i year passed by was an eventful one. Circumstances produce events and the latter leave behind their imprints that design the future. The world saw defining stuctural changes since the. beginning of 20th century which moved the world on to new shythms. in technology, politics, economic gowth and management. The impact of the US financial crisis of 2008-09 has let its scar all over. However, in 2014 a new optimism ushered in parts of the world with employment and wages rising demand is, Increasing and households incomes moving northwards, This has been ontibuted by the declining fuel oil pice and the quantitative easing (hough the central banks buying bonds). Hopefully, GDP will grow over 3% growth in 2018. Crude oil price decline Ctude oil prices plunged nearly 50%, sequel to the Saudi Arabia and the UAEed Organization of Petroleum Exporting Countries (OPEC) refusing to cut production, despite fall in global domand, They ‘id not want to lose market share to US-Canadian shale gas producers, This trend helped oll importing countries cut their import bills. With the emergence of shale gas and oil in the USA, the energy landscape has undergone a major change. The fuel ol price now hovers around $60. * Di KU. Mada, Economist & Former Development Banker, #24, New Siver Home, 15, Kantwadi Road, Bandra West Murbai-400 050, February 1, 2015 By K. U. Mada Many US and Canadian producers of shale oil, says Mr. Claude Smadia, find their production unprofitable, Hence, the oil price may not climb up to $ 80 oF $ 90, at least for a yoar hhence. The OPEC monopoly fixing cil price at $ 100 or above may not bounce back in the near-term. The oil scene is. uncertain with the developments. taking place in non- fossil energies. On global monetary and financial fronts, the actions of the major governmentsicentral banks in 2014 proved that the globalized world will have to keep adjusting themselves to changing scenarios. Developed economies The USA is on the path of recovery and its economy grew at 5% in June-September Quarter, 2014, There are rising stock markets with Dow breaching 18,000. The US government has been pushing growth. The US Fed, as employment improves, is expected to raise its signal interest rates from the middle of 2015, Europe which had a great promise after the fall of Bertin wall is faced with economic threat. The euro area is on the verge of recession. ‘And, the European Central Bank wants to do “whatever it takes” to save the Euro single currency, The French and the Italians have been dodging structural reforms. Germany has been insisting on austerity in European countries. The Eurozono inflation is down to 0.3% revealing tronds of stagnation and deflation. When there is falling prices, ‘consumers stop spending leading to —_ (88! Year of Publication} A_____________ Global Economic Trends — 2015 declined demand and rising loan defaults. In the rich OECD countries, roughly 45 million workers are jobless, according to The Economist, London. italy and Spain have youth unemployment of over 40%. Short- term interest rates are close to zero in many economies. The central banks had to increase liquidity. Europe's. weaknesses Include ageing demography, heavy indebtedness and sticky labour markets. Europe has to spend on infrastructure; the financial institutions should launch expansion in investment on Europe-wide ail links and electricity grids, Deficit spending could shake off deflation. There has been no cohesion in the European Union. Crisis in Ukraine too hurt the Euro zone. Germany expects the pproblem-ridden countries like Greece to adopt zero deficit budgets and austerity measures. The degraded the infrastructure and educational system on the other hand require investments. Unless there are appropriate fiscal and monetary measures, Europe cannot return to ‘growth path in the near-term. In Japan, PM Shinzo Abe's Abenomics had a setback after the hike of consumer tax from 5% to 8% in April 2014 leading to reduced demand. Another scheduled hike in the levy has been deferred. There have been two consecutive negative growth quarters recently. The “3 arrows" of Abenomics viz. monetary policy to restore inflation, supportive fiscal policy and structural reforms for long-term growth are yet to make 5 Southern Economisttheir impact on the economy though the Bank of Japan started making its contribution, Also, there are no ‘supply side reforms of increasing labour force, say, by encouraging more women to work, enticing older Japanese to remain in the labour force, developing more friendly labour policies, and importantly, by weleoming immigrants, For Olympic (2020) construc-tion workers were allowed but there has been no bureaucratic and political support for allowing nurses and hospice workers. Bureaucracy continues to be an important power centre. Abenomics has, as Kenneth Rogoff says, falled to tum around doflationary mindset. Problems of outsize government debt and undersize pension assets continue, Emerging market economies Inthe emerging market economies, the BRIC countries, as emerging block comprising Brazil, Russia, India and China, have been showing mixed growth prospects. Poltics played a crucial role in changing the course of | BRIC economies in 2014, A snap shot here. Brazil's economy continues to falter. The economy is faced with height tax burden and rising inflation, The red tape in administration and poor infrastructure hold back the growth prospects. President Dilma Rousseff, reflected in a tough poll, is faced with its sagging economy. The’ IMF estimated GDP growth of 0.3% in 2014 and forecast GDP at 1.3% in 2015. The developments in Russie hhave taken a dramatic turn in 2014, Russia was annoyed with the US and Europe allegedly for pushing NATO's boundaries close to Russia's 6 Southern Economist borders, thereby encroaching on its sphere of influence. President Vladimir Putin's annexation of. Crimea and support to Ukraine rebels led to economic sanctions by the US and Europe, shutting out Russia's banks from global finance, Ruble tumbled 40%, Crude oll prices plunged adding to Russia's troubles since oil and gas account for over 90% of its exports. AS against estimated GDP growth of 0.2% in 2014, IMF forecasts 0.5% growth in 2015. In India, with BJP's success. in May elections and Mr. Narendra Modi assuming the prime minister ship coupled with his. image-building efforts with international leaders, it is expected to become an important investment destination for global Westors. Given the PM's pro-growth image, investors expect the government to Introduce _long- awaited reforms in ensuring the ease ‘of doing business, insurance, and ‘coal, land acquisition for industrial, infrastructure and development purposes, mining, arbitration and in such other related areas. The current falling oll and commodity prices and surging stock markets have given boost to the new