This event was part of a series of collaborative fora hosted by Southern research institutes – for this workshop, the Centre for Policy Research, New Delhi and the MAPS programme at the Energy Research Centre, Cape Town – to stimulate conversation about global and national governance of development and climate change, in the context of local planning and in the lead up to negotiation of the 2015 UNFCCC agreement.
To mark CPR’s 50th anniversary, we are delighted to present a brand new interview series called CPR Perspectives. Every month we plan to bring you a flagship conversation, with Rohan Venkat interviewing a faculty member on their research, policy practice and engagement with the most critical questions of our age.
Over the past five decades, the Centre for Policy Research has played a unique role in India’s policy landscape, tackling concerns as varied and vital as climate change and federalism, urbanisation and national security and bringing a genuinely multi-disciplinary approach to the field. Today, with India facing a complex geopolitical landscape and even greater development and climate challenges, the Centre’s faculty continue to produce field-defining research while also working directly with policymakers and stakeholders in government and beyond.
In our first interview, Rohan speaks to Navroz Dubash, a professor at CPR where he also runs the Initiative on Climate, Energy and Environment. Dubash is one of the world’s most renowned experts on climate change, having worked on the subject since the 1990s – well before it became a household term.
Dubash’s wide-ranging career has featured landmark research papers, agenda-setting edited volumes, two authored books and key roles on a number of official and advisory committees in India and at the global level. He was a Coordinating Lead Author for the Intergovernmental Panel on Climate Change, the United Nations’ panel which publishes landmark reports on the state of climate change research. Dubash’s work led to CPR being the overall anchor institution and technical knowledge partner for the Indian government’s Long Term-Low Emissions and Development Strategy. He has received the TN Khoshoo Memorial Award for his work on Indian and global climate change governance, the Emerging Regions Award by Environmental Research Letters, and the SR Sen Award for Best Book in Agricultural Economics and Rural Development, for his book Tubewell Capitalism.
In the first part of our conversation, Dubash talks about about working on climate change back in 1990 – well before it was in vogue, whether it is frustrating to still be going over questions of climate change vs development that have been around since then, why the Climate Initiative at CPR turned into the Initiative on Climate, Energy and the Environment, and why it’s important to make academic work accessible for wider audiences.
In the second part, which you will receive in a fortnight, Navroz talks about what it was like to help the Indian government draft its strategy for low-emissions development, why it’s important to not just follow the Western narrative on climate change and what advice Dubash has for younger scholars entering this important field. If you prefer audio, this conversation is also available as a podcast here. And if you would like to subscribe to newsletters from CPR – including future interviews in this series – sign up here.
(This transcript has been edited for length and clarity).
Thank you for being with us here. I wanted to start at the very beginning. If I’m not incorrect, you started off studying engineering many years ago before deciding that was not exactly for you. So could you tell us a little bit about how you came to the policy world? Did you stumble onto it?
I did tread the South Asian path of being an engineer and as an undergraduate, I was fortunate to be in a place where you weren’t locked into your choices, in a US university. And I found myself enjoying my political science, history, economics much more than I was enjoying my engineering. And so at one point, there was a fork in the road. I decided that I really didn’t want to be an engineer for the rest of my life and therefore why waste the opportunity to study things I really did enjoy?
I had a conversation with a senior, somebody who is now a friend of CPR who was also drifting away from engineering and encouraged me to take the step. And so I had the chance to go and walk through the Narmada Valley at the time when that was the big flash point around development and environment. [It] was a very formative experience for me. I met people like Medha Patkar and others and I just found it tremendously exciting, so I decided to roll the dice. I had a very tough conversation with my father, as you can imagine, who in later years, to his credit, would read annual reports of companies and they start talking about ESG – environmental and social investing – and say, well, maybe you were a little bit ahead of your time. But at that time it was a tough family conversation!
Was there anyone in the family that was in this field? Or was it a complete left turn?
Absolutely, not just a left-turn in terms of the subject matter. I think there was maybe one cousin who had a PhD, but otherwise we’re not from a family of academics. So it was unusual. And, having studied at a relatively elite university, choosing to spend my summer coming back and walking through the Narmada valley was something that also was a little bit of a head-scratching experience.
What’s really interesting is that after that I, as part of my education, had to do what are called policy conferences and policy task forces. And one of them was around climate change. I wasn’t particularly interested in climate change, but these two strands [development & climate change] – both came out of my undergraduate experience – and really have defined much of my future work.
And that was at the very, very early days of the climate conversation in 1989. We did a little undergraduate experiment where we did a mock negotiation. And because it was so early it got published. And because it had the grand sounding name of the Princeton Protocol, people assumed there was a bunch of faculty who had written it. In fact, it was a bunch of undergrads. So it got cited and then my first job actually was also in that area.
When I was looking for a job, I got a couple of rejections and got a bit dispirited. And then I went to one of the organisations that had worked with the activists around the Narmada Valley, [who] said we don’t really have any work but our colleagues who work in the climate area do.
That was 1990. In two years time, the Rio Earth Summit was about to be held – what has now become the UN Framework Convention on Climate Change. Before those negotiations occurred, there was a proto-network of civil society organisations which were mostly dominated by American and a couple of European and Australian organisations. They said: ‘We don’t really understand how this plays in the rest of the world. If we show up and ask to be part of these conversations and it’s a bunch of developed countries’ typically white men, why would the rest of the world want us there? We need to have a broader spectrum.’
So they hired me at the ripe age of 21 to set up a global network [the Climate Action Network] on climate change from Asia, Africa and Latin America and bring in people from all these parts of the world. It was just an absolutely incredible first job. I had no idea what I was doing. I started faxing people around the world. Among the people we brought in, back in the day, were Anil Agarwal and Sunita Narain, for whom climate change was some kind of external issue and they weren’t really paying attention at the time. They felt there was a distraction from, understandably, the real bread-and-butter livelihood environmental issues.
But I kept sending them FedEx packages of documents so that they would have material and over time, to their credit, they very much drew the links between the issues they cared about and climate change became part of the network and then they wrote this landmark paper, ‘Global warming in an unequal world‘, that that still gets cited widely today.
