One of the most ambitious plans to emerge from India’s recently announced Union budget was the government’s proposal to privatize state-owned companies in the coming years. This is an important step in India’s programme of reforms to achieve long-term sustainable growth.
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As Prime Minister put it recently, the government would be less involved in the business of business, and asset monetization and privatization will empower Indian citizens, enhance India’s infrastructure, and increase economic efficiency.
Since the 1980s, many countries have gone down the privatization path. Proponents of such an agenda believe it makes companies and sectors more efficient and competitive, to the ultimate benefit of consumers.
Critics, on the other hand, argue that privatization can lead to job losses, and, in some cases, higher costs for the public.
There is no single privatization model that fits all, but we have seen many success stories in other countries that demonstrate how privatization is beneficial to the long-term growth and sustainability of companies as well as the country, and the Indian government deserves to be commended for its plan.
In Japan, the national railway system, Japanese National Railways (JNR), had been operating with big losses each year before its privatization began in 1987. This programme eventually broke the company up into six regional passenger rail companies and one freight rail company (‘JR companies’). More than three decades later, JNR’s privatization is widely viewed as a success.
The bulk of Japan’s railway network operates without a government subsidy and the fares have remained largely unchanged. Before the covid pandemic hit, all three top regional JR operators were consistently profitable. Privatization has allowed railway operators to determine their capital investment and business development plans, with many Japanese railway firms expanding their operations into other areas, including real estate, supermarkets and hotels.
Another example of the benefits of privatization is asset recycling: the government monetizes existing infrastructure assets through their sale to the private sector, and then invests the proceeds in new projects or long-term investment funds.
This is particularly important as countries around the world look to rebuild their economies after the pandemic. India has recently announced a national asset monetization pipeline to fund much-needed infrastructure and welfare schemes.
Consider the example of Australia, which has been a leader in asset recycling. The country’s asset-recycling initiative provided material top-up incentives from the federal government for state governments to re-invest asset sale proceeds in new infrastructure, and helped kick-start several major projects involving over A $15 billion of new infrastructure spending, including the Sydney Metro train project.
Australian state governments have also used asset privatization to gain long-term balance sheet stability and offset debt. CPP Investments was part of a consortium to purchase a stake in the WestConnex toll road in Sydney when the New South Wales state government sold 51% of its holding in 2018.
The sale generated A$9.3 billion in proceeds for the government, A$7 billion of which was used to seed a new long-horizon state investment fund to reduce state debt and finance projects for community services and facilities. The New South Wales state government is now looking to sell its remaining stake in WestConnex, the proceeds of which will also go into the state’s investment fund and enable future infrastructure projects needed to speed up a post-pandemic recovery.
As noted earlier, one of the biggest concerns many have with privatization is that it could lead to job losses. Different research reports over the past 20 years have shown that business restructuring exercises after privatization did initially lead to job losses.
However, once privatization plans were fully implemented, new entrants to these markets increased the demand for labour and ultimately lowered overall unemployment. By allowing the private sector to take over the heavy lifting, attract new capital and increase business efficiency, privatization also ensures that businesses are more sustainable, creating an environment where they can grow, invest and create jobs well into the future.
Another criticism of privatization is the likelihood of higher costs borne by consumers. However, privatization is often accompanied by market deregulation, which introduces market competition that results in lower prices. A case in point is the telecom deregulation done in many countries.
In Hong Kong, for instance, the government fully liberalized its telecom market in 2003 after several years of deregulation. In the first few years of deregulation, customers saved an estimated total of over US$3 billion on international calls as a result of competition. Today, Hong Kong is one of the most competitive telecom markets globally. According to the International Telecommunications Union, it offered some of the world’s most affordable mobile service plans in 2020.
India, like many countries around the world, has been hit by covid, but has shown great resilience and is rolling out an ambitious vaccination programme. Its economic recovery will be bumpy and require investment. The privatization of state-owned companies over the years could provide the funds needed to rebuild the economy and allocate money to areas of effort where it is needed most.
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- Lowering Emissions by Accelerating Forest Finance (LEAF) Coalition, a collective of the United States, United Kingdom and Norway governments, came up with a $1 billion fund.
- LEAF is supported by transnational corporations (TNCs) like Unilever plc, Amazon.com, Inc, Nestle, Airbnb, Inc as well as Emergent, a US-based non-profit.
- The world lost more than 10 million hectares of primary tropical forest cover last year, an area roughly the size of Switzerland.
- Ending tropical and subtropical forest loss by 2030 is a crucial part of meeting global climate, biodiversity and sustainable development goals. Protecting tropical forests offers one of the biggest opportunities for climate action in the coming decade.
- Tropical forests are massive carbon sinks and by investing in their protection, public and private players are likely to stock up on their carbon credits.
- The LEAF coalition initiative is a step towards concretising the aims and objectives of the Reducing Emissions from Deforestation and Forest Degradation (REDD+) mechanism.
