Fukushima's lesson is the need for effective nuclear regulation

This article was first published in The MintIt has been a decade since 11 March 2011, when the most powerful earthquake recorded in Japan triggered a tsunami and killed over 19,500 people and displaced over 230,000. It was the country’s worst natural disaster since 1995. The ‘Great East Japan Earthquake’ or ‘Great Tohoku Earthquake’ is better known as the ‘Fukushima nuclear disaster’ and often cited as Exhibit A in the case against nuclear energy. Yes, the quake and tsunami caused a catastrophic failure of three reactors at Fukushima Daiichi power plant, leaving a contained radioactive mess that will take decades to clean up, and triggered a mass evacuation during which 2,313 people died. Yet, for all the horror stories, the actual number of deaths or cases of radiation sickness due to the accident is—take a deep breath—zero. Coinciding with the tenth anniversary of the disaster, a United Nations scientific committee confirmed findings that there have been no adverse health effects linked to radiation exposure. Nobody died and no one fell sick due to the reactor accident.

That’s not all. The popular narrative often neglects to mention that there were 11 operational reactors—including the three at Fukushima Daiichi—at four nuclear power plants in the region. All of them shut down automatically, but the three at Fukushima failed to complete the process. Sixty kilometres away, three reactors at Onagawa were undamaged and shut down safely, despite being closer to the epicentre and suffering a more powerful tsunami. None of this is to downplay the human, environmental and economic damage that the Fukushima accident caused, or indeed the risks arising from nuclear power plants; only to put it in perspective. What we have is a case for greater attention to safety and governance, not a knee jerk rejection of nuclear energy as we saw in many Western countries soon after the incident.A dispassionate assessment of technology and economics suggests that nuclear energy has to be part of the civilizational response to climate change. In its latest report, the International Energy Agency points out that while wind and solar power are already competitive compared to fossil-fuels, nuclear “remains the dispatchable low-carbon technology with the lowest expected costs in 2025." The cost structure for renewable energy must include that of energy storage systems if it is to replace coal and gas for base-load capacity. Even if, in line with current expectations, the economics of renewable energy become more attractive over time, nuclear will remain an important source of low-carbon diversity. As a country dependent on fuel imports, India must invest in renewable energy, but cannot afford to ignore nuclear.Vaclav Smil, one of the world’s most thoughtful energy analysts, calls nuclear energy “a successful failure" for its inability to gather public support despite its ability to deliver. Despite the facts, ‘Fukushima’ is a one-word argument made around the world to silence any debate on building new nuclear power stations.The derogation of nuclear energy is not a failure of technology or economics. It is a failure of public policy. In that sense, India’s 2010 civil liability law is not unique in preventing greater investment, innovation and development of nuclear energy. It is a nearly global phenomenon. Other than Russia and China that have used the decade since the Fukushima accident to become global leaders in the field, almost every other country has adopted statutes and policies that strangle the development of the nuclear industry.India has done well to remain invested in nuclear despite the adverse global sentiment, but the pace has been slower than estimated, and, more importantly, the industry governance structure remains unreformed. Against the promise of producing 20,000MW of nuclear power by 2020, India currently has operational capacity of 6,780MW, constituting only 2.4% of the electricity generated. In addition to the eight under construction, the government has approved 12 more reactors, targeting 22,480MW by 2031.In a reply to a Lok Sabha question, the government stated that it has no plans to promote domestic and foreign investment in the sector.This makes Fukushima’s lesson especially relevant for India. The causes of that accident were traced to a poor safety culture arising from regulatory capture and poor oversight. Investigators blamed a “mindset that emphasises hierarchy and acquiescence and discourages asking questions."If India’s nuclear industry is government-run for the foreseeable future, then it is all the more important to restructure its governance. The case for an industry regulator and safety auditor independent of the India’s atomic energy establishment has been clear since 1995, a point re-iterated in a 2015 review by an independent international expert group.The Narendra Modi government should restructure the civilian nuclear energy establishment in the manner it did the space sector last year: structurally separate the policymaker, regulator, research and development, and commercial operators. Safety requires more, timely and better information. Not everything needs to be in the public domain, but an effective governance structure will give the government better-quality information on the state of affairs in the sector.