When I was hired for the job, I was to be located at the Environmental Defence Fund in the US. When I met the director of EDF, Fred Krupp, he asked me about my interests. As I talked, he said, ‘You know? Frankly, you don’t seem that interested in climate change. You seem more interested in development.’ And I said, ‘Well, that’s true. But that’s going to be true of most of the people who I’m trying to persuade to work on this issue, so it’s probably a good thing that I understand where they’re coming from.’ And he laughed and said, ‘OK, that’s a really smart Alec answer, but I’ll take it.’ But it is interesting reflecting back that this strand of ‘how do you bring development into conversation with climate’ is something that has more or less dominated my career in the years since.
It’s hard for those of us who grew up hearing about climate change to even imagine what it was like when you had to persuade people that it mattered. Did you have to convince yourself also?
Absolutely. In our first meeting [at the Climate Action Network], the developed country folks said, ‘As a civil society movement, let’s propose that developed countries reduce their emissions by X percent’. I think it was 50% by the year 2000 in 10 years time, which is ridiculous looking back on where we are now. ‘And developing countries will do the same thing a few years later.’
Immediately some of the WTO activists in the room said ‘hang on a second, that basically would commit us in perpetuity to a lower level of emissions’. And the developed country folks scratched their heads and said, ‘huh, maybe that’s true’, because that was the Montreal Protocol model. In a weird kind of way, we’ve been having the same conversation ever since. How do you allocate who gets to emit how much? From that point to me, the interesting question was really: If you care about development, by which I mean not just GDP, but a decent quality of life for people, what is the relationship of doing so to carbon? And how does it tie to both local choices and global choices? So when you ask if I had to persuade myself when I went on to do grad school, I had a hangover of a question, I had to ask myself about carbon markets, because I really was very suspicious and I remained very suspicious of carbon markets because in a lot of cases and this gets a bit technical, it is not about a market of an actual credit, it’s about what’s called an offset, which is, are you reducing emissions from a hypothetical baseline and that’s again a conversation that hasn’t gone away for 20 years.
The Guardian just had a series of articles on exactly this point. So after I dealt with my hangover and wrote my masters thesis on this, I said, I actually want to step back and I had a some kind of romantic idea of an elite Indian probably coming from my Narmada experience. Not knowing much about rural India, which is where the real India lies and so on and so forth, all those kinds of romantic urban elite visions. And I said I need to find a way of getting out there and so after a bunch of reading, I zoomed in on the use of water markets in Gujarat which were a very interesting empirical phenomenon. These Gujarati farmers were selling water back and forth within villages with these, 2,3,4 kilometer long pipelines, very complex markets. Some economists were saying that this is a great thing, and some sociologists and political scientists were saying this is pure exploitation. And I wanted to figure out which of the two was right.
After my Master’s and PhD, I wrote a book called ‘Tubewell Capitalism’ and I didn’t think about climate for several years. Then a job came along that was interesting in a completely different way from anything I’d done before: which was to study how the shift in capital flows for development from largely public sector flows to this boom of private sector flows, which culminated in the Asian financial crisis, and what that then meant for the environment.
It goes all the way back to the World Bank and the Narmada Valley project, because what environmentalists used to do was say ‘we’ll squeeze the bank and the bank in turn will make sure that projects have decent displacement conditions and so on.’ You can’t do that if most of the money is private. So, what do you do?
What I learned from that experience, and this was at the World Resources Institute, is that the climate conversation was a little sand pit off in the corner where environmentalists were sent off to play. The big decisions were happening in other places around regulation, around private banks. And the flows of those monies really shaped development prospects. That led me to do deep dives on policy restructuring in the forest sector and the electricity sector in a cross-country way and I got really interested in the electricity sector. I approached these as mainstream development questions. What shapes how countries decide to restructure their electricity sectors? And this was the moment of privatisation, liberalisation and so on and so forth of the electricity sector in India and other places. I got very lucky. I was in the right place at the right time. I wrote a paper called Power Politics.
I was terribly thrilled because it was the headline paper in EPW. As an aside, note how incredible an institution like EPW really was. That same issue had papers by Amartya Sen and Jeff Sachs. But as a fresh graduate, this paper was deemed more topical and was made the headline paper.
Then I felt that sitting in the US was just too stratospheric. I enjoyed my time doing research in India and so I persuaded my partner, and we both made a move to India for what we thought was two or three years and we kept extending it. And then we decided to just not move back. I taught at JNU for a while, I was at NIPFP for a while and then I landed at CPR in 2009. And institutionally, it was a much more comfortable fit for me than those other institutions. They had their merits, of course. But I like the freewheeling intellectual atmosphere. It suited my multidisciplinary kind of approach as there was a lot of freedom. There was a lot of lack of hierarchy. I didn’t have to call anybody ‘sir’ and nobody called me that either. I relished that culture.
It was only in 2007 that I re-engaged with climate. And that was the moment of the Bali Conference of Parties, [when the countries decided] let’s do a bunch of action plans and see. The interesting thing is those plans became a really important way to bring the development and climate conversation together. Until that moment, the objective was let’s treat this as a diplomatic problem and separate out climate and development. But 2007 was the bridge moment. That was an interesting space where one could ask the question: How do you do development while keeping in mind climate change, both on the mitigation and the adaptation side? And should we be doing that? That’s where I saw an opening and that’s where I came to CPR to try and build a platform through which to ask that question.
This is jumping ahead a little bit, but I’m curious whether the fact that some of these are still the same conversations that you’re having almost all the way back in the early 90s – like the question of where development sits alongside environment – Is it frustrating?
It’s by no means a closed loop. We’re not in the same position that we’ve always been in and the main reason is the shift in economics and technology, and the consequent shift in politics. But the underlying political dynamics have remained the same, which is why the same conversations come back again and again.
The [action] plans were meant to and this is another theme in my work, that oftentimes you create institutions that are set up as Trojan institutions. And that’s also true in some ways of regulatory bodies. ‘What’s the harm in hiring a regulator, etc.? What difference does it make?’ That was the thinking back in the late 1990s. But once you create those institutions, you have different ways of telling a story, and you bring different players to the table.
