The last year or so has seen American politicians talk of a ‘Green New Deal’ for their country. The term refers back to the New Deal that was implemented in the US back in the 1930s to stimulate economic activity and recover from the Great Depression. Only now, what is being called for are policies to kick-start a greener economy. This means not only reducing the US economy’s carbon footprint, but also using the transition to renewables and more energy efficient technology to create a new wave of jobs in these sunrise sectors.
Turning to India, a number of factors are coming together to make the coming months an ideal time to develop and implement such a program specifically focused on its agriculture sector.
Firstly, there is the obvious need to support the sector’s development. Like countries around the world, India is faced with a deep economic slow-down due to the COVID-19 crisis. Agriculture and food production is, of course, an essential activity and so will continue to operate under lock-down conditions. However, what makes the sector particularly critical in India is that, as well as supplying food to the nation, it is responsible for the livelihoods of the majority of its people. Around two-thirds of India live in rural areas, and 120 million farmers and 150 million farm labourers, plus their families, are dependent on agriculture for a living. Furthermore, the migrant workers in cities that survive on daily wages and were made unemployed overnight by the current lock-down are coming back to their home villages in their thousands. The sudden increase in the available rural workforce amplifies the need to act fast to support India’s rural economy.
Then there is the potential that such a program offers to alleviate what will inevitably be intense strain on the national budget in the coming years. Governments around the world have been announcing huge fiscal packages to support their economies through the COVID-19 crisis and India is under pressure to expand its own spending. Last week, three of the world’s most distinguished economists, Amartya Sen, Raghuram Rajan and Abhijit Banerjee came together to call for greater government support to help India’s poor through the crisis. This being said, it is worth noting that during a lengthy television interview, Prof. Rajan also discussed some longer-term concerns that restrict India from adopting more of a no-holds-bar approach to crisis spending than in other countries. These concerns relate to India’s already slowing economy and high fiscal deficit, which mean that a further widening of its deficit carries macro-economic risks such as loss of investor confidence, currency depreciation, capital flight and increasing cost of finance.
This does not mean that India should not increase government spending during the crisis but that, as future budgets come under pressure to service debt, there is a vital need to be smarter about where the rest of the national budget is going. As we will see below, the agricultural sector is currently supported by vast subsidies that have adverse environmental impacts. Investment in transitioning to more sustainable activities offers the opportunities to phase out these subsidies, and create fiscal room for other priority areas, including healthcare.
Finally, there is rapidly growing demand for green investment opportunities from the international finance community as investment banks and pension funds come under pressure to meet environmental and social goals, and cut the carbon foot-print of their portfolios. Green bonds can be an important mechanism for raising capital and the growing appetite for such investments is shown by how total global issuance of green bonds has increased from a value of US$84 billion in 2016 to an estimated US$250 billion in 2019. Moreover, these bond issuances are reported to be oversubscribed, indicating a shortage of investment opportunities relative to their demand. Similarly, in the equity market, investors are looking for environmentally cleaner companies to hold stocks in. For example, last month, Barclays announced that they are planning to align all their financing activities with the Paris Climate Change Agreement, and are targeting net zero emissions by 2050. The plan includes a target of deploying £100 billion of green financing by 2030.
Three specific areas come to mind that can be the focus of a New Green Deal for Indian Agriculture.
Water and Energy
Only around half of India’s farmers have access to irrigation. For those who do, the predominant practice is flood irrigation powered by highly subsidised, almost free, electricity. Where electricity is not available, expensive and polluting diesel pumps are used. This method of irrigation is a highly inefficient use of India’s increasingly strained water resources and is resulting in depletion of water tables. Furthermore, it is sub-optimal for farm yields compared to more water-efficient drip and sprinkler irrigation equipment. In Punjab, where almost 100% of farmland is irrigated, farmers are having to sink their borewells deeper and deeper over time to keep accessing water. Water shortages and droughts are now also frequent in parts of Maharashtra, Karnataka and Tamil Nadu, despite irrigation usage being much lower there. The reality is that Indian farmers do actually need irrigation if they are to improve their livelihoods and feed the country. However, with water resources already so severely strained, it is deeply disturbing to think what will happen if more farmers were to take up flood irrigation. Therefore there is a pressing need to transition to more sustainable practices.
A way forward could be use of solar pumps connected to drip and sprinkler systems with the option for farmers to sell their surplus energy to the government or their community, which in turn can spur wider enterprise development and employment creation. The option to make a return from surplus energy gives an incentive to farmers to optimize the water they pump out. The model also converts the farmers from being a receiver of subsidized electricity to an income generating supplier and, therefore, eases pressure on the government budget, and contributes to sustainable rural electrification. Finally, the conversion to drip and sprinkler irrigation can boost the farmers’ yields by 25-50% whilst using less water and, therefore, improve their incomes.