government. Also, if the inflationary trends continue to slide downwards the RBI may cut its signal rates in the near future. IMF expects a growth of 5.6% in 2014-15 and 6.4% in 2015-16. China, despite being the fasted ‘growing economy, is faced with a recent slow-down in the pace of expansion. While slowing export has hurt manufacturing, the challenge for President Xi Jinping is. to transform the economy towards domestic. consumption rather than depending heavily on global demand for manufactured goods. IMF estimated growth at 7.4% in 2014 and forecast at 7.1% Jn 2015, the central bank ‘may cut its rates. There has beon a shift from collective leadership to ‘one-man leadership. China is the fising economic and geopolitical player in the region. The new development model based more on domestic consumption meant quality growth, Conclusion All the trends point to a world where fiscal or monetary actions by the two major world economies, the USA and China, will matter a groat deal, The US hegemony is replaced by new centres of power, namely, the US, Europe, Japan and BRIC countries. Developments in these countries have assumed importance in world affairs. Also, in additions to the earlior conclaves of the world leaders, the formation of G-20 since the 2008-09 financial crisis and the ‘emergence of emerging economies, especially the BRICS (including South Arica) the frequent. Interactions through the = G-20 meetings offer scope for deliberating ‘on the emerging challenges, BRICS established the New Development Bank; China's Invest- ment Bank has come into existence. Also, a new set of transformational political relations got established in 2014 among the US, China, India, Japan, Europe and the rest of the world. In Asia, China, India and Japan are active in their role-playing land the US continues with its role in ‘Asia, Europe and the Middle East With the new economic and political re-balancing in place, the world is in the process of establishing its new architecture of relationships, poltcal equations and economic equilibrium. In this scenario, 2018 will be soving many theatres of diverse actions, February 1, 2015Gard Year of Publication Make in India, Largely for India 1@ global economy is still weak, despite a strengthening recovery in the United States. The Euro area is veering close to recession, Japan has already experienced two quarters of negative growth after a tax hike, and many emerging markets ‘are rethinking their export-led growth models as the industrial world stagnates. In the last couple of years, the IMF has repeatedly reduced its ‘growth forecasts. After 6 years of a tepid post-crisis recovery, the IMF titled its most recent World Economic Outlook ‘Legacies, Clouds, Uncer- taintios The conventional diagnosis and remedy Why is the world finding it so hard fo resume pre-Great Recession growth rates, let alone restore the levels of GDP that would have been attained if the Great Recession had nnot happened? The obvious answer |g that the legacy of the financial boom that preceded the Great Recession is debt, and the overhang of debt, whether on govemments, households, or banks, is “holding back growth. In the colourful words of the IMF's Managing Director, we are experiencing ‘the New Mediocre’. ‘The implication is that growth is unacceptably low relative to + Excerpts from the Address of Dr. Raghuram Rajan, Governor, Reserve Bank of India atthe Bharat Ram Memorial Lecture at FICC! on December 12, 2014 in New Debi 32 Southern Economist By Raghuram Rajan* potential, and more can be done to lit it, especially given that a. number of economies are flirting with deflation. Hence the conventional policy advice urges yet more Innovative monetary interventions with an ever expanding set of ‘acronyms, even while governments fare urged to spend on ‘obvious’ needs such as infrastructure. While the need for structural reforms is acknowledged, they are typically deemed painful, and possibly growth- reducing In the short run. Hence the accent is on monetary and fiscal stimulus, and as much of it as possible given the deadening effects ‘of debt overang. The efficacy of such policy advice remains 0 be seen. But the Japanese checked each of these boxes over the last two decades, including interest rates held low for long, quantitative easing, and massive debtfinanced spending on infrastructure, Few would argue that Japan has shed its seeming malaise. A different diagnosis, AA different narrative of the pre- crisis period is now emerging that may explain why the efforts at stimulating economies back to the pre-crisis growth paths have not been successful, even six years after the crisis. The term ‘secular stagnation’ used by Larry Summers to describe the current persistent economic malaise, echoing Alvin Hansen's speech in 1938 in the midst of the Great Depression, has caught on. But different economists focus on different aspects and causes of the stagnation. Summers ‘emphasises the inadequacy of aggregate demand, and the fact that the zero lower bound as well as the potential for financial instability prevents monetary policy from being more active. The reasons for weak aggregate demand include ageing populations that want to consume less and the increasing income share of the very rich, whose marginal propensity to consume is small. Tyler Cowen and Robert Gordon fon the other hand, emphasise @ weak supply potential. They argue that the post-World War Il years were fan aberration because growth was helped in industrial countries by reconstruction, the spread of technologies such as electricity, telephones, and automobiles, ising educational attainment, higher labour participation rates as women entered the work force, a restoration of global trade, and increasing investments of capital. However, postwar total factor productivity growth — the part of ‘growth stemming from new ideas and methods of production — fell from its 1920-50 high. More recent, not only has productivity growth fallen further, but growth has been held back by the headwinds of _plateauing ‘education levels. and labour participation rates, as well as a shrinking labour force in some countries because of population ageing, February 1, 201553rd Year of Publication It is obvious from these lists of factors that it is hard to disentangle the elfects of weak aggregate demand from slow growth in potential supply. Population ageing contributes to both. Indeed, one may cause the other. For example, anticipating @ slowdown in growth potential households, worried about impen- fing retirement in the face of promised social security entitlements, that are unlikely to be dolivered upon, may try and build savings. This will depress demand further. Conversely, anticipated weak demand may reduce incentives. for ‘omporations to invest, causing supply potential to grow moro slowly. Whatever the reasons for siow underlying growth