GS Paper III

News Excerpt:

The Union minister of environment, forest and climate change launched a G20 report titled “A Green and Sustainable Growth Agenda for the Global Economy” by NITI Aayog.

About:

• The report is a result of the G20 international conference held in July 2023.
• It represents the collaborative efforts of 40 experts from 14 countries.
• The report was an effort of NITI Aayog in partnership with  International Development Research Centre (IDRC) and Global Development Network (GDN) paving the way for green and sustainable growth.
• The report aligns with India’s pursuit of a just and equitable transition to renewable energy, emphasising emission cuts and increased financial support.
• The conference organised one keynote address and around six sessions.

Keynote Address on Digital Public Infrastructure (DPI) 

Emergence of DPIs:

• In an era of global demographic shifts, warming climates, and the dawn of new geopolitical contexts, technology is enabling the restructuring of economies.
• In India, this evolution has involved a transition from a predominantly offline, informal, and low-productivity landscape to a unified, formal mega economy underpinned by Digital Public Infrastructure (DPI).

Significance of DPIs:

• DPIs have been pivotal in transforming India’s economic landscape.
• They have accelerated financial inclusion, facilitated the highest volume of digital payments globally, and provided the foundation for the economy’s formalisation.
• DPIs such as the Open Network for Digital Commerce (ONDC) have democratised the digital economy, fostering competitive and equitable market dynamics.
• Welfare schemes and programmes such as distress-related money transfers and vaccination initiatives have become more efficient due to these systems.
• The startup ecosystem has also flourished, surging from around a thousand startups in 2016 to 115,000 currently.
• DPIs needed to balance the tension between fostering innovation and ensuring robust regulation.
• DPIs, funded either publicly or driven privately through regulatory policies, enable interoperability and create combinatorial benefits.

Challenges:

• India’s diversity, in terms of cultures, markets, industrialisation levels, and regulations posed significant challenges to economic formalisation.
• Informality and the lack of productive engagement with technological advancements rendered the economy vulnerable to inefficiencies.
• The need for rapid financial inclusion, transactional formalisation, and a dynamic startup ecosystem was acute.
• The impact of climate change further necessitated the need for mechanisms that could expedite both mitigation and adaptation efforts.

Way Forward:

• DPIs can play a crucial role in climate change action, aiding in anticipatory climate financing, the promotion of a circular economy, and the creation of energy interfaces.
• DPIs can shape the contours of a more resilient, equitable, and sustainable economy

Session 1: Energy, Climate, Growth

Current Status:

• It has become patently obvious that there is a need for a just transition to mitigate climate change. But there is an upside:
• For example, there are potentially positive economic impacts of India’s transition to net-zero emissions, which involves a shift away from fossil fuel imports, which could improve the country’s balance of payments.

• Constraints include financial resources and technology, necessitating a reconstruction of the global financial architecture.

Challenges:

• Global cooperation in climate economics:

• Climate change benefits are distributed globally, but costs are localised, necessitating international collaboration. This is particularly crucial considering the upfront costs of mitigation compared to the long-term impacts.
• Strategies such as carbon pricing, smart infrastructure, and the flexible elements of the Paris Agreement can help manage these costs.

• India’s specific challenges and opportunities in transition:

• • As a significant global emitter reliant on fossil fuels, India faces a challenging transition.

• • Notably, the transition presents substantial potential for job creation, particularly through distributed energy and new economic activities. Climate emergencies exacerbate fiscal challenges for countries such as India.

• Trade-offs in the political economy of climate action:

• • Significant trade-offs include energy access versus clean energy; energy security versus energy sustainability; and job growth versus job losses in the transition.

• Viewing climate adaptation as an economic problem:

• • Given the high climate variability and vulnerability of countries like India, there is a need to view adaptation as an economic issue.

• • This includes incentivising transitions in individual choice, procurement, infrastructure programs, and innovation.

Way Forward:

• Multilateralism is a necessity (and not an option):

• • Climate change’s challenges require multilateral solutions, including creating resilience funds, de-risking platforms, promoting circular economies, joint technological development, and enhancing green energy security and transition partnerships.

• Flexibility is central to the Global South:

• To cope with the disproportionate impacts of climate change, setting up a “flexibility mission” is important for these countries.
• This would provide them with the means to adapt and innovate in response to environmental shifts.

Session 2: Technology, Policy, Jobs

Current status:

• The current state of the world is characterised by technological disruptions, global realignments and environmental pressures.
• The emergence of new economic models and intricate national security concerns are linked to the ongoing technological revolution, particularly advances in AI.
• Demographic and Economic shifts are contributing to the rise of a multipolar world.
• The strain from global growth on the environment is leading to significant impacts on natural systems, raising the likelihood of unforeseen, disruptive events.