The number game: Making sense of GDP estimates

This article was first published in Financial ExpressThe second advance estimates of GDP for the current year, along with the third quarter estimates, released by the Ministry of Statistics and Programme Implementation (Mospi) do not come as a surprise. The estimates of 1% GVA and 0.4% growth in GDP mark the end of the recessionary phase.As expected, agriculture continues to perform well. In fact, all the sectors except (i) mining and quarrying, (ii) trade, hotels, transport and communication services and (iii) public administration, defence and other services have recorded positive growth in the third quarter; even in other sectors, the contraction is lower by varying magnitudes. And industry as a whole too has moved into the positive territory. Services, which face higher restrictions due to social distancing norms, continued to shrink, but by just 1%. Significant improvement is seen in the performance of construction, up from -7.2% in Q2 to 6.2% in Q3, and financial and real estate sector (up from -9.5% in Q2 to 6.6% in Q3). The contraction in trade, hotels and transport continues to be high at -7.7% in Q3, though this is a significant improvement from -15.3% in Q2.Public administration, defence and other services performed better than the -9.3% growth recorded in Q2, but continued to contract at -1.5% in Q3. It was hoped that increase in the Centre’s spending after October would take it to positive growth. However, the state governments, which contribute to over 70% of public consumption spending, seem to continue their austerity given the revenue constraints. Sectors like education and healthcare too have not recovered to the pre-Covid levels. The increased GST collections of more than Rs 1 lakh crore and the record collection of Rs 1.2 lakh crore in January also indicated recovery.However, increased collections seem to as much due to an increase in consumption as due to better enforcement. With the technology platform stabilising, the government could use the data to undertake invoice matching to detect taking false input tax credit through fake invoicing. With businesses having turnovers of more than Rs 100 crore required to issue e-invoicing from January 2021, both enforcement and compliance of the tax are likely to show further improvement in the coming months.It is, however, too early to celebrate the news of the economy entering the positive growth phase. It is true that there has been a steady recovery of almost all the sectors, as indicated by the leading indicators. In fact, the median market expectation for the third quarter was a growth of 0.6%. While it is futile to quibble over a few decimal points, it is necessary to note that one reason for the lower than the expected growth is the significant downward revision in the third quarter growth of FY20. The GDP growth in the third quarter of FY20 was revised from 4.1% to 3.3%. There were large revisions in the growth of GVA for several sectors.If the whole year contraction of 8% as against the earlier estimate of 7.7% holds true, then the fourth-quarter estimate of GDP will be negative 1.1%, though the GVA will continue to be positive at 2.5%. The downward revision of GDP in the first quarter from 23.9% to 24.4%, even though there was a marginal upward revision in the second quarter, reduces the overall growth rate for the year as well as for the fourth quarter.Besides, as the GDP at constant prices is now estimated at market prices rather than factor cost, indirect taxes and subsidies also pull down the GDP estimate for the year as well as for the fourth quarter. It must be noted that the revised estimate of subsidies for FY21 is at Rs 5.9 lakh crore as against the budget estimate of Rs 2.5 lakh crore. This seems to be mainly due to the clearing of the off-budget liabilities on food subsidies arising from FCI borrowing from the NSSF.While it is a favourite pastime of economists to quibble on the growth rates on a few decimal point differences from what they had expected, it is important to note for the current year, all these estimates are likely to undergo substantial revisions. The revision in the first quarter estimate from 23.9% to 24.4% is not surprising. Even in normal years, significant revisions are made, as was seen in the case of Q3 in FY20, and in this abnormal year, as more information on the urban informal sectors become available, there would be further revisions. In the meantime, we will continue to characterise growth in terms of alphabets we choose—“V”, “K”, or “W”.The sector-wise estimate for the fourth quarter, deciphered from the estimates for the three quarters and the second advance estimate for the whole year, does not make much sense. Agriculture and allied sectors are estimated to grow just at about 1.9% in Q4, it has already registered an average growth of 3.4% in the three quarters, and the whole year growth of the sector is pegged at 3%! The mining sector is estimated to contract by 9.2% during the year and having progressively reduced the contraction from 18% in Q1 to 5.3% in Q3, it is estimated to contract by 16.3% in the fourth quarter!In contrast, the construction sector is estimated to show a negative growth of 10.3% during the year, and that would require it to register a positive growth of 12.5% in Q4. Even a sector like trade, hotels, transport and communication is estimated to register positive growth in Q4 at 1.8%. For the optimists, the good news is that in Q4, both agriculture, industry and services will see positive growth. It is difficult to make much sense of these estimates, but let us keep our fingers crossed.Perhaps we should wait for the provisional estimates of GDP, which are supposed to be released in May, to get a better sense of the recovery. 