starting in tho 1970s, the traditional adverse consequences such as the growing unemployment of the system's, putsiders such as immigrants and the youth was compounded by the ‘rowing realisation that economies ‘ould also not deliver on social security promises without growth. These promises, as sociologist Wolfgang Streeck writes, were made to the wider public during the growth years of the 1960s when visions of a ‘Great Society’ seemed attainable 4 Promises have been augmented since then by increases in pension and old age healthcare commitments to public sector workers. These have been made to avert budget-breaking wage increases, but they have created huge liabilities for the future, hich is approaching fast. Growth therefore became an imperative, and with underlying growth slow from the 1970s on, governments began to spend more to stimulate the economy. With supply potential also stagnant, the spending translated into inflation, which spiraled upwards. Stroeck arguesthat industrial country suocesses in cutbing inflation in the 1980s meant February 1, 2015 else had to take the place inflation tax. in financing of the spending. And that was debt, first public debt, then as governments narrowed fiscal deficits, an encouragement to the private sector to take on debt. Growing leverage of all kinds, whether on banks, corporates, households, or govern- ments, led to the financial crisis of 2008-11. Some of the private debt has morphed into._government liabilities, but the overall level of debt in industrial countries as a fraction of GOP is stil growing. Governments that are not forced by market prossures to undertake productivity-enhancing reforms. prefer to delay them. As a result, overall debt is still growing because the policies of ‘reaching for growth’ through monetary and fiscal stimulus have not abated. Further complicating all this is a growing sense amongst the middie class that they need quality higher education and training to not slip back into the ranks of the poor, but the poor quality early education they have received, as well as the prohibitive ccost of quality higher education, puts better livelihoods out of reach Populist middie class movements, as epitomised by the Tea Party in the United States or UKIP in the United Kingdom, reflect these worries. The possibilty of a backlash against technology, global finance, and foreign immigration and trade, which the middle class is ted to believe are responsible for its plight, is very real The mediocre economic outlook might change. Strong US growth could pull the world out its funk, while low oll pricas could also give a ‘substantial boost to aggregate demand, The industial world may well muddle through for awhile before it figures how to hamess and monetize (as well as measure) new techriologies. New well-paying middle class jobs that we cannot imagine today may emerge once again, as they ahvays have. But overall, there is a palpable sense of gloom in the industrial world, a boliof that growth is unlikely to te strong enough to satisty for the foreseeable future, If secular stagnation persists, Industrial countries will have to figure out how to restructure their promises, whether debt, social security, or low taxes, and how to distribute the burden. After fing for bankruptcy, the city of Detroit in the United States has alteady had to make tough choices, between servicing its pensioners or its dobt, keeping its museums open or its police force intact. More such difficult decisions will have to be made. What about emerging markets? Slow industrial country growth has made more difficult a traditional development path for emerging markets — exported growth. Indeed, in the last decade, even as China developed on the back of its exports to industial countries, other emerging markets flourished as they exported to China. Emerging markets, now have to rely once again on domestic demand, always a difficult task because of the temptation to overstimulate. That task has become more difficult because of the abundance of liquidity sloshing around the world as a result of ultra accommodative monetary policies in industrial countries. Any signs of growth can attract foreign capital, land If not properly managed, these flows can precipitate a credit and asset price boom and exchange rate overvaluation. When industrial country monetary policies are ‘eventually tightened, some of the capital is likely to depart emerging market shores. Emerging markets have to take extreme care to ensure they are not vulnerable at that point Southern Economist 3353rd Year of Publication What implications should - an emerging economy like India, which has weathered the initial squalls of the ‘taper tantrums’ of the summer of 2013, take away for its policies over the medium term? | would focus on four: 1) Make in India; 2) Make for Inia; 3) Ensure transparency and stability of the economy; and 4) Work towards a more open and fair global system. Lessons for India 1, Make in India: The government has the commendable aim of making more in India. This means improving theefficiency of producing in India, whether of agricultural commodities, mining, manufacturing, or services. To achieve this goal, it has to implement its ambitious plans on building out infrastructure. This includes Physically linking every comer of the country to domestic and international markets through roads, railways, ports and airports. The kind ‘of economic activity that is generated when a pukka all-weather road is built into a village the explosion of horticulture, poultry, and dairy farming, the opening of clothing and assorted goods shops, the increasing use of powered vehicles — is extraordinary, as is the kind of activity that emerges around national highways, + Ensuring the availabilty of inputs such as power, minerals, and water at competitive prices. + Linking everyone electronically and financially to the broader system through mobiles, broadband, and intermediaries such as business correspondents. + Encouraging the development of public institutions such as markets, warehouses, regulators, information aggregators and disseminators, etc. 34 Southern Economist * Making possible affordable ‘and safe homes and workplaces. A second necessity for increasing productivity in India is to improve human capital. This requires enhancing the quality and spread of health care, nutrition, and sanitation to start with so that people are healthy and able People also need better and more appropriate education, skills that are valued i the labour markets, and jobs where firms have the incentive to invest more in their learning, The government Is examining the cost of doing business in india with a view to bring it down. The woes of the small entrepreneur, as she confronts themyriad mysterious Fegulations that gover her, and the humerous inspectors who have the ower of closing her down, are