India's shift to transition economy needs financing for equitable growth

A large migration to cities will require focus on urban development

Transition planning in developing Asia is gaining momentum. Economies are now in the early teens of the transition stage when it comes to energy, social, health, digital, physical infrastructure, agriculture and transport. Policymakers, regulators, businesses, consumers and financial sector participants are taking steps to accomplish the transition through green technologies and digitilisation. India is now a leader with digital public infrastructure reaching its entire population. The question, however, is: Will the economic and financial system be able to deliver the necessary social, economic and environmental outcomes?

Asia’s contribution to global growth led by India in the coming years will be the largest. India’s urban population as a share of the total will increase to 50 per cent by 2050 from 35 per cent now. Its large rural to urban migration requires focus on urban development for high population density. Unplanned urbanisation will increase the consumption of energy, land and soil and cause housing shortages, traffic congestion and environmental degradation. The shift to cities, transit-oriented development and green supply chains will need over a trillion dollars. 

There is a strong nexus between energy, food, finance and health for achieving sustainable development. Asia must invest in these ecosystems for its future. What gets measured gets noticed. Giving clarity to the common citizen in the transition pathway and influencing public perception is essential. It will be prudent to consider socially just policies having a holistic impact on the economy, nature, environment, climate, communities, households and society for wider acceptance. Key transition drivers need planning based on a country’s characteristics.

An urgent need is to ensure access to clean, affordable, reliable and sustainable energy. Clear transition pathways need to be set to reduce reliance on fossil fuels without affecting competitiveness, access, and social welfare. Advances need to be made in clean hydrogen and renewables to reduce energy imports and costs. An affordable 24/7 renewable energy system that includes energy storage and grid transmission is a long-term solution. Renewables require trillions of dollars in grid storage capacity and new technologies for energy storage.

A massive mobilisation of public and private resources is called for. Viability-gap funding (VGF) for key transition drivers like offshore wind power, grid-scale battery storage, green hydrogen and replacing coal-fired power plants will help attract private capital through partnerships. India has to scale up its VGF programme. The country is in a unique position to implement this game-changing mechanism as it has successfully implemented it for infrastructure. Technology development requires VGF beyond solar and conventional activities.

International financial institutions, green financing agencies, UN bodies, financial-­­sector players, regulators, businesses and governments must collaborate to create a nature-supporting financial system. Climate supporters have called for more funds to be channeled through multilateral financial institutions (MFIs) and to increase individual intervention ticket size to tens of billions of dollars rather than millions. Risk sharing and guarantees by MFIs and central banks will help unlock private capital. Carbon accounting, greening the financial system, climate-related financial disclosures and tracking green finance are urgent priorities.

A prudential macroeconomic narrative with international partnerships will help build trust in transition plans. India is now a major regional voice, having showcased its green credentials during its G20 presidency. It needs to pursue the global agenda for accomplishing common but differentiated responsibilities (CBDR) agreed between states under the UN umbrella. G7 members along with green-financing agencies could be asked to channel more funds following CBDR principles. Transition costs and benefits need equitable distribution to curb inequalities. The focus on climate finance should not drift away.

The writers are former senior staff of Asian Development Bank, the Philippines. Views are personal