We should not forget the equity dimension of PSU privatization

Prime Minister Narendra Modi’s statement that “the government has no business to remain in business" is the clearest articulation of the reason why India must privatize the hundreds of public-sector enterprises that its Union and state governments run. In doing so, he departs from earlier prime ministers, who preferred incremental dilution of government shareholding, or a cautious one-by-one approach in the sale of public enterprises. The invention of the term ‘disinvestment’, which for two decades has been used to describe the privatization of public sector enterprises in India, showed both a lack of clarity of purpose on the part of previous governments and also their need to apologetically cloak the policy against criticism from ideologues across the political spectrum. It is to Modi’s credit that he has decided to use his political capital to declare that privatization of public sector enterprises is in the national interest and thus ought to be carried out whole-heartedly. This is a welcome break from the past.

To realize the ambition of raising over ₹2.5 trillion from the monetization and sale of state-owned businesses and assets, the Modi government will have to get two crucial things right.The first is well known: Process. After Niti Aayog recommends what to do with each of the 300-odd public enterprises, it will be examined by a committee of secretaries, then by a committee of ministers, before the Department of Investment and Public Asset Management (DIPAM) puts it to the Cabinet Committee on Economic Affairs (CCEA) for ‘in-principle’ approval. Instead of this long route, either Niti Aayog or DIPAM should directly take it to the CCEA.The Union government currently does not have an administrative setup and sufficient talent with the professional skills needed to carry out what is at its core a corporate mergers and acquisitions role. What is more, good civil servants will hesitate from taking up the job for fear of a career- or retirement-ruining scandal. Outsourcing the job to private investment banks could bring greater efficiency to the process if done right, but opens up a host of conflict-of-interest issues that would be difficult to manage in the Indian context. The ideal setup is a special purpose department that has political sponsorship, administrative clout, professional talent, incentives for transparency, rewards for performance, and insulation from scandal. So it will have to be a new hybrid species of the genus Governmenta, incorporating many genes, functions and adaptations from the genus Privata. For if we continue with the current administrative machinery and processes, the gap between the country’s disinvestment targets and actual proceeds will yawn even more widely.The second issue is perhaps more important but gets a lot less attention: Equity. Not equity as in shares, but equity as in fairness. The Prime Minister mentioned stakeholder mapping in the context of transparency and competition in implementation. For privatization to be successful, widely accepted and in the public interest, stakeholder mapping should be vastly expanded to cover all sections of society that will be affected by the reforms.The government has done well to announce that the proceeds from the sale of public-sector enterprises will be routed “to public welfare schemes in areas like water and sanitation, education and healthcare." Finance minister Nirmala Sitharaman noted that the money is "not being raised to fill acertain hole in the Consolidated Fund of India. The money being raised from disinvestment will go towards infrastructure." The promise that the sale of public assets will be used for long-term investments in human and physical infrastructure addresses the baseline equity issue. It will be a good idea to put legislative safeguards on this promise, to prevent governments from violating the compact in the future. Let’s recall that the National Investment Fund (NIF), set up in 2005 with similar intent, saw a withdrawal in 2009 “in view of the difficult economic situation caused by the global slowdown of 2008-09 and a severe drought in 2009-10".Next, there are misgivings that privatization will lead to job losses and that candidates entitled to job reservations will be worse off. The former can partly be addressed as part of the privatization agreement. The latter requires political engagement and policy solutions. One way is for the government to upgrade its investment in promoting Dalit entrepreneurship in particular. Equity considerations thus demand that public policy creates better upfront pathways for people to attain a higher socio-economic status than they stand to lose once public sector enterprises are privatized.Many public sector businesses were created by governments at a time when India was poorer, incomes were smaller, the tax base narrower and tax rates higher. They were financed using large parts of our parents’ and grandparents’ incomes. Is it not fair that the original investors should benefit from the sale of assets that the government created with their money? There is an argument for putting part of the proceeds in the retirement accounts and pensions of our oldest taxpayers, as a way to compensate them for the sacrifices they made to finance the socialist state. Their voice is not politically strong, their demands not strident, but recognizing their contribution is the right thing to do.This piece was originally published in The Mint

Making State Finance Commissions work

State Finance Commissions (SFC), constitutional bodies that recommend allocating resources between state and local governments, have had a chequered history in India. In yet another attempt to revive these institutions, the Fifteenth Union Finance Commission (15th UFC) recommended that the submission of SFC reports be a precondition for local governments to receive additional grants. The intention here is to nudge state governments to take SFCs seriously. In this article, we look at how this attempt might play out.Read the full article in Deccan Herald

Does the budget meet India’s Defence requirements?

