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Indian Express Editorial Analysis

10-February-2024

1. BITS IN PIECES

Topic:  GS3 – Indian Economy – Effects of liberalization on the economy
This topic is relevant for both Prelims and Mains in the context of understanding the role of BITs in attracting foreign direct investment (FDI).
Context:
  • Finance Minister Nirmala Sitharaman’s announcement during the interim Union budget to negotiate new Bilateral Investment Treaties (BITs) with India’s trade partners underscores the country’s efforts to attract foreign direct investment (FDI).
  • This move comes amidst a decline in FDI inflows and challenges faced in renegotiating existing treaties, particularly since the adoption of the Model BIT in 2016.
More about the news: Historical Context and Evolution of BITs:
  • India initiated BITs in the mid-1990s, aiming to provide favorable conditions and protection to foreign investors.
  • However, the BIT regime gained attention in 2010 with the settlement of the first-ever investor treaty claim filed against India.
  • By 2015, India faced 17 known BIT claims, including the high-profile case involving Cairn Energy Plc, which resulted in a substantial award against the Indian government. 
Adoption of the 2016 Model BIT and its Implications:
  • The adoption of the 2016 Model BIT was driven by concerns over the financial burden resulting from investor-state disputes.
  • However, critics viewed it as a protectionist measure lacking nuanced provisions such as “fair and equitable treatment” and “most favored nation.”
  • Moreover, the requirement to exhaust local remedies before resorting to international arbitration posed challenges for investors.
Impact on FDI Inflows and Renegotiation Challenges:
  • India’s shift towards the 2016 Model BIT coincided with a decline in FDI equity inflows, reflecting investor apprehensions.
  • Renegotiating terms with other countries based on the revised text has proven challenging, affecting FDI inflows adversely.
  • Government data indicates a significant contraction in total FDI, highlighting the urgency to address treaty-related concerns.
Policy Response and Way Forward:
  • India’s departure from the 2016 Model BIT reflects efforts to reinvigorate FDI inflows, particularly amid negotiations for a free trade agreement (FTA) with the UK.
  • Addressing disputes settlement mechanisms and ensuring timely resolution through international arbitration is crucial for advancing FTA negotiations and promoting investor confidence.
Parliamentary Recommendations and Future Prospects:
  • The Parliamentary Standing Committee on External Affairs has advocated for revisiting the existing BIT regime, emphasizing timely dispute resolution and the development of local expertise in investment arbitration.
  • Implementing these recommendations could enhance India’s attractiveness for foreign investments and align treaty practices with global standards.
Conclusion:
  • A progressive approach to BITs is essential for India’s economic aspirations, particularly in achieving a $5-trillion economy.
  • While the government’s renewed focus on negotiating BITs is promising, a flexible and adaptive approach is warranted to foster sustainable growth in cross-border investment flows and bolster India’s position in the global economy.
Practice Question:  Discuss the significance of Bilateral Investment Treaties (BITs) in the context of India’s economic development and international relations. (250 words/15 m)

2. If the sun doesn’t shine

Topic: GS3 – Environment – Environmental pollution and degradation

This topic is relevant for both Prelims and Mains in the context of understanding the country’s efforts to address climate change and reduce greenhouse gas emissions.
Context:
  • India aims to achieve net-zero greenhouse gas (GHG) emissions by 2070, aligning with its nationally determined contributions (NDC) to the Paris Agreement.
  • A significant component of this mission involves the deployment of renewable energy (RE) technologies, with a target of adding 500 gigawatts (GW) of RE capacity by 2030.
  • The country has made substantial progress, with 72 GW of solar and 44 GW of wind energy already added, alongside 32 GW in commercial and industrial (C&I) capacities.

More about the news:

Factors Driving RE Growth

  • The remarkable growth in RE capacities can be attributed to various factors.
  • Policies such as must-run status for RE projects, favorable regulations including late payment surcharge waivers, and renewable purchase obligations have facilitated this expansion.
  • Additionally, the reduction in capital costs and increased competition among independent power producers (IPPs), including the entry of foreign investors, have contributed to this growth trajectory.

Challenges and Solutions

  • Despite progress, achieving the 500 GW target presents challenges, particularly regarding storage capacities and power exchanges.
  • Power demand has surged post-pandemic, leading to growing peak deficits, especially during evenings.
  • To address this, generators are increasingly relying on solar and wind projects with long-term power purchase agreements (PPAs).
  • Recent bids require hourly demand matching and penalties for shortfalls, necessitating robust storage solutions like battery and pumped hydro storage.

Role of Storage Solutions

  • Storage solutions are essential for maintaining grid stability and meeting demand variations.
  • Generators may combine solar and wind projects with storage facilities to manage intermittencies and store excess generation during peak hours.
  • Pumped hydro storage, with lower capital costs compared to battery storage, presents a viable option.
  • However, battery storage’s potential is also recognized, particularly with falling capital costs and government incentives like the production-linked incentive (PLI) scheme and viability gap funding (VGF).

Market Dynamics and Merchant Sales:

  • To manage excess generation, options include selling to commercial and industrial consumers or power exchanges.
  • Robust power exchange markets are crucial, as more complex dispatchable RE becomes prevalent.
  • Merchant sales can impact project bankability, highlighting the need for structures ensuring guaranteed floor prices.
  • A central nodal agency could provide this floor price, improving bankability and enabling more competitive prices for discoms.

Implications for Green Hydrogen:

  • Building capabilities for round-the-clock (RTC) green energy could support India’s ambitious green hydrogen targets.
  • Cost-effective power generation is essential for making green hydrogen projects viable.
  • Developing compelling storage solutions and deepening exchange markets are critical for achieving RE capacity targets and green hydrogen ambitions.

Conclusion:

  • India’s journey towards achieving net-zero emissions by 2070 relies heavily on the successful deployment of RE technologies and the development of robust storage solutions and market mechanisms.
  • Addressing these challenges effectively will not only facilitate the transition to a greener energy landscape but also unlock the potential for achieving broader sustainability goals.
What is Net Zero Target?
  • Although it is known as “carbon neutrality,” it does not imply that a nation will eliminate all of its emissions.
  • Instead, it refers to a situation when a nation’s emissions are offset by the removal and absorption of greenhouse gases from the atmosphere.
  • Moreover, increasing the number of carbon sinks, like trees, will boost the absorption of the emissions.
  • While cutting-edge technology like carbon capture and storage are needed to remove emissions from the environment.
  • More than 70 nations have committed to achieving Net Zero status by 2050, or the middle of the century.
  • India made a commitment during the Conference of Parties-26 (COP) summit to reduce its emissions to net zero by 2070.

PYQ: The term ‘Intended Nationally Determined Contributions’ is sometimes seen in the news in the context of (2016)

  1. (a) pledges made by the European countries to rehabilitate refugees from the war-affected Middle East
  2. (b) plan of action outlined by the countries of the world to combat climate change
  3. (c) capital contributed by the member countries in the establishment of the Asian Infrastructure Investment Bank
  4. (d) plan of action outlined by the countries of the world regarding Sustainable Development Goals

Ans: (b)

Practice Question:  Discuss India’s ambition to achieve net-zero greenhouse gas emissions by 2070 and its reliance on renewable energy as a key driver towards this goal. (250 words/15 m)

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