Challenges:

• Job market transformations:

• • Technological progress and AI are creating a structural labour market churn, reshaping the job landscape, and raising concerns about job displacement.

• Demographic concerns:

• • The ageing global population presents a significant challenge to maintaining economic growth.

• Environmentally driven migration:

• • Migration triggered by environmental pressures could shift future carbon emissions patterns.

• Policy dilemmas caused by advances in Gen-AI:

• The rapid pace of AI progression is creating numerous policy challenges including regulatory issues, AI’s carbon footprint, ethical considerations, security risks, and potential job losses.

Way Forward:

• Investing in human capital:

• • It is crucial to invest in education and stimulate labour force participation through measures such as extending the retirement age.

• Ensuring that sustainability is focused on wellbeing:

• • Sustainability should be viewed broadly as encompassing human wellbeing rather than just an economic activity.

• Reimagining multilateral cooperation:

• • There is a need to strengthen and restructure international cooperation to tackle shared challenges such as skill development, job creation, and productivity.

• Regulating and constructing governance structures for AI:

• • Generative AI requires a comprehensive regulatory framework, ethical guidelines, and proactive industry self-governance.

• Building inclusive technological infrastructure:

• • Investing in technological infrastructure, enhancing digital education, and boosting public-private partnerships are essential for an inclusive and sustainable transition.

• Embracing new labour practices and emerging technologies:

• Adopting progressive labour practices and leveraging emerging technologies, particularly in developing markets, can be transformative.
• Industry investment in R&D, training, and multidisciplinary research collaborations are also key to navigating future challenges.

Session 3: Growth Implications of a Fractured Trading System

Current Status:

• Technological innovations and transportation advancements led to the fragmentation of manufacturing processes, reducing trade barriers and incorporating a billion lower-wage workers into the global labour supply.
• A noticeable shift has occurred towards “slow-balisation” or de-globalisation, characterised by increased restrictions on trade, labour movements, and limited technology diffusion.

Challenges:

• China’s resilience and dominance:

• • Despite the global slowdown, China has maintained its position as a key driver of global growth.
  • China’s resilience is largely attributed to its focus on exporting more value-added products, particularly in clean tech.

• Impact of de-globalisation on Europe and US-China relations:

• Europe has suffered significant losses due to de-globalisation. Concurrently, the current US-China decoupling has led to increased trade and financial protectionism.
• The world’s increasing dependence on China, particularly in clean and green tech sectors, suggests potential risks for global supply chains.

Way Forward:

• India as a potential future engine of growth:

• • With China facing an ageing population, India could step up as the next global growth engine. However, it must address its de-industrialisation and boost its manufacturing sector.

• Adoption of innovative strategies centred on sustainable growth:

• • Strategies should include enhancing productivity in traditional sectors, creating manufacturing jobs, managing competitive exchange rates, closing infrastructure and logistics gaps, and improving education and skills development.
    • Initiatives such as the Gati-Shakti Masterplan could help sustain India’s growth momentum. 

• Need for trade reform:

• These would retrieve policy space for industrialisation and facilitate the transfer of technology.

Session 4. Reshaping Global Finance for Sustainable Growth

Current Status:

• The current global financial architecture is marred by dysfunction and cluttered with non-economic issues, and requires significant restructuring.
• Global financial architecture currently faces a shortfall of $3 trillion over the next decade, highlighting an urgent need for both public and private resource mobilisation.
• The fragmented nature of this architecture is contributing to disparities in economic recovery between developed and developing regions.

Challenges:

• Three types of financing - private sector, multilateral, and bilateral - each come with their own complications, from volatility to limited availability.
• Emerging economies are further threatened by capital volatility and exchange rate risks as their financial integration deepens.
• The global debt architecture, currently informal, inefficient, and fragmented, poses additional challenges, with many low-income countries already in or nearing a debt crisis.
• The world lags in transitioning to net-zero emissions, exacerbating the climate crisis and necessitating significant, upfront financing, primarily from private sources.

Way Forward:

• Reforming financial systems and processes is key to overcoming these challenges.
• Making SDR allocation rule-based and less discretionary, as well as improving the multilateral system.
• Debt needs to be managed sustainably and transparently, possibly by establishing a multilateral creditor club and strengthening legal frameworks.
• Financial safety nets need strengthening, bilateral swap lines need to be expanded, and IMF contingency lines invoked to make capital flows safer.
• Scaling up green financing, especially for regions like Africa, will require innovative policies and tools to drive the global transition to net-zero emissions.
• This includes fostering green investors, policies that bolster the enabling environment, and encouraging international cooperation.