The plans were the institutional shift. The narrative shift that it brought about was the use of the term ‘co-benefit’, which frankly I’ve yammered on enough about for the last decade that people roll their eyes every time I bring it up at a meeting.
Co-Benefits basically says there may be some places where what you would do for development also brings, incidentally, climate gains, on the mitigation or the adaptation side. Instead of just treating these as serendipitous, let’s go out and look for them. And let’s identify where there are trade-offs and avoid them. So more public transport as a part of your urbanisation. Rethink your urbanisation patterns themselves. Thinking about the choice between road and rail, these are development choices. But they are also climate choices. And in many cases they can be made to work together.
So let’s try and do that, particularly since India is locking in our infrastructure. There’s this number that gets thrown out all the time: 2/3 of India’s buildings are yet to be built. If that’s the case, whether you build your building envelope in a way that requires a lot of active cooling, or whether it can actually manage a lot of passive cooling through your design of the building itself, that will determine your future need for cooling over the next 30-40 years.
Now, fortunately, there were a few people in government who opened doors for a few of us. I was appointed to some Planning Commission committees and had a few policy openings to propound these ideas. And then we started building a wonderful team at CPR to take it forward. I had a great partnership with Lavanya Rajamani, who is a leading international lawyer and has become even more leading in the years since working on climate change.
One of the things we also did is when the Copenhagen conference kind of fell apart, we co-edited a special issue of the journal Climate Policy where we said, look, what does the future hold? And we substantially anticipated what the Paris Agreement would say. The idea of an international ratchet, but the driver being a lot of bottom-up national actions.
But I’m departing from your question, which is, have things changed? What has really changed is that [it] is always marginal politics: A little bit of co-benefits here and there at the margin where the opportunity presented itself. So, the National Solar Mission was an energy-security driven idea in India, but it was a climate idea when it was marketed overseas. And I think that’s fine because the point of mainstreaming climate change is you tell whichever story makes most sense for the context that you’re in. But it was that marginal, opportunistic kind of approach.
Fast forward to the [India’s 2023] Budget. Green growth was invoked a dozen times or more. We can have a debate about whether the allocations of funds mirrored that rhetorical emphasis. But it’s clear that both political and economic motivations are now closely tied to hitching your wagon to the energy transition, and that’s because that shift has happened where countries see political gain and potential economic gain from being leaders in green, low carbon technologies. That’s a huge shift now. That that transition will happen is now inevitable. But the fact that it might be costly and there will be winners and losers. What has changed, is the presumption of being a loser was very high. Now the possibility of being a winner has become higher. But the politics of making sure that you are in the winners column and not in the losers column remains, and so some of the questions remain the same.
So, as you entered CPR, what were you trying to build? And how did the Climate Initiative become the Initiative on Climate, Energy and the Environment?
I was interested in building a larger team. Lavanya was really much more of a pure academic, but indulged me now and then with being part of the various policy conversations. It was symbiotic. So I started hiring people. One of the things I really wanted to do was [not] just write academic papers. I wanted to actually change the public conversation.
So I did two things for that. I wrote a paper where I tried to examine the politics of different constituencies in India and I came up with this framing where I said you have a category that you might call the ‘growth first stonewallers’ who say climate change is an excuse to hold back the South and we should just be focused on maintaining as much freedom for our choice of development.
The second category you might call is the progressive realists who say ‘Climate change is serious. We are worried about it, but the rest of the world is not particularly worried about it. And therefore we have to be realistic about this and make sure that we protect India’s interests.’ And the third group might be called progressive internationalists. They said climate change is serious. We should be part of the voices that in a somewhat idealistic way, build a global consensus for action and India should be part of that solution.
And that three-part categorization took hold. A lot of other academics picked that up in their writing about it. So it became a way to try and understand the politics and it gave a political prescription which is: let’s try and move the debate in the direction of the progressive internationalists. We need more of them. And we need to understand where the realists come from, and bring some of them on board. And we need to isolate the stonewallers.
Because we do have to take development seriously, but you also have to take climate seriously. It’s in India’s interest. We’re a deeply vulnerable state. But we have to walk that line in a way where we don’t take it seriously by short-changing ourselves. So it’s a delicate balancing act and therefore the co-benefits idea was so powerful. I edited a book called ‘The Handbook of Climate Change and India‘, [where] we got our diplomats, civil society activists, development activists, researchers to write, and there was a series of accessible chapters. And that was something I’m actually quite proud of because I’ve since heard of many young people who entered this space using this in their college and other classes.
So, we puttered along, but we found that people were pigeonholing us. We kept trying to say we’re about climate and development. But people only heard the first part. So I would find myself, somewhat schizophrenically, in India, arguing for more attention to climate change and overseas arguing for more attention to development. Either you were blaming the West for cynically promoting climate while not taking it seriously. Or you were blaming India for not taking the climate seriously enough and being shortsighted. The fact that you have to hold these contradictory realities at the same time and find a way to bring them both together has been the challenge.
We evolved a style of approach which was to make sure that we always put things in peer reviewed journals so our work was irreproachable. And then from there we would write policy papers, do policy engagements. And India is a unique policy context because actually writing academic papers and books is taken seriously. They may not be read, but it gets you a seat on a committee.
We also were building a reputation and credibility. We did find ourselves getting put in this box of climate folks. So we did an independent review and got somebody very thoughtful to review our 5-6 years of work by that point around 2015. And he wrote a wonderful report titled, Geeks Writing for Geeks or Informed Changemakers? He pushed us to think more about partnerships, more about how our work could be taken seriously. And also about how we positioned ourselves.
As a result of that, we decided that actually for a lot of our work, the entry point was not climate change. The entry point was development questions. The entry point was often air pollution. It was often electricity or environmental regulation. And so we renamed ourselves The Initiative on Climate, Energy and Environment to try and signal the fact that we have these multiple entry points. And we were then very fortunate to bring on more, wonderful young people. One of the challenges has been to actually retain them. So Shibani Ghosh has been with us for over a decade, Radhika Khosla was with us for a while and then went on to be professor at Oxford. Lavanya decided to move on and go to Oxford. I was sticking around, and really keen that this unit continue and so we’ve been fortunate to get a fabulous next line.