well known. The petty bureaucrat, empowered by these regulations, can become a tyrant. It is appropriate that the government intends to make him help business rather than hinder it. As regulators, we too have to continuously examine the costs and benefits of the regulations we impose. Finally, we need to make access to finance easier. | have spoken about that in other contexts, and will not dwell on it here. Before | move fon, let me add some caveats. There is @ danger when we discuss ‘Make in India’ of assuming it means a focus on manufacturing, an attempt to follow the export-led growth path that China followed. | don't think such a specific focus is intended. First, slow growing industrial countries will be much less likely to be able to absorb a substantial additional amount of imports in. the foreseeable future. Other emerging markets certainly could absorb more, ‘and a regional focus for exports will pay off, But the world as a whole is Unlikely to be able to accommodate another export-led China. ‘Second, industrial countries themselves have been improving capitalintensive flexible manu- facturing, so much so that some manufacturing activity is being ‘re- shored’. Any emerging market wanting to export manufacturing {goods will have to contend with this ew phenomenon. Third, when India pushes into manufacturing exports, it will have China, which stil has some ‘surplus agricultural labour to draw fon, to contend with. Exportled ‘growth will not be as easy as it was for the Asian economics who took that path before us. India hasbeen —_ extremely successful at carving out its own areas of comparative advantage, and will continue to do so. instead, counselling against an export led strategy that involves _subsidising exporters with cheap, inputs as. well aS an undervalued exchange rate, simply because it is unlikely to be as effective at this juncture Cautioning against picking a Particular sector. = suchas manufacturing for encouragement, simply because it has worked wall for China. India is different, and developing at a different time, and we should be agnostic about what will work Mote broadly, such agnosticism means creating an _ environment where all sons of enterprise can flourish, and then leaving entrepreneurs, of whom we have plenty, to choose what they want to do. Instead of subsidising inputs to specific industries because thoy are deemed important or labour intensive, a strategy that has not really paid off for us over the years, let us figure out the public goods each sector needs, and strive to February 1, 2015provide them. For instance, SMEs might benefit much more from an agency that can cortiy product quality, or a platform to help them sell receivables, or a state portal that will create marketing web sites for them, than from subsidised credit The tourist industry will probably benefit more from visa on arrival and 2 strong transportation network than from the tax sops they usually demand, ‘A second possible misunde! standing is to see “Make in India’ as a strategy of import substitution through tariff barriers. This strategy has been tried and it has not worked because it ended up reducing domestic competition, making pro- ducers inefficient, and increasing costs to consumers. Instead, ‘Make in India’ will typically mean more openness, as we create an environment that makes our firms able to compete with the rest of the world, and encourages foreign producers to come take advantage of ‘ur environment to create jobs in India 2. Make for India extemal demand growth is tkely to be muted, we have to produce for the intemal market, This means we have 10 work on creating the strongest sustainable unified market we can, which requires a reduction in the transactions costs of buying and seling throughout the country. Improvements inthe physical transportation network | discussed eatior wil help, but so will fewer, but more efficient and competitive intermediaries in the supply chain from producer to the consumer, A well designed GST bill, by reducing slate border taxes, will have the important consequence of creating a truly national market for goods and services, which will be critical for our growth in years to come, February 1, 2015 53rd Year of Publication Domestic demand has to be financed responsibly, as far as possible through domestic savings. Our banking system is undergoing some stress. Our banks have to learn from past mistakes in project ‘evaluation and structuring as they finance the immense needs of the economy, They will also have to Improve their efficiency as they compete with new players such as the recently licensed universal banks as well as the soon-lo-be licensed payment banks and small finance banks. At the same time, we should not make their task harder by creating impediments in the process ‘of fuming around, or recovering, stressed assets. The RBI, the government, as well as the courts hhave considerable work to do here, We also have to work on spreading financial services to the excluded, for once they learn how to manage finances and save they can bbe relied on to borrow responsibly, Now institutions and new products to ‘Sook out financial savings in every comer of the country will also help halt the erosion in household savings rates, as will a low and stable Inflation rate. The income tax benefits for an individual to save have been largely fixed in nominal terms til the recent budget, which means the real value of the benefits have eroded, Some budgetary incentives for household savings could help ensure that the country’s investment is largely financed from domestic savings. 3. Ensure transparency and stability of the economy Even developed countries lke Portugal and Spain have been singularly unable to manage domestic demand. Countries tend to overstimulato, with large ‘fiscal deficits, large current account deficits, high credit and asset price growth, only to see growth collapse as money gets tight. The fow countries that have avoided such booms and busts typically have done so with sound policy frameworks. ‘As a country that does not belong to any powor blocks, we do not ever want to be in a position where we need multilateral support, It wil be all the more important to get our policy frameworks ight. Clearly, a sound fiscal framework ‘around a clear fiscal consoldation path is critical, The Dr. Bimal Jalan Committee's report will provide a game plan for the former, while the government has clearly indicated its intent to. stick to the fiscal ‘consolidation path that has been laid out. Whether we need more institutions to ensure deficits stay within control and the quality of budgets is high, is something worth debating. A number of countries have independent budget offices! committees that opine on budgets. These offices are especially Important in scoring budgetary estimates, including unfunded long term liabilities