Social Progress Is Lagging Behind Average Prosperity

Social progress is lagging behind average prosperity, with dramatic weaknesses in environmental
quality and the quality of basic education. (Page 8)
In addition, India is facing a shifting external environment with rising geopolitical tensions and
changing patterns of globalization, climate change and policies to achieve the transition to net zero,
digital transformation and other technological changes all embedded in a complex macroeconomic
context. (Page 11)
A range of four additional dimensions integrates these different aspects into an overall coherent
articulation of India’s ambitions:
 Prosperity growth needs to be matched by social progress

 Prosperity needs to be shared across all parts and regions of India
 Prosperity growth needs to be environmentally sustainable
 Prosperity needs to be solid and resilient in the face of external shocks (Page 12)
Ambition is to have the economic activities that are carbon neutral and aligned with environmental
sustainability
Indian economy has large energy needs that have to be met while moving India towards carbon
neutrality. (P-93)
New Guiding principles:
India’s ambition is to achieve middle income and ultimately high income status.
New Priority policies
New Implementation model
Climate change and policies for carbon neutrality (Page 82-

85)
The latest report of the IPCC, the UN’s Intergovernmental Panel on Climate Change, finds that
climate change driven by greenhouse gas (GHG) emissions from human activity has already led to a
temperature increase by around 1 degree relative to the pre-industrial age. An increase of more than
2.5 degrees is projected in an intermediate scenario of GHG emissions plateauing at current levels
before falling in the years past 2050. Climate change leads to changes in weather patterns, including
the occurrence of extreme weather conditions, and negatively impacts other dimensions of the natural
environment, including biodiversity.
The policy response to climate change has included regulatory action, investments into the transition
towards carbon-neutrality, changes in the fiscal treatment of different energy sources and carbon
emissions, and more recently the announcement of carbon-border taxes to counter the relocation of
emissions to countries with lower standards. These policy changes have significant implications
across industries, markets, and countries. Energy-intensive sectors like the automotive industry and
steel production are being disrupted. New companies are emerging and as new products and
production processes change, the mix of capabilities and assets need to succeed. In energy markets,
massive investments have been triggered into renewable energy production, and many existing coal-
based energy production assets have become economically unviable. For oil and gas, overall
investment activity has dropped, and focus has shifted from oil to natural gas production. There is also
a pronounced change in supply behaviour, as countries with large oil and gas resources now view
these resources not as a finite, scarce asset but as a resource that might never be fully exploited. As a
result, their incentives to increase current production has increased, especially for countries with low
production costs.
For India, both climate change and the policies triggered in response pose a significant challenge.
India’s prosperity losses due to rising temperatures are among the highest globally, given the
country’s natural conditions. India’s exposure to policy changes at the global level is mixed: On the
one hand, the country ranks high on its ‘climate change performance’, reflecting low current per
capita emissions and strong growth in renewables. The income effects of a global CO 2 tax or a Carbon
Border tax by OECD countries would be modest. On the other hand, the low climate efficiency of
current energy production and rising energy needs make India one of the largest contributors to future
carbon emissions. A global CO2 tax of USD 50 has been estimated to reduce Indian CO 2 emissions by
830mio tons, the third largest globally and a sign of the changes required by Indian companies and
consumers.
Specific challenges exist in a number of key areas: First, Indian agriculture will suffer from changing
environmental conditions. And India will need to adjust market regulation, which currently
encourages wasteful use of natural resources, especially water, and over-use of fertilizers. Second,
India has growing energy needs that must be met while minimizing the impact on climate change.
There is ample capacity for solar energy and to a lesser degree wind energy. For the latter, India needs
different technology than Europe given its lower wind speeds. Ambitious policy action is required in
order to enable a transition towards carbon-free energy that meets demand and avoids disruptions. The
rising efficiency of renewable energy has created huge amounts of stranded assets in coal-based
utilities. And third, India’s international trade and investment relations will also be affected. Where
India fails to build carbon-neutral energy and production systems, it will in the industrial sectors it
aspires to develop face rising trade barriers, especially in advanced markets. But if India aggressively
pursues the opportunities to leverage international investment and technology collaboration for efforts
that reduce CO2 emissions in India, it will be able to garner economic and environmental benefits.
An area with large domestic and international market potential is equipment related to reducing
carbon emissions. India has ambitious plans to grow energy production from solar and wind. So far, a
lot of the equipment comes from abroad, especially China. Support schemes like Production Linked
Incentives and Tariff Protection aim to incentives the buildup of local production and supply chains.
But the so far limited domestic market size and questions about the reliability of demand appear to be
holding back their effectiveness. An investment pact in Renewable Energy with foreign partners in the
OECD could be a way to overcome these barriers. (P-102)
Jobs and Sustainability: Investment Pact Renewable Energy (P-103)
Aim
 Support expansion of affordable, reliable, and carbon-neutral energy for India
 Create jobs in India in the production of renewable energy equipment
 Contribute to global carbon reduction
 Approach
 • Foreign partners providing technology, production expertise, and funding.
 • Indian government provides guarantees for overall level of equipment purchases
 • Indian regions compete for providing approved sites for production in conjunction with
energy purchase agreements

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Social progress is lagging behind average prosperity, with dramatic weaknesses in environmental

quality and the quality of basic education. (Page 8)

 Prosperity growth needs to be matched by social progress

New Guiding principles:

New Priority policies

New Implementation model

Climate change and policies for carbon neutrality (Page 82-

Jobs and Sustainability: Investment Pact Renewable Energy (P-103)

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