I find that a lot of work that comes out of the team is tremendously accessible. Is it frustrating to dumb down?
I don’t actually see it as dumbing down. One doesn’t have to use complex words and acronyms for complex ideas. When I was writing my undergraduate thesis on Narmada, my thesis supervisor, Robert Wade would call me into his room to review a chapter. And he would say you’re just throwing around words and ideas just to conceal the fact that you don’t know what you want to say. He said, ‘Now tell me, What is this chapter about?’ And I would sit there and think, and then I would try to write a sentence and he said ‘no, that’s not what it’s about.’ And then we’d sit for another three or four minutes, and I’d have a second try. And he’d say no, that’s not it, either. And we’d keep on going until I found a clear articulation. And then, he said that’s what this chapter is about. Write that in the first paragraph, write that in the last paragraph, and make sure every sentence in between connects to that idea. And it was enormously helpful.
One of the things that we’ve tried to achieve in these 14 years of our initiative is that we’ve had a passage of young people come through, many of whom have gone on to do Masters and PhDs in very well reputed schools. An article of faith for me is that I need to make sure that everybody who passes through, certainly somebody with a masters degree, gets one or more published articles to their name where they are the lead author, over their time at CPR. I normally sit with that person through 10 or 15 revisions to try and give back what people like Robert tried to impart to me. The capacity building part of this is really a very explicit part of our objective.
This is part 1 of 2 for our CPR Perspectives conversation with Navroz Dubash. We’ll be back in 2 weeks with part 2.
India released its Long-term Low Emissions and Development Strategy (LT-LEDS) at the UN climate conference (COP27) at Sharm El-Sheikh on November 14, 2022. It can be accessed here. CPR was the overall anchor institution and technical knowledge partner for the LT-LEDS.
Here, Navroz K. Dubash (Professor), Dr. Aman Srivastava (Fellow) and Parth Bhatia (Associate Fellow) at the Centre for Policy Research comment on the relevance of the document and what the next steps should be.
“India’s LT-LEDS is an important statement of intent to pursue low-carbon strategies for development, and a sound beginning toward doing so.” – Prof. Navroz K. Dubash
The strategy is firmly, and appropriately, anchored in considerations of climate equity. It calls for developed countries to undertake early net-zero and to provide adequate finance and technology in support of India’s plans for low-carbon development.
“The important principle of climate equity can usefully be operationalised by India laying out its own vision of low-carbon development and identifying within it the needs for support from developed countries. This LT-LEDS is an important step towards doing so.” – Dr. Aman Srivastava
The document clearly emphasises that India faces significant energy needs for development, to manage its simultaneous demands for job creation, urbanisation, and infrastructure development, all of which are energy intensive.
“India faces the challenge of meeting its growing energy needs even while avoiding lock-in to a high carbon future. The document’s approach of sector-by-sector low-carbon development futures enables India to strike this balance” – Dr. Aman Srivastava
The heart of India’s LT-LEDS is six key sector-by-sector low-carbon development transitions driven by considerations of India’s own development needs, and backed by a discussion of necessary finance. For each sector, the LT-LEDS lays out 5-10 ‘elements’ of a transition – for example, low-carbon electricity systems require expanding renewable energy and the grid, demand-side management, and rational use of fossil fuels, among others.
“Having clear ‘buckets’ for action, as the strategy does, is very important to mobilise bureaucracies and send clear signals for action to the private sector.” – Prof. Navroz K. Dubash
“This is the first government document that articulates long-term strategies for transitions in sectors beyond energy and forests. It has fired the starting gun for a serious transformation of the transport, industrial, and urban sectors.” – Parth Bhatia
The LT-LEDS takes a balanced view to these transitions, recognising both the possibilities for technological and competitive benefits arising from low-carbon transitions, but also that there are trade-offs and costs.
“Recognising that there are both possible benefits and trade-offs is necessary. The next step should be clearly identifying the nature of these benefits and trade-offs for each sectoral transition.” – Dr. Aman Srivastava
It is significant that the LT-LEDS process was underpinned by a cross ministerial consultative process backed by academics, research organisations and several other stakeholders.
“The consultative nature of this process is a considerable strength, as no top-down strategy can capture the diverse views and interests that need to be accounted for in India’s low-carbon development strategy.” – Parth Bhatia
“India’s LT-LEDS should be viewed as a living document. Future iterations should emphasize robust and transparent modelling towards net-zero by 2070, clearer identification of sectoral co-benefits and trade-offs, and more detailed discussion with states.” – Prof. Navroz K. Dubash.
Setting the context
The principal legislation governing the insurance sector in India is the Insurance Act, 1938. This law, amended several times since its passage, lays down the procedures and requirements that insurance companies must comply with while doing insurance (and reinsurance) business in the country. The Indian insurance sector operates under the aegis of the Ministry of Finance. The sector is regulated by the Insurance Regulatory and Development Authority (IRDA), a body incorporated under an Act of Parliament, the Insurance Regulatory and Development Authority Act, 1999. Armed with powers vested under the Acts of 1938 and 1999, IRDA sets forth the regulatory framework for the overall supervision and development of the insurance sector in India.
Typically, the insurance industry is classified into life and non-life categories, and comprises entities such as life insurance companies, general insurance companies, reinsurance companies, and insurance intermediaries such as brokers, third-party administrators, surveyors and loss assessors.
In India, the insurance industry, including its constituent entities, falls under the regulatory purview of IRDA. The Authority is primarily responsible for protecting the interests of policyholders; prescribing codes of conduct for regulated entities; and monitoring and enforcing standards of financial soundness and integrity among those it regulates. Towards fulfilling these responsibilities, the insurance sector regulator is vested with executive powers, including the power to issue, modify, withdraw or suspend registrations of industry entities; levy fees; call for information, inspect, investigate and audit the conduct of regulated entities. It also has an element of judicial powers so as to adjudicate disputes between insurers and intermediaries or insurance intermediaries. Further, IRDA is also mandated to promote and regulate the functioning of professional organizations related to the insurance and reinsurance business. Section 26 (1) of the IRDA Act of 1999 and Section 114A of the Insurance Act of 1938 provide the Authority with the powers to make subordinate legislations or regulations to carry out its statutory purposes, in consultation with the Insurance Advisory Committee (IAC).