that the industrial countries have shown are so easy to contract in times of growth and so hard to actually deliver. (On the monetary side, a central bank focused primarily on keeping inflation low and stable will ensure the best conditions for growth. In reacting to developments, however, the contral bank has to recognise that emerging markets are not as resilient as industrial economies. So the path of disinflation cannot be as steep as in an industrial economy because an emerging market is more fragile, and people's butters and safety nets are thinner. A ‘Volker’ like disinflation was never on the cards in Southern Economist 35India, but an Urjt Patel glide path fits us very woll, ensuring moderate growth even while we disinflat. Going forward, wo will discuss an appropriate timeline withthe ‘government in which the economy should move to the centre of the medium term inflation band of 2-6 per cent In addition to inflation, however, @ central bank has to pay attention to financial stability. This is a secondary objective, but it may become central If the economy enters a low-inflation credit and asset price boom. Financial stability sometimes means regulators, including the central bank, have to go against popular sentiment, The role of regulators is ‘not to boost the Sonsox but to ensure that the underlying fundamentals of the economy and its financial system ‘are sound enough for sustainable growth. Any postive consequences to the Sensex are welcome: but are only a collateral benefit, not the objective. Finally, India will, for the foreseeable future, run a current account deficit, which means we will need net foreign financing. The best form of financing is long term equity, that is, Foreign Direct Investment (FD), which has the additional benefit of bringing in now technologies and methods. While we should not be railroaded into compromising India's interest to attract FDI ~ for example, the requirements to patent a medicine in India are perfectly reasonable, no matter what the International drug ‘companies say ~ we should ensure policies are transparent and redress Quick. If we make it easier for young Indian companies to do business, we will also make it easier for foreign ‘companies to invest, for after all both ‘are outsiders to the system. This 36 Southern Economist means a transparent and quick legal process 0 deal with contractual disputes, and a proper system of bankruptcy to deal with distress. Both are issues the govemment has taken 4. Work towards: fair global system ‘As a’ country that does not belong to any power block, and that does ‘not export vital natural resources but is dependent on substantial ‘commodity imports, India needs an ‘open, competitive and vibrant system of international trade and finance. Our energy security, for example, lies ‘not in owning oll assets in remote fragile countries but in ensuring the global oll market works well and is not distupted. We need strong independent multiateral institutions that can play the role of impartial arbiter in facilitating Intemational economic transactions. more open and Unfortunately, the Intemational ‘monetary system is stil dominated by the frameworks put in place in the past by industrial countries, and its governance is stil dominated by their citizens. To be fair, it is changing, albeit slowly. But there is a more Immediate reason for faster change. With slow growth, as well as the need to finance large debt loads, the interest of industrial countries in an ‘open global systom cannot be taken for granted. For instance, regulations that have the appearance of shoring up safely and soundness of the industrial country financial system may have the collateral effect of discouraging investment in emerging market assets. We have to recognise that slow growth may direet industrial ‘economy policymakers’ attention inwards, even while politics tums protectionist. The multilateral governance system, silly dominated by industrial countries, may not provide a sufficient defence of openness. Emerging markets may therefore have the responsibilty of keeping the Global economy open. For this, not ‘only do emerging markets have to work on quota and management reforms in the multilateral institutions, but they also have to work on injecting new agendas, new ideas, ‘and new thinking into the global arena. No longer will it sutice for India to simply object to industrial country proposals, it will have to put some of its own on the table. And this means that our research departments, universities, and think tanks have to develop ideas that they can feed to India's representatives in international meetings. Conclusion We are more dependent on the global economy than we think. That it is growing more slowly, and is more inward looking, than in the past means that we have to look to regional and domestic demand for our growth - to make in India primarily for India. Domestic-demand- led growth is notoriously difficult to manage, and typically leads to excess. This is why we need to strengthen domestic macroeconomic institutions, so that we can foster sustainable and stable growth. At the same time, we cannot let foreign ‘markets shrink further, and we have to take up the fight for an open global system. Rather than being reactive, we have to be active in setting the agenda. That requires investment in our idea-producing institutions ~ research departments of official bodies, think tanks, as well as Universities. In sum, the diminishad expectations in the world at large should not be a reason for us to lower our sights. February 1, 201553rd Year of Publication Development versus Environment — A Case of India ae question of economic development versus environment is @ widely debated issue among the nations. Post industrialization scenario points out the strong linkage between environment and development. Development without a negative extemality on the environ- ment is considered as untenable, The environmental pollution and. indi= scriminate use of natural resources poses danger to the environment and health of the people in the country. Serious environmental problems. such as disturbance inthe ecosystem, climate change, water and air pollution, rising sea levels, global warming and ‘so on can be seen as the unintended conse- ‘quences of the development process, India has resorted to planned ‘economic development since inde- pendence. For attaining rapid economic progress and for improving the life of its poople, India has given due stress on development of its agrarian and industrial sectors through its Five Year Plans. India's First Five Year Plan aimed at economic stabilization and for altaining self sufficiency in the agrarian sector. The Second Five Year Plan initiated structural transformation with an emphasis on heavy industialization. The first two plans laid the foundation for dovelopment planning in India. Other