Opportunities we must grab before it gets late

A recent editorial in the Financial Times of London began with the words, "India, long overshadowed by the greater global heft and economic might of China, is enjoying a rare moment in the sun." Analysts have determined that the Chinese economy is far from being out of the woods, and it is difficult to determine when and at what level the current slide will bottom out.

The immediate impact of the economic turmoil in China will be unfavourable for India because for years now, India has been running a large trade deficit with China. The Chinese devaluation of the Yuan will put greater pressure on Indian rupee, with imports from China getting more attractive and India's exports becoming more expensive.

Further, devaluation in the Indian rupee will not help with foreign investments either, because investors may prefer to pull out and may move their investments to markets with other currencies. At the same time, infatuation with investing in China is likely to weaken and in relative terms, India will emerge as a favoured destination, particularly against the historical record of massive investments from overseas in the Chinese economy.

One major development which throws up unprecedented opportunities and possible temptations for India is the current decline in global oil prices. Prices this week were hovering around $30 per barrel, which is a dramatic decline from levels which seemed stable at the beginning of 2015. Policymakers in the country may feel tempted to continue with a policy regime that keeps the transport sector, in particular, dependent on petroleum products in a system which is clearly not sustainable.

The share of rail transport in both freight as well as passenger traffic has been on the decline for decades now with a corresponding increase in the share of road transport. Despite a large coastline, India has a very small share of traffic being moved through coastal shipping, and so is the case with inland water transport. Both these modes are far more energy efficient than road transport by far and the Indian Railways as well. But the rail mode has far greater merit and benefits than road transport.

The current situation, therefore, provides opportunities for expansion and modernisation of railways. This will provide huge benefits to the country. Since a decline in world oil prices reduces the pressure on fiscal budget, and since the Government has declared its intent to invest in infrastructure, preference should be given to invest in energy efficient modes of transport, which apart from reducing the future burden of oil imports will help improve air quality across the country.

Such a shift in transport modes may also carry benefits in increasing access to mobility for the poorer sections of society. The current reduction in oil prices is not so much a relief in reducing the outgo of foreign exchange as an opportunity to bring about a major shift in the country's transport infrastructure for the benefit of Indian society for years to come.

The Financial Times editorial emphasised the importance of India continuing to pursue economic and policy reforms. But this effort will have to be based on adequate intellectual analysis of the global scenario as it is unfolding. Low prices of oil are not likely to continue for an indefinite period in the future. Hence, it will be short-sighted to believe that we will be able to manage our economy effectively even if oil prices go up and demand for oil products keeps on increasing with the current increase in road transport.

In the past few months, the US public has gone back to its love affair with gas guzzlers and large SUVs, thereby increasing the oil intensity of transportation in that country. In our context, investments have to be channeled towards higher energy efficiency and greater public transport capacity. Setting up a regulatory regime for equitable and fair pricing of services to be provided, therefore, becomes a prerequisite.

In other words, the nature of reforms has to go beyond the conventional steps of liberalisation to facilitate investments, which has been pursued in many countries. Reforms that are to be introduced must bring about a mix of economic activities distinctly different from those over the past several decades and they must transform the economy towards a sustainable pattern.

For instance, India has put forward to the global community a very ambitious plan for harnessing 175 gigawatts of renewable energy capacity in the country by 2022. This vision would be realised only if we put in place a framework by which investments are stimulated not only in large centralised facilities for producing energy, but also at the decentralised level. This will necessarily require greater attention to agriculture and the development of rural areas. An environment of innovation in policies and development of technological solutions will be essential for bringing about the transformation that India's renewable energy sector now needs to attain the country's stated goals.

A good example lies in the potential for rooftop solar installations in our towns and cities. Market-friendly solutions in this area will be implemented only if there is a system of net metering and pricing of power supplied to the grid, when a household or commercial establishment generates more power that it consumes.

This means, the State electricity regulatory commissions and State Governments understand and seize the benefits from this option. State Governments, therefore, have to be motivated and carried along in the move towards a sustainable system, which is inclusive for every section of society and sustainable for the benefit of generations yet to come. Internationally, even the manufacturing sector is undergoing major changes, with several countries ushering in automation and use of robots in the face of labour shortages.

These changes can place traditional manufacturing at a cost disadvantage. But for a country like India, creation of jobs is essential for the growing population, particularly the youth. This too will, therefore, require the identification of manufacturing sectors where India holds clear comparative advantage. Are we doing this, or merely following the path traversed by the developed countries and, more recently, by China?

The current global economic situation, China's reduced rate of growth and turmoil in its monetary system as well as the low level of global oil prices suggest that Indian policymakers must carry out due diligence to define the kind of economic structure we must promote for sustained increase in the welfare of our people.

The guiding principles of the transformation that we must bring about will rest on investments in infrastructure, reduction in reliance on fossil fuels and innovation in policies and technologies used right down to the grassroots level. An era of innovation at every level has to be ushered in to deal with impending challenges and seizing the opportunities ahead.