- REDD+ was created by the United Nations Framework Convention on Climate Change (UNFCCC). It monetised the value of carbon locked up in the tropical forests of most developing countries, thereby propelling these countries to help mitigate climate change.
- It is a unique initiative as it seeks to help developing countries in battling the double-edged sword of development versus ecological commitment.
- The initiative comes at a crucial time. The tropics have lost close to 12.2 million hectares (mha) of tree cover last year according to global estimates released by Global Forest Watch.
- Of this, a loss of 4.2 mha occurred within humid tropical primary forests alone. It should come as no surprise that most of these lost forests were located in the developing countries of Latin America, Africa and South Asia.
- Brazil has fared dismally on the parameter of ‘annual primary forest loss’ among all countries. It has lost 1.7 mha of primary forests that are rich storehouse of carbon. India’s estimated loss in 2020 stands at 20.8 kilo hectares.
- Between 2002-2020, Brazil’s total area of humid primary forest reduced by 7.7 per cent while India’s reduced by 3.4 per cent.
- Although the loss in India is not as drastic as in Brazil, its position is nevertheless precarious. For India, this loss is equivalent to 951 metric tonnes worth carbon dioxide emissions released in the atmosphere.
- It is important to draw comparisons between Brazil and India as both countries have adopted a rather lackadaisical attitude towards deforestation-induced climate change. The Brazilian government hardly did anything to control the massive fires that gutted the Amazon rainforest in 2019.
- It is mostly around May that forest fires peak in India. However, this year India, witnessed massive forest fires in early March in states like Odisha, Uttarakhand, Madhya Pradesh and Mizoram among others.
- The European Union’s Copernicus Atmospheric Monitoring Service claimed that 0.2 metric tonnes of carbon was emitted in the Uttarakhand forest fires.
- Implementation of the LEAF Coalition plan will help pump in fresh rigour among developing countries like India, that are reluctant to recognise the contributions of their forest dwelling populations in mitigating climate change.
- With the deadline for proposal submission fast approaching, India needs to act swiftly on a revised strategy.
- Although India has pledged to carry out its REDD+ commitments, it is impossible to do so without seeking knowledge from its forest dwelling population.
Context:-
At the recently concluded Leaders’ Summit on Climate in April 2021, Lowering Emissions by Accelerating Forest Finance (LEAF) Coalition, a collective of the United States, United Kingdom and Norway governments, came up with a $1 billion fund plan that shall be offered to countries committed to arrest the decline of their tropical forests by 2030.
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Why LEAF Coalition?
Brazil & India
According to the UN-REDD programme, after the energy sector, deforestation accounts for massive carbon emissions — close to 11 per cent — in the atmosphere. Rapid urbanisation and commercialisation of forest produce are the main causes behind rampant deforestation across tropical forests.
Tribes, Forests and Government
Disregarding climate change as a valid excuse for the fires, Indian government officials were quick to lay the blame for deforestation on activities of forest dwellers and even labelled them “mischievous elements” and “unwanted elements”.
Policy makers around the world have emphasised the role of indigenous tribes and local communities in checking deforestation. These communities depend on forests for their survival as well as livelihood. Hence, they understand the need to protect forests. However, by posing legitimate environmental concerns as obstacles to real development, governments of developing countries swiftly avoid protection of forests and rights of forest dwellers.
For instance, the Government of India has not been forthcoming in recognising the socio-economic, civil, political or even cultural rights of forest dwellers. According to data from the Union Ministry of Tribal Affairs in December, 2020 over 55 per cent of this population has still not been granted either individual or community ownership of their lands.
To make matters worse, the government has undertaken systematic and sustained measures to render the landmark Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006 ineffective in its implementation. The Act had sought to legitimise claims of forest dwellers on occupied forest land.
Various government decisions have seriously undermined the position of indigenous people within India. These include proposing amendments to the obsolete Indian Forest Act, 1927 that give forest officials the power to take away forest dwellers’ rights and to even use firearms with impunity.
There is also the Supreme Court’s order of February, 2019 directing state governments to evict illegal encroachers of forest land or millions of forest dwellers inhabiting forests since generations as a measure to conserve wildlife. Finally, there is the lack of data on novel coronavirus disease (COVID-19) deaths among the forest dwelling population;
Tardy administration, insufficient supervision, apathetic attitude and a lack of political intent defeat the cause of forest dwelling populations in India, thereby directly affecting efforts at arresting deforestation.
Way Forward
Tuntiak Katan, a global indigenous leader from Ecuador and general coordinator of the Global Alliance of Territorial Communities, aptly indicated the next steps at the Climate Summit:
“The first step is recognition of land rights. The second step is the recognition of the contributions of local communities and indigenous communities, meaning the contributions of indigenous peoples.We also need recognition of traditional knowledge practices in order to fight climate change”
Perhaps India can begin by taking the first step.