There are already examples of such projects taking place on a small scale, and what is needed now is finance and political will to scale up to cover the whole country. Remember, by simultaneously reducing the government’s electricity subsidy bill, supporting solar and irrigation businesses, and improving farmers’ profits, the model can generate funds to provide returns for investors.
The government also subsidizes the production of chemical fertilizers, making them available to farmers well below market prices (₹70-80,000 crore [about US$ 10 billion] was allocated to cover fertilizer subsidies in each of the last three years). This leads to the over-use of chemical fertilizers, which impacts the environment in three ways. Firstly, the excess fertilizer is leached from the soil and contaminates groundwater and rivers. The process is made worse by the use of flood irrigation, as the resulting excess water flushes these fertilizers out of the soil. Secondly, the imbalanced use of chemical fertilizer has long-term adverse impacts on soil health. Here, the situation is made worse by nitrogen-based fertilizers being even more over-used then others due to the subsidy on them being particularly high. Thirdly, the manufacture of chemical fertilizer uses fossil fuels intensively. Therefore, the more farmers use them, the larger their carbon footprint is. Worse still, this relatively indiscriminate use of fertilizers also means farmers’ yields are actually lower than if a more controlled and balanced approach was taken.
A strategy is needed to raise awareness of more scientific, precision-fertigation methods that involve using smaller doses at optimum points in the crop cycle, and that also consider the requirements of the actual crop and soil conditions in question. As well as reduced environmental impact, as farmers cut their fertilizer costs and improve their yields, they will improve their profitability and, as fertilizer demand reduces, the government will save on its subsidy bill. These savings could, for example, be used to pay back bonds issued to green investors to support the transition.
There is also potential to invest in processing farm waste into bio-fertilizers and bio-gas. This would allow farmers to monetize their waste, further reduce the need for chemical fertilizers, contribute to improved soil fertility and yields, and provide renewable energy to rural communities and businesses.
Sustainable Cold Chain
As population and incomes in India grow, so will the demand for fruit and vegetables. Reports estimate that 10-20% of fruit and vegetables grown in India are lost due to spoilage between harvest and reaching the consumers. If these post-harvest losses are not brought under control, then in order to make up for the losses, more land, water and fertilizer will have to be used by farmers to meet growing demand, exacerbating all the environmental issues discussed above.
Therefore, it is vital to establish a farm-to-fork cold chain in India. However, cold chain technology is energy intensive and so it is also vital that investments in this sector are paired with the use of clean energy and incorporate emerging technologies that improve energy storage and efficiency. Otherwise the environmental benefits from reducing food losses will only be cancelled out by the carbon footprint of the cold chain.
The good news is a lot of exciting progress is taking place in this field, both within India and internationally. What is needed now is investment to scale-up ground-level implementation of this technology and for food industry players to green their supply chains. For green investors, as well as supporting both direct emissions reductions from establishing a sustainable cold chain, there are also the indirect environmental benefits generated by reducing food losses.
It is important to take note of the following facts: one sixth of the world’s population lives in India, and two-thirds of that is in rural areas. World Bank data shows that the per capita energy consumption in India has been growing by 6% per year and yet, as of 2014, it was still only around a quarter of the global average. This indicates how much more it could grow in the coming years. As India’s economic growth and energy demand continues to catch up with industrialised countries, how will global climate change targets be met if the people of rural India are not put on an environmentally sustainable path to economic development? This highlights the need to mobilize political will and finance for a Green New Deal for Indian Agriculture. If this can be done, then the good news is that India is home to many professionally run agribusinesses, innovative start-ups, and resourceful and dedicated NGOs and CSR initiatives that can deliver the plan on the ground. Furthermore, aside from environmental goals, the sheer size and growth potential of India’s rural economy provides an attractive opportunity for investors to generate returns.
A final thought – going back to the basics of economic theory, government spending and subsidies can be justified where they provide a public good. Food security and stable rural incomes have therefore been the motive for government support for agriculture around the world, whether it is the EU’s Common Agricultural Policy or India’s system of subsidized electricity and fertilizers combined with price support for key food grains. These policies that led to India’s green revolution during the 1970s were justified at that time and have delivered countless benefits to the country. However, as the importance of environmental resources as a public good has increased, so has the need to reform agricultural policy towards promoting green growth. Incidentally, this is the direction that the UK is taking post-Brexit, where it intends to link agricultural subsidies to environmental services delivered by farmers. Surely there is potential for collaboration between the UK and India in areas such as the development of common environmental standards, trade and investment agreements, and technical partnerships.