Stipulated in the Act of 1999, IAC should consist of not more than twenty-five members (excluding ex-officio members) who represent the interests of commerce, industry, transport, agriculture, consumer fora, surveyors, agents, intermediaries, organizations engaged in safety and loss prevention, research bodies, and employees’ associations in the insurance sector. The draft of every regulation is placed first before the IAC and its comments/recommendations are sought. Consequently, the draft regulation is placed before the Authority for approval. IRDA has made regulations on various aspects of the business of insurance including the protection of policyholders’ interests, the manner of investment of funds and its periodic reporting, the maintenance of solvency, and clearance of products prior to their introduction in the market.
As per Section 4 of the IRDAI Act, 1999, the Authority shall consist of 10 members – a Chairperson, five Whole-Time Members, and four Part-Time Members, as appointed by the Government of India. Under the Act, the Chairperson shall have the powers of general superintendence and direction in respect of all administrative matters of the Authority. All appointees are to be chosen from disciplines which, in the opinion of the Central Government, will serve useful for the Authority. IRDA has made regulations pertaining to the meetings of the Authority for transaction of business and procedure to be followed.
IRDA has also laid down regulations on the manner in which insurers are expected to handle grievances of policyholders. The first post of recourse for a policyholder is the insurer. Every insurer is required to have a Grievance Redressal Officer (GRO) to whom the complainant will direct the grievance. All insurers are also expected to be part of the Integrated Grievance Management System (IGMS) put in place by the Authority to facilitate online tracking of grievances. If the insurer rejects the grievance or does not respond to the complainant (within stipulated period) or only partially resolves the issue, the complainant can approach the Insurance Ombudsman.[ The Insurance Ombudsman scheme was created by the Government of India for individual policyholders to settle complaints out of courts. At present, there are 17 Insurance Ombudsman across the country. The complainant can approach an Ombudsman based on territorial jurisdiction – either the office location of the insurer/branch against whom the complaint is or based on the location of the complainant. ] The Ombudsman typically acts as a mediator to arrive at a mutual settlement. In cases where no settlement is possible, the Ombudsman has to pass an award within three months. If unsatisfied, the complainant may approach consumer or civil courts.
Sectoral issues and challenges
India’s insurance sector has been growing in recent years. Generally, the development of the sector is assessed using metrics such as insurance penetration, i.e. the percentage of insurance premium to Gross Domestic Product, and insurance density, i.e. the ratio of premium to population (or per capita premium). As per the IRDAI Annual Report 2020-2021, insurance penetration has increased from 3.49 per cent in 2016-2017 to 4.2 per cent in 2020-2021. Similarly, for the same time period, insurance density has increased from 59.7 USD to 78 USD. While both penetration and density of insurance remain low in comparison to global levels, they have grown with respect to their past levels.
Public sector insurers command a large share of the Indian insurance market despite several measures to liberalise the sector. For instance, the market share of the Life Insurance Corporation (LIC) stands at 64.14 per cent of the total premium underwritten in the life insurance segment. This segment itself dominates the insurance sector with a share of close to 75 per cent, and non-life insurance accounting for the remaining 25 per cent. Non-life insurance penetration is astonishingly low in India – only around 1 percent of the population is covered in this segment. Large sections of the Indian population, in rural areas especially, remain generally uninsured – herein lies the insurance gap.
Another long-standing issue with the sector has been that insurers in India lack sufficient capital. The insurance sector was a crucial part of the Central Government’s strategic disinvestment agenda. The LIC is the sole public-sector life insurer in the country whereas there are four public-sector insurers in the non-life insurer segment. The latter, however, have weak financial positions. The planned merger of three non-life (general) insurers was shelved in the year 2020. The Central Government decided to carry-out capital infusion measures to improve their solvency and financial position, enhance internal capacity and risk management capabilities. The LIC IPO and its recent underperformance sends strong signals about market confidence in public sector insurers and their ability to manage money. Given this outcome, the right balance needs to be struck between public sector and private sector in the insurance space.
That insurance policies are prone to mis-selling is now well-documented. When consumers with little understanding of financial products interface with agents and distributors whose remunerative structures incentivise them to ‘push’ these products, the possibility of mis-selling is high. The insurance regulator has made several interventions to resolve such issues. According to the IRDAI Annual Report 2020-21, the number of complaints related to mis-selling has decreased from 41,754 in 2019 to 25,482 in 2021. The sales-agent model in the insurance business has been increasingly challenged with the rise of cross-selling and direct-to-consumer digital sales. An upcoming model in the insurance ecosystem in India is InsurTech. The right mix of technology, innovation, and appropriate levels of regulatory scrutiny offers the much-needed opportunity to shrink the insurance gap in India.
The allocation for four demands of the defence ministry is Rs 5.25 lakh crore (approximately $72 bn), which is an increase of 4.43% over the revised estimates for the previous year. Considering the high rate of inflation in India, this amounts to a reduction in real terms. As has been witnessed after the implementation of One Rank One Pension scheme and the implementation of the Seventh Pay Commission’s recommendations, the allocation for defence pensions has shot up to 1.197 lakh crore (approximately $16.4 bn). Nearly 86% of the pension budget is allocated for retired Army personnel, while the rest goes to retired personnel of the Indian Air Force and the Navy.
Another major item of expenditure is the salaries, where the total budgetary allocation is Rs 1.536 lakh crore ($21 bn), the lion’s share again going to the 13.5 lakh strong Army. The expenditure on human resources thus consumes 52% of the allocations for the defence ministry, a problem area that has become critical over the past few years but remains untackled, often masked by the big headline numbers of defence spending put out by the government. It was part of the amended terms of reference of the Fifteenth Finance Commission which submitted its report in 2020.
Due to “overall fiscal constraints”, the Fifteenth Finance Commission was forced to recommend that the government “should take immediate measures to innovatively bring down the salaries and pension liabilities”. Recommendations of the commission, such as those of “bringing service personnel currently under the old pension scheme into the New Pension Scheme (NPS) or a separate NPS for the armed forces” are unlikely to find any political support or traction from the defence services. The commission essentially wants the government “to ensure [that] the growth of defence pensions are at par with non-defence pensions,” which is a logical impossibility unless some painful reforms are undertaken in the provision of defence pensions.