Sr Julie P. Lazar, Assistant Professor, Department of Economies, St, Marys College, Thrissur, Kerala 44 Southern Economist By Julie. P. Lazar* plans were devised so as to develop agriculture, industry, service sectors, ‘overcome the issues of poverty and unemployment and to attain inclusive growth. Environmental issues were completely overlooked during the first two decades of economic develop- ‘ment. In early 1970s the Government realized the need for economic protection as an integral part of Environmental resources like clean alr, fresh water, forests, land and biodiversity are valuable not just ecologically but also economically. India should consider economic development and environmental Protection as complementary aims ‘not as conflicting goals. India should aim at green growth to achieve a harmony between ‘economic growth and environmental sustainability in the long-term and for all round human evelopment economic policy. The Planning Commission in its Approach Paper to the 12h Five year Plan points out ‘that economic development will be sustainable only if it is pursued in a manner which protects the environ- ment. Managing the Environment and Ecology with the following five components is one of the 12 strategy challenges of the plan — land, mining, and forest rights, mitigation and adaptation strategy for climate change, waste management and pollution abatement, degradation of forests and loss of biodiversity and Issues of environment sustainability The economic development of India particularly in the post globalization period hasbeen instrumental in environmental degra: dation. The increasing industria lization, urbanization, intensive agr culture, transportation advance: ments, consumerism and unplanned development are the factors’ which threaten and cause adverse Impact fon the environment of the country Compared to developed nations, India is much more vulnerable to the effects of climate chango due to theit low capacity to adapt and their disproportionate dependency on natural resources for welfare Objective The paper examines the influence fof development on environment in India, India’s Growth Performance India's GNI at Factor Cost (current prices) has marked an increase from Rs 9995 crore in 1950-51 to As 7185159 crore in 2010-11. The NNI at Factor Cost has increased to Rs 6422359 crore in 2010-11, The per capita NNI has increased from Rs 264 in 1950-51 to Rs 54151 in 2010- 11. The share of agriculture in India's GDP has declined and there is @ significant increase in the shares of Industrial and service sectors, The intensive agriculture and the use ot chemicals and fertilizers and adoption of advanced technology hhad made rapid strides in agricultural scenario of the country. Industral Performance has made considerable progress with the second five year February 1, 2015Gi Year of Pabtieation ) plan and the progress has been accelerated with the new industrial policy of 1991.The service sector is the largest contributor to India's GDP with a share of around 55 percent. The green revolution, _industria- lization and the service sector advancement have often a negative Impact on the environment. Demographic Trends in Indi India with a population of 1210.2 milion (census 2011) is almost equal to the combined population of U.S.A. Indonesia, Brazil, Pakistan, Bangladesh and Japan put together. India with only 2.4 percent of world's surface area accounts for world’s 47.5 per cent population The population of most populous state Uttar Pradesh is larger than population of Brazil. The decadal population growth rate increased from 13.31 percent in 1951 to 24.66, percent in 1981. Thereafter there is a decline. Since independence the decline in decadal population growth rate is highest in India during 2001- 2011.The density of population in India is 382, with Bihar having the highest density of 1102 people per ‘Sq kilometer and Arunachal Pradesh with lowest density. The Birth rate in 2011 is 21.8 and death rate is 7.1 Urbanisation There is an increasing trend towards urbanization in the country. The rural urban demographic divide has been narrowing down during the period of planned economic development, The rural population increased at an average growth rate of 2.65 percent, an increase of 4 times from 1901 to 2017.The growth ‘of urban population during the period was at average growth rate of 12.33 percent, an increase of 15 times during the same period. First time since independence the absolute increase in population has been more in urban than rural areas. The February 1, 2015 Increase in urban population is attributed to migration from rural to urban areas, inclusion of new areas under urban and natural increase in urban areas. Vehicle traffic Tho increasing vehicles in tho country, enhances air pollution, fuel consumption , traffic jams and demands for road construction- often at the cost of agricultural land. Tho number of registered motor vehicles has increased at a CAGR of 10.8 percent during the period 2011/1951 Changes in consumption pattern Human wants are never ending Population growth increases the need to produce consumer products land this in tum, intensifies the trend to over-exploit. and misuse ‘environmental resources, The share ‘of income on food consumption is on the decline in India, The young population with increased income and easy financial options are the major drivers of India's consumer industry. The intense competition emergence of new companies, state of art models, price discounts, exchange schemes have increased consumption and replacement of consumer durables classified as white goods, brown goods and ‘consumer electronics. The generation of @ waste in form CDs, mobile phones and other _ electronic accessories is a matter of concern to all the nations of the word Energy generation and consumption The growth in population, industriazation and increased roliance on technology in agriculture has resulted in accelerating the ‘energy production and consumption in the country. This increase is expected to continue in the future India mainly relies on conventional sources of | energy and its indiscriminate use polltes the environment. Burning of fossil fuels, adds a large amount of carbon-di- oxide into the atmosphere and increases. air pollution. Two thirds of Indian population use firewood, crop residue, cow dung or coal as fuel ‘The coal production in milion tonnes increased from 72.95 in 1970-71 to 532,69 in 2010-11 an increase of CAGR of 497 percent. The crude petroleum production increased at a CAGR of 4.26 percent in 2011/1971 CAGR of natural gas production and clecticity is 9.14 percent and 4.04 percent respectively during "the period. Per capita nergy consum. ption (KWH) increased from 1204.99 in 1970-71 to 4816.44 in 2010-11, an increase of CAGR of 3.44 percent. Of the electricity generation of 844,846 gigawathour in 