-affected States of Uttar Pradesh, Bihar, Rajasthan and Jharkhand could add more than 1.7 years to their life expectancy. Similar gains would accrue nationwide, but it is regions with low social development, reflected partly in reliance on solid fuels for cooking, and those with ambient air pollution caused by stubble-burning, construction dust and unbridled motorisation such as Delhi that would benefit the most.
Sustainable solutions must be found for stubble-burning and the use of solid fuels in households, the two major sources of pollution, and State governments must be made accountable for this. The Centre should work with Punjab and Haryana to ensure that the machinery already distributed to farmers and cooperatives to handle agricultural waste is in place and working. A mechanism for rapid collection of farm residues has to be instituted. In fact, new approaches to recovering value from biomass could be the way forward. The proposal from a furniture-maker to convert straw into useful products will be keenly watched for its outcomes. A shift away from solid fuels to LPG in millions of low-income homes has provided health benefits, The Lancet study says, underscoring the value of clean alternatives. The potential of domestic biogas units, solar cookers and improved biomass cookstoves has to be explored, since they impose no additional expenditure on rural and less affluent households. Such measures should, of course, be complemented by strong control over urban sources of pollution. India’s commitments under the Paris Agreement on climate change require a sharp reduction in particulates from fossil fuel. Fuels may be relatively cleaner today and vehicles better engineered to cut emissions, but traffic densities in cities have led to a rise in pollution. Real-time measurement of pollution is also lacking. There are not enough ground-level monitoring stations for PM2.5, and studies primarily use satellite imagery and modelling to project health impacts. Rapid progress on clean air now depends on citizens making it a front-line political issue.