At Rs 1.52 lakh crore, the capital allocation for the defence ministry saw an increase of 9.7% over the revised estimates of last year. Of this, Rs 1.24 lakh crore ($17 bn) is budgeted for the capital acquisition by the defence services, the actual amount to be spent towards scheduled payments of already contracted procurements and for the first instalment of new contracts that will be signed this year. Of this, the government has stipulated that 68% will reserved to be spent on domestic industry; last year, the stipulation was 64% but the actual figure achieved was only 58%. These figures, as many experts have pointed out, are also misleading as major sub-systems of these indigenous platforms are often imported from foreign countries. For eg., Tejas Light Combat Aircraft manufactured by Hindustan Aeronautics Limited for the IAF is only 62% indigenous by value.
The armed forces have been crying out for modernisation, with the Army complaining of more than two-thirds of its weapons, platforms and equipment being vintage, the IAF asking for resources to make up its depleting fleet of fighter jet squadrons while the Navy has curtailed its ambitions now to only being a 175-vessel force. While the IAF and the Navy spent more than their capital BE allocations in FY 21-22, the Army returned more than 30% of its BE allocations at the RE stage. The Army’s inability to spend the allocated amount is a very worrying development, considering that India’s emergent security challenges remain continental, both versus China and Pakistan.
In August 2020, defence ministry submitted a note to the Fifteenth Finance Commission which showed that between FY 2021-22 and FY 2026-27, there will be a shortfall of Rs 8.45 lakh crore even if there an increase of 16% per year in capital expenditure. It also said that “consistent shortfalls in the defence budget over a long period has resulted in serious capability gaps, compromising the operational preparedness of the services. Consequently, they have to resort to ad-hoc mechanisms such as postponement of a few procurements and delaying payments, resulting in high carry forward of unmet requirements and committed liabilities”. Nothing has been done to change this perilous state of affairs for India’s national security in the current budget.
In this episode of India Speak: The CPR Podcast, Shyam Saran (Senior Fellow, CPR and Former Indian Foreign Secretary) is joined by Asoke Mukerji (Former Permanent Representative of India to the United Nations). With illustrious careers in diplomacy, Saran and Mukerji unpack the future of multilateralism and its potential for cooperation amongst states, particularly as the world confronts cross-cutting global challenges like the COVID-19 pandemic, cyber security, terrorism and climate change. They discuss the potential of multilateralism to help deliver solutions through Agenda 2030, its structure through the UNSC and the 1945 Charter of the United Nations, the decline in US leadership in the UNSC and the calls for a restructuring of the UNSC. Finally, they discuss India’s legacy of multilateralism, how it can play a leadership role in international relations, its limitations in resource allocation and capacity building and the importance to maintain its claim on a UNSC seat.
Setting the Context for Regulating Pensions
The Pension Fund Regulatory & Development Authority (PFRDA) was first established in 2003 as the Interim Pension Funds Regulatory and Development Authority by Gazette notification in tandem with the Government of India’s decision to introduce a new restructured pension system for entrants to central government service. The new pensions system was to be called the National Pension Scheme (NPS). It was also subsequently made available on a voluntary basis to all persons including self-employed professionals and workers in the unorganised sector. The Interim Authority was set up to regulate, promote and ensure the orderly growth of the pension market, but in effect this was limited to the NPS as other pension systems (including the Employees Provident Fund, as well as a number of other statutory, mandatory and voluntary pension systems) were already covered by other legislation and governance structures.
PFRDA was constituted in its present form in 2014 through the Pension Funds Regulatory and Development Act, 2013. Its scope of activity was expanded to include other pension schemes that are registered under it and not covered by any other statute. In particular this includes the Atal Pension Yojana, a government pensions scheme that provides a guaranteed minimum income to eligible unorganised sector workers.
PFRDA and NPS are of great salience for government employees. Until 2004, their pension schemes were managed on ‘defined benefit’ principles, or in other words, that they had fixed pension benefits which were calculated in the basis of their last drawn salary, years of service etc., and were in addition ‘cost-indexed’ at current rates. The establishment of PFRDA and NPS have signaled the transition in India from ‘defined benefit’ to ‘defined contribution’ schemes. This means pension benefits are directly linked to individual pension accounts, to which both employees and employees contribute during the term of employment. The quantum of benefit is however variable and dependent on the performance of the fund. Central government employees (except armed forces) who came into employment after 2004 have been mandatorily enrolled in the NPS. The state governments have also subsequently transitioned their pension systems to NPS as well. The NPS, and Atal Pension Yojana are open to the non-government subscribers as well, but it is not mandatory for them and is one among several investment options for them.
PFRDA and NPS also reflect the transition of government pension systems from a public-administered pension system to a system with a number of private operators, and one in which the benefits available to government employees was closely connected with the performance of markets.
The NPS is both mandatory (for most of its subscribers) and partly privatised. The central role of PFRDA is therefore to ensure stability and orderly growth of this system, and to protect subscribers from fund mismanagement, and from high rates and malpractice by intermediaries.
According to official data, as of November 2021, there are 76.8 lakh total members of central and state government employees in NPS, and the total Assets Under Management (AUM) for the central and state government schemes is INR 5.5 lakh crore. In addition, total membership under private NPS schemes stands at 32 lakh individuals, whereas their AUM is INR 1 lakh crore. Total membership under the Atal Pension Yojana is 3.2 crore individuals, and the AUM is INR 19 thousand crore.
Scope and Design of PFRDA Regulation
PFRDA is responsible for protecting the interests of pension fund subscribers. For this, it has power to regulate ‘intermediaries’. Pension funds are included within the definition of ‘intermediary’ in the PFRDA Act. Intermediaries also include central recordkeeping agencies, pension fund advisers, retirement advisers, points of presence and all other persons and entities connected with collection, management, recordkeeping and distribution of accumulations.