2010-11.704323 is contributed by Thermal power, 114,257 is contributed by Hydro power and 26,266 is contributed by nuclear power. The buk of commercial energy comes trom the ‘burning of fossil fuels viz. coal and lignite in solid form, petroleum in liquid form and natural gas in gaseous form. Degradation of environment Along with the rapid development, the Indian Economy faces certain key ‘environmental challenges climate change, land degradation, air pollution and water security. World Bank in the report, “Diagnostic Assessment of Select Environmental Challenges in India" has pointed out that environmental degradation costs India about Rs.3.75 trillion ($80 billion) annually equivalent to 5.7 percent of the India's GDP - with air pollution being a major contributor. Land degradation India supports approximately 17.5, percent of the world's human beings and 20 percent of _ livestock population on a mere 2.4 percent of Southern Economist 4553rd Year of Publication Table-1 ~ GNI and NNI at Current Prices India the world’s geographical area. The pressure. on’ the county's land Year CGN at Factor Cost NNIat Factor Gost Por Gapta Pressure. on, the, countrys and (Risin erres) (Fs in crores) __NNI (RS) gen of land for foresty, agree e501 9908 464 264 pastes, human sateen an Industries "exo an enormous 1970-71 44098 41204 763 pressure on the country’s finite land 1980-61 37189 125761 10712 Fesoutees. Ths is mainly duo tothe 1990-91 524268 471618 5621 pict a couitry oe ail been implementing a. welldotned io 2000401 1969249 zo7sese 17205 implementing: @ weltdofined no, or04t1 7195159 0422059 54151 managoment ‘has’ largely been Source: Government of India, Economic Sur 2012-13 (eelenite end: ecbirery both: of soit which have resulted in the current Table-3 ~ Demographie Trends in n phase of degradation Year Pepueion Dead rh Densye? Sex ato Uiowsy Tho drect and indirect causes of =: a perdsin (ondesper Psa ‘land ogradation aro. Inked ited (ooo perSein) _'owDmabs) _ponan) ‘land resources and an increase n population. They combine to produce 1901 2583 ; 7 Te land shortages, resulting in smal 1951 26.10 aa 117 946 18,99 farms, low production per person and 1961 49.92 21.68 fae mae zea Raigenka. lleomeon.. shang 1971 sae 24.00 177 930 34.45Land"bhowaye "and "poverty" takes 1981 03 24.66 216 9344357 together, lead to non-sutanade land.""managemont_practoos, the 1991 esa 73.06 Be eat ona Ga lemme weactoon, 2001 1027 21.56 S24 833. 64.8382 por cont of Indias toll land ea zor1___121.02 1764 362 940_74.08 is aflected by land dogradaon , and 25. porcont of tho. county's "goo Table-4 ~ Rural and Urban Population in india Fr Reeean by piegone. caer Year Rurar Urban Tat "rrr rban eter Degradation | hae srvere {r_ tions) ¢r_miions)_— (hn ions)_In%6_In 3% Soturtyfor mins oF eons thng 7901 2125-258 a4 697109 in those. ‘heaviy populated areas ia ae oid 88811. Degradaton “of land fe atnbuted to unsustainable agrcutual practice, 1951 207 ea S611 827 173 version of land. 10. development 1991 628.7 217.2 846.3 743 25.7 programmes, industrial _effiuents, Mining and’ deforestation, Inensve 007 72 7 ae ei ee "og é 27.8 agriculture and irrigation contribute to 2011 ooo) amt 2102 ose an Table-2 ~ GDP at FACTOR COST by Industry of Origin (at Current Prices: Rs in erves) ead 195061 197071 1900-91 7000-01 2010.1 Aarcutur, foresty, fishing, mining 527419086 198166 505476 1503000 Manufacturing, constuction, elec gas and water supply 13488622 127079 474a29. 1a07212 Trade Hotels, Transport and Communication 968 5627 100918 4817851774708 Financing, insurance eal estate and business service 1254 5579 64598 274040 1165001 Community socal personal sevice 1115 591570019 _204450_1016112 ‘Source: Government of India, Economic Survey 2012-13 46 Southern Economist February 1, 2015‘Table-5 — Total number of registered Motor vehicles In India "Al woes _@ Whose _Careleeps Bus owls weeks _Othors 1951 306 ar 159 34 4 1961 665 88 31087 16842 1971 1805 576 68292 mee 113 931 5301 2618 = 1160162 554897 1991 21a74 14200 «2954331 19502593 2001 54991 985567058 634 20485795 2005 s1499 58799 10320 892 4017487 2006 sogte 6474s 11528 992 44387921 2007 96707 6912912649 1350 5119 8460 2008 10535375538 © 19950 1427, 5601 9039 2009 114951 s2402 18813 1486 56019710 2010 12746 9159817109 1527, 6432 11080 2011 141866 101865 19281 1604 7064 12102 SO] crannies: 108147 a3 66 fa. 143 . CAGR 2011/2005 97 96 40.9 10.2 98 84 land dogradation particularly sali nation, alkalization and water logging ‘According tothe National Commission on Floods, the area prone to floods in the country was about 40 million hectares, out of which 80 percent, i.e., estimated 32 million hectares could be provided a feasonable degree of protection ‘Around 68 porcent of the country is, prone to drought in varying degrees. India witnessed a severe drought hich affected 300 million people, 150 milion cattle and reduced food grain production by 29 millon tons. The entire country was declared drought-hit in the years 1966, 1972, 1979, 1987 and 2002. India is well known as one of the 12 mega diversity zones of the world with 7 percent of total biodiversity. On account of soil degradation and erosion nearly half of country's lands are degraded Air pollution Air pollution is a complex issue, fuolled by multiple sources ranging from ~ vehicle exhaust, re suspended February 1, 2015 Source: Government of India, Road Transport Year Book relevant Volumes dust on the roads due to vehicle movernents, industrial fumes, con: struction debris, garbage burning, domestic cooking and heating, and some seasonal sourees such as agricultural field residue burning, dust storms and sea salt. The increased movement of vehicles has emissions of carbon monoxide beyond the permissible levels. The increased nitrogen oxide emissions fon account of increased diesel vehicles causes air polution and health problems, Studies point out that vehicles running on CNG in India are eadapted and cause high rates of potentially hazardous methane carbonyl emissions. Air pollution is responsible for increasing the mortality and morbidity cases in the Indian cities. Studies point out that in terms of air pollution, Bangalore is worse than Shanghai and Beijing is better than Mumbai and air pollution in Ludhiana, Is higher than Los Angeles. A recent study by Central Pollution Control Board (Delhi, India) has declared Delhi as the “Asthma 53rd Year of Publication Capital” of India. it is noted that Delhi's air pollution is up by 5 times since 2004. Accelerating growth in the transport sector, a booming construction industry, and a growing industrial sector are responsible for worsening air pollution in Indian cities. Air quality levels have deteriorated in most large cities in India, with Respiratory suspended particulate matter. (RSPM) and suspended particulate matter (SPM) standing out as major pollutants, Almost 83 per cent cities