Indian Case Study: 'Integrating Natural Capital into Government Post-COVID Economic Decision-Making and Economic Recovery'

Submitted by Bharti Kapoor | published 27th Apr 2022 | last updated 18th May 2022
Indian case study on “Integrating Natural Capital into Government Post-COVID Economic Decision-Making"

Introduction

The COVID-19 pandemic has posed severe challenges to the economy and society at micro and macro levels. Across India, a substantial breakdown was seen in food security and livelihood. Hence, a comprehensive recovery strategy comprising the necessary fiscal, monetary, and trade policies across the vital sectors of the economy needed to be in place. 

As an immediate response to the pandemic, the government of India announced a COVID recovery budget focusing on a few priority sectors. It was followed by the announcement of annual budget 2021-22. This report analyzed these two budgets through the lens of natural capital and shows the extent of budgetary allocation with potential to create positive or negative impact on natural capital. Some policies and respective allocations also were found which either were neutral or ambiguous, in terms of natural capital impact. The existing gaps and opportunities were identified to provide policy recommendations to drive a green economic recovery in India. 

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Objectives and Methodology

Based on the global and national context of green economic recovery against the outbreak of the COVID-19 pandemic and the role of natural capital, as laid out in the previous chapter, the objectives of this study are the following:

  • Map the post-COVID recovery policy scenario in India and analyse the extent of green economic recovery
  • Identify the gaps in the recovery package at the national level and provide a road map for strengthening natural capital leading to a green economic recovery

The methodology of this study is based on extensive analysis of the provisions made in the COVID recovery package announced by the central government of India and the central government annual budget announcement (for 2021-22) following the announcement of the COVID recovery package in 2020-21. For analysis of the budgetary allocations, the key focus is on the priority sectors chosen by the government in the COVID recovery package. The purpose is to understand the intent of the government in driving a “green” or “natural capital positive” recovery through allocations made in the priority sectors identified by the government for post-COVID economic recovery.

The analytical framework of this study is shown in Figure 3. This study primarily focuses on the mapping of the post-COVID recovery package, i.e., the Atmanirbhar Bharat Package announced by the Government of India (GOI, 2020) and analysis of the provisions made for fiscal, monetary, and trade policies under various priority sectors of the economy to enable a green economic recovery. In doing that, apart from carrying out analysis of the necessary components of the COVID recovery package to identify the potential “natural capital” impacts, focus has also been placed on the annual budget announced by the government immediately after the announcement of the COVID recovery package, i.e., the Union Budget 2021-22.

The intent is to understand the provisions made by the government to continue with the interventions made through the COVID recovery package for a green economic recovery and also to identify the overall greening potential created by the government by making allocations to schemes with a positive impact on “natural capital.” Along with that, it is also necessary to look into schemes and policies that have potential detrimental impacts on “natural capital.” Hence, in this study, both the COVID recovery package and selected sectoral schemes of the Union Budget 2021-22 have been analysed to identify the schemes with both “positive” and “negative” impacts on “natural capital.” The schemes with no apparent positive or negative impact on natural capital have been marked as “neutral.” There are also certain schemes which do not give a clear indication of the direction of their net impact on “natural capital.” Those schemes are marked as having “ambiguous” impact on “natural capital.” Further, the schemes with positive impact on “natural capital” are categorized into “high,” “medium,” and “low” impact based on the intensity of their positive impact on natural capital.

Findings and Analysis

The Government of India announced an economic recovery package (GOI, 2020) in response to the COVID-19 Pandemic in multiple phases. It included measures for food systems (e.g., public distribution system-related measures), income support through direct benefit transfers, healthcare, social security, tax relief, economic stimulus for key sectors (e.g., MSME, real estate, transport, power sector, banking and finance, corporate-related, etc.), urbanisation, and so on. This special economic and comprehensive package of Rs. 20,97,053 crores (approximately 260 Billion USD) was equivalent to 10% of India's GDP (Aatma Nirbhar Bharat, PRS, 2020). This recovery package was called 'Aatma Nirbhar Bharat' or the Self- Reliant India Movement. This package was introduced in five phases. Phase-I (announced on 13th May, 2020) focused on businesses including MSMEs; Phase-II (announced on 14th May, 2020) focused on the poor, including migrants and farmers; Phase-III (announced on 15th May, 2020) focused on agriculture;
Phase-IV (announced on 16th May, 2020) focused on new horizons of growth; and Phase-V (announced on 17th May, 2020) focused on government reforms and enablers.