Session 5. Multilateralism: Geopolitics, Governance and the Global Commons

Current Status:

• The role of economics in politics and the effects of geopolitics on multilateralism underscores the interdependence of global issues.
• These require an effective multilateral order for universal benefits, encompassing growth, sustainable and inclusive development, peace, and risk management.
• Important factors include open trade and investment, the management of global tensions, such as the US-China trade war, and the integration of emerging economies like India into the world economy.
• Understanding health as both a consumption good and an investment allows a focus on universal health coverage, malaria eradication, and new vaccines.
• However, the relationship between health and economics is complex, particularly given the disruption caused by COVID-19.

Challenges:

• The rise of protectionism and violations of non-discrimination rules have strained multilateralism, triggering a shift from a unipolar to a multipolar world.
• Systemic crises stemming from disruptive technological innovations and the effects of the COVID-19 pandemic present significant hurdles.
• Severe recessions transmitted from the Global North to the Global South through trade channels highlight the harmful economic spillover.
• This spillover, coupled with a decrease in official development assistance, has prompted calls for an effective insurance mechanism.
• The multitude of Sustainable Development Goals (SDGs) can be overwhelming; a focused approach may yield better results.
• Misinformation regarding COVID-19 has also highlighted the importance of examining the role of institutions.

Way Forward:

• In addressing these challenges, key recommendations include reforming the World Trade Organisation, promoting plurilateral initiatives, regional trade agreements, and comprehensive partnerships.
• There is a need to overhaul multilateral institutions and encourage the growth of “minilaterals” such as regional organisations, global NGOs, and big tech companies.
• Leveraging the G20 to represent the Global South and advocating for more manageable, tangible goals within the SDG framework could provide beneficial outcomes.
• There is also a scope for a trust fund type mechanism with leveraging so that the use of public funds meaningfully involves donors, recipients and all stakeholders.
• Future multilateral partnerships should not have permanent membership with veto power, and should involve other stakeholders whose voices are sometimes drowned out such as the corporate sector, NGOs and faith-based organisations.

Session 6. Adjustment, Resilience and Inclusion in an Uncertain World

Current Status:

• The international development landscape presents a complex picture, with uneven progress across different regions and demographic groups.
• Sub-Saharan Africa (SSA), despite showing some decrease in poverty rates, is trailing behind the global average in poverty reduction, owing to its low elasticity of poverty reduction with respect to economic growth.
• By 2100, almost half of the world’s youth will be in Africa, creating both an opportunity and a job challenge.
• Robust economic growth in developing countries such as China and India has started to lower global inequality, though low-income countries are still lagging.

Challenges:

• In SSA, most workers moving out of agriculture end up in the informal sector, indicating weak patterns of structural transformation.
• Despite a decline in poverty, Latin America grapples with high inequality and deep poverty due to a dual social insurance architecture that does not adjust well to labour market dynamics.
• This model creates a trade-off between enhancing benefits for informal sector workers and maintaining productivity.
• Although improvements are observed in India’s multidimensional poverty index, the development of an inclusion norm based on health, nutrition, and overall well-being is desirable.

Way Forward:

• Building resilience and inclusion for subsector-level growth through product space mappings and value chain upgrades could help drive employment in Africa.
• Growing middle-income countries need to design their social protection systems to minimise problems and trade-offs associated with coverage expansion.
• Careful consideration of budgetary costs, redistribution, and efficiency is crucial when implementing social protection policies.
• A focus on education can boost economic inclusion, as demonstrated by unskilled workers’ wage increases in countries like India.
• Addressing multidimensional poverty by considering aspects beyond income, such as health and nutrition, could contribute to comprehensive and sustainable development.

Virtual Discussion on Multilateral Development Banks (MDBs)

Challenges:

• The MDBs, though critical in supporting socio-economic development, are struggling with significant performance gaps, transparency issues, and the impacts of geopolitics.
• Their effectiveness and efficiency are being undermined, leaving a sizable void in the financial and technical support required by most developing countries.

Way Forward:

• Addressing these challenges necessitates new policies promoting advanced manufacturing and skill-intensive technologies such as semiconductors.
• Efforts should be directed towards ensuring macroeconomic stability and promoting inclusive growth, alongside effective transfer, adjustment, and training policies.
• MDBs must engage in transformative reforms, including improved capital mobilisation, better project implementation, joint financing, risk sharing, and making sustainable infrastructure an asset class.
• MDBs must also ramp up public and private investments in developing countries, which are essential to meeting global challenges such as climate change.

 

Mains PYQ

Q. Now-a-days, there is an increasing thrust on economic development all around the globe. At the same time, there is also an increasing concern about environmental degradation caused by development. Many a time, we face a direct conflict between developmental activity and environmental quality. It is neither feasible to stop or curtail the developmental process, nor it is advisable to keep degrading the environment, as it threatens our very survival. Discuss some feasible strategies which could be adopted to eliminate this conflict and which could lead to sustainable development. (UPSC 2014)