Until 2019, defence spending made headlines around just two events in a year. The first was when the Union budget was tabled in Parliament, and the second was when the Swedish thinktank, SIPRI, released its formidable comparative military expenditure report. That scenario changed in FY 2020-21. China’s incursions in Ladakh highlighted the urgent and long-term need to prioritise defence. It brought home the point that the central focus of military planning should be China, not Pakistan. This need for prioritisation came even as the pandemic caused a drop in both economic activity and government revenue. Given this backdrop, the government had a challenging task on its hands. There are four key takeaways from the Union Budget 2021-22 for defence.Read the full article on Hindustan Times

An analysis of Social Security Measures : Union Budget 2021-22

This is a draft version of the article published in Prajavani, which is accessible here.

The COVID19 pandemic and its economic impact clearly showed that India's social protection measures were not enough. An analysis of the social security measures in the Union Budget 2021-22 can help us understand the Governments' priorities. The most important questions to be asked - Has the Union government prioritised social protection in the Budget? If yes, what is the realistic outcome it wants to achieve?

Read the full draft here.

Budget’s disinvestment targets are heroic. Modi govt must show unprecedented transparency

More than macroeconomic numbers like fiscal deficits, outlays and revenue targets, we can get a good sense of the Budget by looking at the tax rates. If there are new or higher taxes, or more complicated tax rules, it is usually a bad Budget. If there are lower taxes and compliance simplified, it’s a great Budget. And if, like the Budget Finance Minister Nirmala Sitharaman presented Monday, where the taxes remain unchanged amid an attempt to simplify their administration, then it’s a decent Budget. Considering that the Narendra Modi government does not intend to raise direct taxes amid the additional spending in the wake of the Covid-19 pandemic, by the tax-rate yardstick, we can grant that it is a fairly good Budget.Read the full article on ThePrint

Looking beyond the Budget numbers to see if government schemes really work

On February 1, the Union Finance Minister will present the annual financial statement — commonly called the Union Budget — to the Parliament. Soon after that, TV discussions and newspaper columns will be flooded with conversations on new schemes announced and monies allocated — why didn’t the government reduce subsidies by x per cent, why didn’t the government increase health expenditure by y per cent and so on.Read the full article in Deccan Herald

Voting Technology: Time for electoral reforms

The possibility of improving the quality of leadership is the redeeming feature of democracy. Declining standards in political probity, the unrepresentative character of the elected legislatures, corrupt practices like electoral bonds are major concerns and call for reform of the electoral system.According to an analysis of affidavits of winners in the 2019 Lok Sabha elections, 43% have criminal cases and 29% have serious criminal cases against them including offences where maximum punishment is five years or more. These offences are non-bailable and relate to assault, kidnap, rape, murder, electoral offences like bribery, corruption causing loss to exchequer, and crimes against women. In 2009, it was 30% and 14% respectively, and the present figures indicate that the number of elected parliamentarians with serious offences has doubled over the past 10 years. As excuses, the foisting of false cases and the pathologies of the criminal justice system are touted to prevent reform. Ironically, a weak criminal justice system favours the perpetuation of political deceit. To expect that the narrow self-interests of political parties will let them push for electoral reform that improves leadership quality would be deluding.Read the full article in Deccan Herald

Indians have put their Republic on a pedestal, forgotten to practice it each day

It’s Republic Day. We will celebrate it as usual with a grand military parade in New Delhi, and flag-hoisting functions at government offices, educational institutions, apartment complexes and neighbourhoods. We will sing patriotic songs, honour our soldiers, listen to a speech by a chief guest and enjoy the rest of the holiday. In some of these functions, we will read out the Preamble to the Constitution aloud, a very good practice that started in recent years and one that ought to become more popular. These apart, there are some unusual developments this year with the invited foreign dignitary unable to turn up in New Delhi and uninvited farmers turning up in their thousands instead, for their very own Republic Day parade.Read the full article on ThePrint

Why the Rupee Overvaluation must be kept in check

Inflation is nothing but erosion of the purchasing power of the money in your pocket. If in one year the price of vegetables, milk or petrol goes up by 10 per cent, it is as if the Rs 100 in your pocket has gone down to Rs 90.