The five pillars of the 'Aatma Nirbhar Bharat Abhiyaan,' as highlighted by the Government, were economy, infrastructure, system, vibrant demography, and demand (Ministry of Finance, 2020). This budget focused on reviving and re-building the country post-COVID. In addition, several economic provisions, critical reforms, and regulatory policies were put forward in this budget. In this economic recovery package, priority was given to health and wellbeing, capital, and infrastructure, as these have the potential to revive and grow the economy. The importance of agriculture, fishing, and migratory workers reflected inclusive development. Revival of human capital and manufacturing were identified as the key to growth. Innovation and R&D were
intended to encourage talent and create value (Jaishankar, S, 2021).

The policies of the chosen sectors were then mapped based on the budgetary allocation in different schemes in the post-COVID recovery package or the Aatma Nirbhar Bharat budget (GOI, 2020). Along with that, the allocations in the consecutive annual Budget or the Union Budget 2021-22 (Ministry of Finance, Govt. of India, 2021) for the selected sectors are also analysed. A comparative analysis of both the budgets with respect to the selected sectors is carried out to understand the Natural Capital intensity of the post-COVID recovery policy of the country's national Government (Table 6).

Based on the assessment, some of the critical gaps in stimulating a green economic recovery supporting Natural Capital have been identified throughout this study. Some of these have been highlighted below:

  • In the water resource management scheme listed in the annual Budget 2021-22, to increase crop productivity through micro-irrigation and drought-proofing of agriculture, significant capital investments are expected to be in place. This scheme has the potential to make a positive Natural Capital impact. But the breakdown of the allocation made in the scheme showed that there is no provision for capital expenditure to construct micro-irrigation structures or for complex engineering measures for drought-proofing. Provisions have only been made for maintenance and operational costs in the annual budget. Therefore, it limits the opportunity to make any substantial impact on Natural Capital. For most of the schemes listed in the annual Budget 2021-22 in the agricultural and allied sector, no provisions have been made for capital expenditure.

  • A few schemes with a potential high positive impact on Natural Capital listed in the COVID recovery package were missing in the annual budget 2021-22. E.g. schemes on herbal plantation and beekeeping.

  • The COVID recovery budget included monetary injection for power distribution companies. The COVID recovery budget has less evidence of power generation using more renewable sources of energy.

  • The Government has given the budget for the social sector the utmost importance, yet the Budget schemes had insufficient evidence of Natural Capital impact. The emphasis on improving household water access in urban areas was a positive step. However, there was no mention of addressing water quality issues in the budget. The funds released by the Government for higher education were an excellent step towards the country’s betterment. Still, the schemes in the budget lacked education specialised in green skills to promote sustainable economic, environmental, and social outcomes in industry and the community.

Conclusions

In general, the COVID recovery package of India was found to be heavy on monetary policy compared to fiscal. One common criticism against it has been the fact that fiscal interventions to boost employment, income, human, and social capital through interventions in health and education are some of the key elements for generating market demand in the economy, which were insufficiently addressed. Effectiveness of monetary policy instruments depends on several enabling factors and the outcomes are not observed immediately in the economy. Moreover, for creating pro-natural capital policies, strategic designing and planning are required in that direction.

In case of most of the major interventions in the recovery package, the scheme level objectives and strategies did not prioritize or consider elements of natural capital. Additionally, in the annual budget announced by the government after the announcement of the recovery package, allocations were missing or lesser for capital expenditures that determine the scope for long term capital investment for certain kinds of projects (e.g., water resource development, afforestation, infrastructure development for sectors with positive natural capital influence, etc.). Strengthening of environmental regulations also requires sincere focus. Finally, lack of access to sufficient information on schemes listed in the COVID recovery package and missing schemes in the outcome budget document (which lays out detailed outcome targets and indicators for the schemes) related to the annual budget were some of the challenges faced in carrying out this study. Hence, in addition to the sectoral policy gaps and recommendations, these overall gaps also need the attention of the government.