WHO report on pollution: It's time Indian govt revisited old economic policies, try the 'polluter pays' principle

It is not flattering to wake up the morning after the Labour Day, and a couple of days after the government proudly announces that all Indian villages have been connected by electricity, to learn that 14 of the world’s most polluted cities are in India in a study of 4,000 cities across 100 countries. What the report implies is that jobs and electricity-driven industries are only the tips of a dirty iceberg that needs a hard look. Following the World Health Organisation report, environmental activists will scream hoarse and kind hearts will make tut-tutting noises of frustration and concern, but it is time to land a hard kick for action right where it matters: economic policy. [caption id=“attachment_4245537” align=“alignleft” width=“380”] Representational image. PTI[/caption] India pursued socialistic inward-looking policies, broadly termed Nehruvian, until 1991 and then switched to a market-oriented liberalisation policy that embraced globalisation. But common to both is an obsession with aiming for growth and/or blue-collar jobs without looking at the side-effects. The result is there for us to see: increasingly dirty rivers, choked metropolises and cities that exhale what can be called slowly poisonous air. It is for India’s millennials to pay more attention to what India’s macroeconomics-obsessed policymakers and thinkers have ignored for long: the business of externalities in economics. Between the microeconomics of profit-seeking businesses and growth-seeking macroeconomists, falls the long shadow of social and environmental externalities that India’s economists routinely ignore in heated discussions and scholarly round-table conversations. As an essay on India’s air pollution puts it succinctly: " Externalities emerge when there is a difference between private cost and social cost. Private cost is the cost to individual consumer or firm of consumption. The social cost is the cost that not only (covers) the individual consumption, but the (cost) rest of the society has to bear as well." One writer discussing the Delhi government’s temporary plan to alternate between odd and even number plates on the roads said: “…we must look at the very heart of the issue: unrepresentative pricing of goods due to the unintended consequences of their use.” The WHO report can serve as a wake-up call to evolve a medium-term plan that would bring the “polluter pays” principle towards domestic economic policy. It cannot be a long-term one as it only reminds us of economist John Maynard Keynes’ ominous saying: In the long run, we are all dead". Economics get murkier than the air in Delhi and Mumbai at this juncture because things get difficult to measure and even more difficult to convert into meaningful policy. The poor want jobs, politicians want to take credit for it, investors and entrepreneurs want to create wealth for themselves and none seems bothered about how externalities can create havoc that will hurt future generations, and sometimes, their own well being. To avoid this, the government egged on by social activists and think-tanks must steer India towards a policy that truly prices in side effects in a manner that builds true incentives and disincentives. This seems to be happening on the face of it but what we see often are protests over disapprovals for industrial projects as we witnessed when Jairam Ramesh was environment minister in the UPA government, followed by protests over pollution as we saw recently when the coastal town of Thoothukudi erupted over a Vedanta Group (Sterlite Industries) copper smelter. Real development economists would have priced in both in hard numbers and calculated trade-offs that can result in environmental costs on health. It is primarily the NITI Aayog’s job to do this but it is hardly in the news for this. For instance, it can consider Pigouvian taxes on “negative externalities” named after economist Arthur Pigou. A medium-term plan should also consider case for “sunset industries”: ones in which technologies are outdated or pollutant but need to be scaled down. Coal-based industries, chemical-intensive factories and leather tanneries typically fall into this category. Can the government look at what I call “industrial euthanasia” so that the worst industries are mercy-killed? This would involve picking up extra costs in the form of higher depreciation for industrialists and better compensation for labourers. But the flip side is the “positive externalities” that might result for society as a whole. if the right industries are encouraged. Green industries also create jobs and incomes. Solar energy is as much a job spinner as a coal-based thermal plant but may involve an economic framework that is different. India has reached that point where 27 years of economic reforms have created a high-growth trajectory whose side-effects are being ignored. From taxation to pricing and from retrenchment to relocation, economists need to revisit the old framework. It is time green economics went mainstream.