Read the full article in Times of India

Weaning away foreign investment from China

Over the past few years, there has been much discussion about India attracting firms that might be seeking to exit China. Initially, these conversations were driven by changes in the Chinese economy, such as rising labour costs, shifting focus towards new technologies and declining productivity. There was a sense that these changes, coupled with improving infrastructure and ease of doing business in India, would make India an attractive option.

Read the full article in the Hindustan Times here.

Cautious Optimism

The welcome to the new year was wishfully cheerful, riding more hope than evidence. Economic data that is coming out is still mixed, yet hopeful. But to have survived the year 2020 is itself a cause of celebration.Read the full article on OrissaPost

DCGI’s Covaxin ‘approval’ is political jumla. It reinforces idea of Modi’s Atmanirbhar Bharat

Other than to the highly credulous, it is pretty obvious that the Drugs Controller General of India’s ‘approval’ for Bharat Biotech’s indigenous vaccine candidate, Covaxin, was announced for extra-scientific reasons. It has neither completed Phase 3 clinical trials, nor has the safety and efficacy data been published. In fact, the drug regulator has not so much approved the vaccine for general public use, but rather granted permission for “restricted use in emergency situation in public interest as an abundant precaution, in clinical trial mode…”.

Again, other than to the highly credulous, it is pretty obvious that such an ‘approval’ was announced alongside that of the Serum Institute’s Covishield for political reasons. The Narendra Modi government did not want to lose the opportunity to score political points: that India has produced an indigenous vaccine under the leadership of Prime Minister Narendra Modi.

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Having survived 2020 is in itself a cause for celebration

The welcome to the new year was wishfully cheerful, riding more on hope than on evidence. The economic data that is coming out is still mixed, yet hopeful. But to have survived 2020 is itself a cause for celebration. Disease, death, economic destruction and yet resilience, fortitude and determination is how most people experienced the last year. Most of the country, for much of 2020, was in lockdown mode, which was progressively diluted.The lockdown is still operative in many States. It has affected jobs, income and livelihoods, especially in the informal sector. The plight of the urban migrant workers in the country is now well known, and was even mentioned by the Prime Minister in his radio address. The rural economy turned out to be their saviour. The adverse economic impact on small and medium businesses has been severe. The exact detailed economic picture of India’s vast informal sector becomes clear only with a lag.Read the full article in the Free Press Journal

The big convergence challenge that we face in this new decade

We enter the third decade of this millennium amid rising doubts, risks and worries about technology, markets, nationalism, democracy and the world order. The unqualified enthusiasm for them that we saw in the past two decades has given way to concerns about what their right dosage is, and what, if any, are the antidotes should we have willy-nilly overdosed on any of them. This is good. Societies that try to answer them truthfully and thoughtfully can expect to emerge stronger and more successful in 2030. For public policy, as for investors and value creators, the opportunities and risks lie at the intersection of technology, health, society and geopolitics.Read the full article in The Mint

India, China and the Proverbial 13-year gap that is widening

Two years ago, the Chinese people celebrated 40 years of the launch of their economic reforms. The achievement of this period is breath-taking.

Read the full article on Times of India

Why blocking Sci-Hub will actually hurt national interest

Earlier this month, three foreign academic publishers sued two foreign websites for copyright infringement in a case before the Delhi High Court. Elsevier, Wiley, and American Chemical Society, among the world’s largest publishers of academic papers, wanted the court to block Sci-Hub and LibGen, the largest providers of ‘free downloads’ of their content in India. This case is important because it can have a significant impact on the broader research, academic and education environment in India.Read More on ThePrint

V-shaped recovery anticipated, but it's the human capital base of economy that needs care

Macroeconomic winds are blowing favourably as we enter the New Year. Stock markets are at an all-time high. Share price indices are up nearly 60 per cent from their lows of March. The stock market is supposed to be a harbinger of economic times to come, so clearly it is indicating a strong revival. Liquidity in the banking system is more than ample. Interest rates are at multi-decadal lows. The gap between Indian and Western policy rates is the lowest it has been in a long time. Coupled with inflation rates above 6 per cent.Read the full article on Free Press Journal

Let 2021 be the Year of Empathy

It has been a helluva year. Full of tragic struggle against a deadly invisible virus. So many loved ones lost, so sudden. Not even being allowed to see the dying patient. Friends and well-wishers reduced to sending heartfelt

condolences by text messages. Of the city’s migrant workers and families walking for a thousand kilometres to their

villages. Because their livelihoods in the city had been shut down.

Read the full article on Mumbai Mirror