The NPS Trust, which was established by the Authority in 2008 under as per the provisions of the Indian Trusts Act of 1882 for taking care of the assets and funds under the NPS is also an intermediary which is regulated by NPS. The powers, functions and duties of NPS Trust are laid down under the PFRDA (National Pension System Trust) Regulations 2015, besides the provisions of the Trust deed dated 27.02.2008.
The Authority is responsible for registering intermediaries, and to make regulations for eligibility norms, including minimum capital requirement, past track-record including the ability to provide guaranteed returns, costs and fees, geographical reach, customer base, information technology capability, human resources etc. Further, the Act provides that intermediaries can only carry out business activities in accordance with the terms of the certificate of registration issued by the Authority. The Authority has range of powers to inspect and investigate the operations of intermediaries and to enforce its regulations and directions.
The Authority has adjudicatory power to decide on inquiries made in respect of intermediaries. It can also adjudicate disputes between intermediaries, and between intermediaries and subscribers.
The Authority is statutorily required to undertake steps to educate subscribers and the general public on issues relating to pension and retirement savings.
In addition, for NPS, the Authority also has some roles in relation to the actual management of the pension fund. It makes key appointments to the NPS Trust, including its Chairperson, CEO and Trustees. This has however been considered a conflict of interest, and a clear delineation of powers between the regulator and the NPS Trust is considered necessary. The Union Budget 2019-2020 proposed the separation of the NPS Trust and the PFRDA in view of this issue. It is understood that an amendment to the PFRDA Act is awaited in relation to the separation of the Trust (operational supervisor) from the PFRDA (legal regulator).
Issues and Challenges
Worldwide, pension system supervisors and regulators face the challenge of having high administrative charges for private pension funds, which leads to poor rates of return for pension fund members. There are often detrimental rules which govern the withdrawal of accumulated funds at retirement, and the risk of potential mis-selling when the retail channel is used to ‘sell’ financial products like pension plans. In this perspective, NPS is considered one of the most low-cost pension system designs in the world. However, consistent regulatory interventions are necessary to ensure that the NPS can continue serving the old-age income needs of individuals and protect their interests on a sustainable, reliable and cost-effective basis.
However, much more needs to be done to expand the low coverage of pensions in India. Out of an estimated Indian workforce of approximately 47 crore individuals, around 10.2 crore are covered under mandatory and voluntary pension schemes. In other words, only 21-22% of India’s workforce is covered by some form of pension plan. While pension coverage has incrementally risen in the past decade, a very large fraction of the working population still remains outside the formal pension system.
Expert committees in the past have highlighted the low pension participation rates among households in India – these include the Reserve Bank of India Committee on Household Finance, and some committees of the PFRDA. Risks to income security in old age are increasing due to a few reasons. First, the shifting demographic patterns in the country including the rise of the nuclear family, second, the high levels of unsecured debt (due to borrowings from non-institutional sources such as moneylenders) when approaching retirement age, and third, an increase in the elderly cohort. The general absence of effective formal sources of retirement income exposes the elderly cohort to economic shocks in the non-working segment of their lives.
The Atal Pension Yojana was established with a view of addressing this challenge, especially for unorganised sector workers. However, the challenges to increasing pension coverage in the low-income and heterogeneous unorganised sector in India are rather complex. The design of the savings instrument has to be customised to suit a financially semi-literate individual who may be unable to make regular contributions.
Further, India’s pension sector suffers from a fragmented regulatory landscape and exercise of regulatory oversight. While the NPS and Atal Pension Yojana are ‘regulated’ by PFRDA, the equivalent functions for the Employees Provident Fund and other pension systems are performed by their Board of Trustees or through other governing arrangements. This has led to disparate governance standards, outreach strategies, funding patterns, and investment guidelines across various pension schemes and programmes. These issues could be addressed through a comprehensive national pension policy, but this would require significant changes across the various laws, schemes and organisational structures.
The Finance Minister, Ms Nirmala Sitharaman presented the Union Budget on 1 February 2022. What does the budget mean for India’s economy? What are some of the hits and misses? In this piece, scholars at CPR share key takeaways.
Despite being presented ahead of crucial assembly elections, this is a remarkably non-political budget with neither positive nor negative surprises. There are no income tax cuts for the middle class. There is no increase in PM-Kisan direct benefit transfer payments from the current Rs 6,000/year to, say, Rs 9,000. Increasing this amount would have made political sense, given that small and marginal farmers would benefit the most from DBT. PM-Kisan, it may be recalled, was introduced first ahead of the 2019 Lok Sabha elections. Clearly, the government wants to keep the gun powder dry for 2024 elections.
The budget has announced measures for promoting zero budget natural farming and discourage chemical-based agriculture. One way to do this would have been to rationalise fertiliser subsidies, raise PDS issue prices and cap the current open-ended MSP procurement of paddy and wheat. The resources released from these could have, in turn, been ploughed back into increasing PM-Kisan benefits. That would also signal a policy shift from input- and product-based subsidies to income support to farmers.
Despite ongoing tensions on the China border, this is a regular defence budget with an allocation of Rs 5.25 lakh crore, a mere 4.3% increase over the previous year which will not even cover for inflation. More than half the amount will go towards salaries (1.54 lakh crore) and pensions (1.19 lakh crore). Capital budget has seen a 9.7% rise but the Army’s inability to spend 30% of its allocation in the current year, when it desperately needs to modernise, is a cause of worry.
Read a more detailed piece on defence allocations in the budget here.
The Budget announcement to facilitate opportunities in tier 2 and tier 3 cities, especially for women and children, is very welcome. CPR’s research demonstrates that secondary cities can be low-cost low-risk action spaces for rural and small-town youth – and women – to leverage existing social networks to explore economic opportunities. A ‘paradigm shift’ that combines land-use, economic and social planning and adopts place-based planning approaches, empowering urban local bodies and enabling regional planning approaches would be welcome.
Investments in the social sector remain neglected in this year’s budget. What has been particularly surprising is the low investments for health and also for some of the key schemes that formed an important safety net during the peak of the COVID-19 crisis. For instance, while there remain 77 lakh households that had demanded work under MGNREGS still to receive it, allocations for the scheme saw a 26% decrease over last years Revised Estimates. Food subsidy has seen a 28% decrease even as the Pradhan Mantri Garib Kalyan Yojana providing additional free grains to families was extended till 2022. Similarly, Ministry of Health and Family Welfare, sees only a Rs. 200 crore increase this year.