showed Violation of ASPM standards in 2009- 10. And the capital is among the worst performers. A US research has revealed that India has the most polluted air ahead of | China Environment Performance Index (EPI 2014) has put India in 155th place with score $1.23 out of maximum 100 points, India is behind neighbours, Pakistan and Nepal. According to a recent WHO survey, across the G-20 economies it is pointed out that 13 of the 20 most polluted cities are in India, TERI Environmental Survey 2018 conducted with a sample size ‘of 4,039 respondents in six major cities, Bangalore, Chennai, Delhi Hyderabad, Kolkata and Mumbai has ted that transport sector is a major contributor of air pollution in Chennai, Delhi, Kolkata and Mumbai Factories and Construction activities occupied the first. place among the respondents of Bangalore and Hyderabad. Water Scarcity and Water Pollution Access to safe drinking water is an essential prerequisite of the individuals. Water is mainly used by agriculture followed by domestic use and by industries. Census 2011 points out only 46.6 percent of the households in India have drinking water in their premises, 95.8 percent near their homes and 17.6 percent have water only about 500m to 1000 m away from their homes. With the increase in population, water scarcity Js not far away. It is pointed out that by 2050, 22 percent of the geographical area of the country and Southern Economist. 47Gani ear of Fatication } 17 percent of the population will face scarcity of water. The per capita water availability in the country has declined from 1816 cubic meters. in 2001 to 1545 cubic meters in 2011 land is expected to decline 101295 cubic meters in 2050. Quality of available water is @ matter of concern. An UN. study feport points out that contaminated and polluted water kills more people than all forms of violence: including war. In India, almost all surface water resources are contaminated and unfit for human consumption. The growing Population andthe increased. demand for food and. shortage of agricutural land have intensified the cropping pattern. The intensive use of land, with increased. use. of fertiizers and pesticides to. enhance productivity and production has deteriorating affect on the land and. water resources. The pesticides and fertiizers flow into the water bodies, and cause serious damago to humans, aquatic animals and plants. The discharge of untreated wastes from various quarters, industrial intoxicants and so on poses grave threat to the surface water. ‘The ground water is affected by arsenic, fluoride and other chemical fertilizers and pesticides. 90 percent ‘of water discharge in. developing Countries is untreated contributing, 10 2.2 milion deaths due to diarrheal disoases. The increasing pollution of rivers, lakes and other water bodies has. ‘deteriorating effects on the. health of the community and spreads infectious diseases. Eighty percent of country’s urban waste ends up in rivers. The holy river Ganges is dying, due to increased pollution. In India fecal coliform — a bacteria causes increased pollution due to lack of proper sanitation facilities. It is pointed out that 49.2 percent of the people of India defecate in open. Diseases like hepatitis, cholera, diarrhea, typhoid, amoebic dysentery, skin infections, are some of the diseases associated with poor water quality. The impact of polluted drinking water has adverse effect on the poor. 48 Southern Economist Global warming Global watming is likely to cause Widespread economic, social and environmental destruction over the next century. A recent study predicts that harvest will decline by more than 30 percent in India and Pakistan Rising seas may threaten the lives of millions in developing countries. The impact of global warming is immeasurable and uncedain. The increasing use of air conditioners, refrigerators depletes the ozone layer which in tum leads to climate changes and health issues like cancer. The mobile towers pose the fick of increased radiation in the ‘atmosphere. ‘An important feature of global warming is climate change resulting in change in rainfall pattern, precipitation levels, water availabilty, melting of ice, and depletion of ‘ozone. The climate change, rising heat has increased the health problems of the people. Researches point out that Indian summer- monsoon rainfall is likely to fail much more frequently under global warming in the coming two centuries. The effects of these unprecedented changes would be extremely detrimental to India's economy which relies heavily on the monsoon season to bring fresh water to the farms. India has become highly vwulliorable to climate-related disa- stors. The Natural Hazards Risk Atlas 2011 compiled by tho World Bank and other international agencies ranks points out that India in the highest risk category along with six other countries (Mexico, Philippines, Turkey, Indonesia,.ttaly, and Canada), Suggestions 1 Give stress on 3 F's - Reduce, Rouse, Recycle 2 Impose taxes to yield postive nvironmental benefits and to reduce negative impact 4 Green growth aiming to achieve ‘a harmony between economic. growth and environmental sustainability 5 Increase the dependence on renewable energy sources. 6 Increased research on measures to dispose e-waste in an officiont manner. 7 Coordination between different levels of government, institutions, NGOs and the public fo reduce the harm to the environment. Conelusion Environmental resources ike clean air, fresh water, forests, land and biodiversity are’ valuable not just ecologically but also economically India” should consider economic development and environmental pro- tection as complementary aims not as conflicting goals. India should aim at green growth to achieve a harmony between economic growth ‘and environmental. sustainabilty in the long-term and for all round human development. Economic deve lopment can provide a solid foundation for environmental prote- ction efforts, enabling Indian government to take a better care of their ecosystems, and equip them financially and technologically for the fight against environment degra- dation. "Indian economic policy should ensure faster and greener growth, Referenc 1. Sarbapria Ray, Ishita Adiya Ray, (2011) Impact’ of Population Growth on Environmental Degradation: Case of India, Journal of "Economics and Sustainable Development 2 Vol2, No8 2.tndia Census Report 2011 3. Central Statistical Organization, (2012), Energy Statistics, Government of Inca, 4,Haemanti Bhattacharya, Robert Innes. (2011) Income and tha Environment in Rural india : 1s There a Poverty Trap wirw.uce®borkoey.odu ‘5. Purushitam Nayak, (2004) Povery land Environment Degradation in ral India -A Nexus, SyoPalicies and measures. to 6. Steve Baker, (2003) Environmental reduce particulate matter to control Economics, Doman Pubishers New air pollution, s Deh. February 1, 2015