The budget appears to be a digital budget, and one must be careful it does not become a virtual budget because while technologies can be very transformative, e.g., the inclusion of post offices as part of the core banking system has great potential, the reliance on TV channels to remediate the loss in education during the past two years is a very risky strategy with potentially high downsides.
On urban areas, the move to kickstart green urban transport solutions including battery swapping is laudable as is the recognition of the need to develop a sui generis approach to urban areas but perhaps the fetishisation of metro rail needs some tempering. The thrust on logistics is very welcome but overall, the excessive attention to capital expenditure, including the quantum increase in support to the states, takes the focus away from insufficient allocations for necessary maintenance of existing assets at central and especially at the state and levels.
Gati Shakti provides much needed economic stimulus through infrastructure spending. But will the government adequately consider how to use the money to lock in low rather than high carbon futures? And deploy it to build a climate resilient society?
Energy transition receives rhetorical attention but allocations and incentives don’t completely line up. In power, renewables receive production support, but long-term coal phase-down is ignored and discoms get short shrift, with states receiving limited support.
The lack of attention to and even steps backward on air pollution is among the budget’s biggest environmental shortfalls. The paltry allocations to the CAQM and NCAP, coupled with the rapid phase-out of LPG subsidies risks back-sliding in the fight against air pollution. Indications on public transport are welcome but need fleshing out.
Read a more detailed piece on budget allocations for energy, environment and climate change here.
Despite claims of greater fiscal space, net tax revenues are higher than budgeted, this budget has moved toward fiscal consolidation rather than broad based support to a struggling economy. Revised estimates for the current financial year (FY 22) highlight that total expenditure reduced by approximately 1.5% GDP from FY 21 to FY 22 and will continue this path to reduce by a further 0.95% GDP from 16.24% in FY 22 to 15.2% in FY 23. The fiscal deficit on the other hand has reduced by 2.5% GDP. The extra fiscal space this FY has been used to reduce the fiscal deficit and not to support public expenditure, a trend that will continue into FY 23.
It is certainly true that capital expenditure allocations have increased from 1.65% of GDP in FY20 to 2.16% in FY21 to 2.6% in FY22 and projected to 2.9% in FY23. This rise is consistent and means that less than 60% of the fiscal deficit will be used to finance revenue expenditure in FY23 compared with 71.4% in FY20. This is a structural change in fiscal stance. But, contrary to the braggadocio in the economic survey, this has come about through revenue expenditure compression, and not through an increase in resource mobilization, which is why the capital expenditure/GDP ratio has increased even though the total expenditure/GDP ratio has shrunk.
Sushant Singh is a Senior Fellow at CPR. His research interests include international relations, foreign policy, defence and geopolitics. In this interview as part of the Leading Policy Conversations series, he discusses the national security challenges India confronts in 2022.
What do you think will be the main national security challenges for India in 2022?
The biggest national security challenge will continue to be posed by China, which remains a major strategic threat for India. Even if some form of modus vivendi is found on the disputed border, lack of trust between the two sides means that the threat is not going away. The second challenge will come from Pakistan, both as a subset of the China problem where the two together can activate a collusive military threat, and on the Line of Control in Kashmir where India’s domestic political moves have created instability. The third challenge is to complete the integration of three defence services under a new Chief of Defence Staff, following the untimely demise of General Bipin Rawat, and in the absence of any political ownership of the process.
How should policymakers address these challenges in the year?
On China, India has to recreate the deterrence to prevent any further Chinese aggression while creating options for quid pro quo trans-border operations that put PLA under pressure. It also has to provide leadership in the neighbourhood and build its own economic capacity, while positing India as a votary of free trade and a benchmark for liberal democracy. As far as Pakistan is concerned, India will have to start sincerely engaging Pakistan in peace talks and change its domestic policies in Kashmir. To undertake integration of defence services, a wider range of civil society and expert consultations, legislative backing and political ownership of the process that safeguards the civil-military balance is needed.
Rahul Verma is a Fellow at CPR. His research interests include voting behavior, party politics, political violence, and media. In this interview as part of the Leading Policy Conversations series, he discusses the political challenges India confronts in 2022.
What do you think will be the main political challenges for India in 2022?
There are always going to be multiple political challenges in a country as diverse and as big as India. We can view different problems from specific lenses, for example, COVID-19 can be viewed as a health challenge, poverty alleviation as an economic challenge, or developments on India’s borders as a security challenge. However, all of these are also inherently political problems that require political responses. Therefore, to point out one single political challenge is neither feasible nor desirable. Even in the political-electoral arena, we have multiple tensions and fractures emerging. The increasing polarisation in the society is tied to the trust deficit between political parties, and in turn putting democratic norms and value systems under strain. Various institutions of governance are showing signs of decay. Additionally, the economy is not looking in great shape and so accommodating the aspirations of millions of young Indians would become increasingly difficult. These problems are neither new nor unique to India, but these are some of the tensions that will confront policymakers in the coming year.
How should policymakers address these challenges in the year?
It would be naïve of me to suggest quick fixes to such complex problems. Even when policymakers invest time and energy to find solutions to these challenges, they do so in uncertain informational environments. And often the solutions offered would give rise to newer sets of problems and challenges. In some ways, we have to be open to humbling experiences while engaging with these complex problems.
Increasing political polarisation and trust deficit have created a strain on institutions and democratic culture in society. One way to address these issues is to find ways of increasing dialogue across the aisle. People on either side of the spectrum need to be convinced that we are in this together and unless we collectively join hands to minimise these tensions in society, the fractures are going to engulf everyone involved. To begin this, now is the time to stop the hyperbole, make a realistic assessment of our present and imagine a vision for India’s future. 2022 is the 75th year of Indian Independence and we must plan where do we want India to head as a society and as a nation by 2047, when the country celebrates its 100th year of Independence. This shared vision should bind us all and help us find ways to increase dialogue and decrease the trust deficit.