Issues to Watch on Climate Talks

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by David Waskow

After a week of preliminaries, climate change negotiations at COP 20 in Lima, Peru, have reached their mid-point and are moving into high gear. This week will be crucial as talks continue on a draft international climate agreement due to be concluded in Paris at the end of 2015. Here are three issues to watch as the climate meeting heads toward the finish line:
To Assess or Not to Assess?

Negotiators have yet to agree on whether to include in the agreement a process for assessing countries’ proposed climate actions, known as the Intended Nationally Determined Contributions or INDCs. Hanging in the balance is whether there will be an official UNFCCC process for countries and other stakeholders to ask questions about the ambition and fairness of country mitigation proposals and how much of a gap there is between the initial proposals and what’s needed to keep the average global temperature increase below the internationally agreed 2 degree C (3.6 degree F) target.

At the end of the first week, countries were divided on this issue — although not along the usual developed vs. developing country lines. Some strongly supported a rigorous and open assessment process. Others were resisting this approach. Effective assessment provisions would greatly strengthen the agreement. These could include expert workshops, provisions for public UNFCCC forums where countries could engage and respond to one another, and an online bulletin board where governments and civil society groups could comment on INDCs and countries respond.
$100 billion in Dedicated Climate Finance by 2020?

With pledges to the Green Climate Fund (GCF) nearing the initial target of $10 billion, there was welcome momentum on climate finance coming into the Lima talks. Additional pledges this week could push the total over the target, a symbolic milestone that could be welcomed in the decision document issued at the close of the conference. Needed now: ways to accelerate progress on the long-term goal of mobilizing $100 billion by 2020 as pledged at the 2009 Copenhagen climate summit.

Contributions to the GCF count towards the $100 billion, but a good share of the total funds will likely flow through from other channels. Ensuring that dedicated climate finance reaches at least $100 billion will require mobilizing a range of sources, including public funds, investments from national and multilateral development finance institutions and private finance. A high-level finance ministerial in Lima this week is an opportunity for finance ministers to commit to scale up these long-term investments and to agree to work with the UNFCCC and in fora such as the G7 and G20 to make rapid progress. While reaching the $100 billion target is an important prerequisite for an agreement at the Paris COP, addressing climate change will also require ways to ensure that all long-term investments, especially in infrastructure, are climate smart.
What About Adaptation?

Many developing countries continue to emphasize that adapting to climate impacts is as important in the agreement as cutting carbon pollution. These countries are discovering ways to pursue development goals and improve people’s lives, even in the face of climate change, and are asking for support. How to reflect and support these efforts within the agreement is a central question for the negotiations. One issue is whether countries will include contributions to adaptation efforts in their INDCs. Some countries insist this should be required, while others would like the agreement to be silent on this point, making such inclusion optional. A related issue is whether to include in the agreement a regular adaptation assessment cycle for countries to review whether adaptation efforts are achieving needed outcomes and decide on future actions.

One proposal would include in the 2015 agreement a qualitative, aspirational goal — such as all communities having the means to adapt to climate challenges — that would provide a context for periodically assessing adaptation efforts. While these issues do not need to be fully decided this week, it is important that options are included in the framework that emerges from Lima.

The three longstanding issues in the climate talks — mitigation, finance and adaptation — and the value of regular assessment cycles for each, are discussed in Elements and Ideas for a 2015 International Agreement, a blueprint for a 2015 climate agreement prepared by the WRI-led ACT 2015 consortium made up of climate policy experts at nine research organizations around the world. The chart below summarizes the proposal:

Global trade gets boost from US-India deal

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By Vicki Needham

The United States and India have reached a deal to streamline customs rules that could set up a global framework to move goods more efficiently across borders.

U.S. Trade Representative Michael Froman said Thursday that the two nations have hammered out the Trade Facilitation Agreement (TFA) following months of high-level meetings with Indian officials.

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“We have overcome that delay and now have agreement with India to move forward with full implementation,” Froman said.

The deal between the U.S. and India could give new momentum to efforts to reach a broader deal at the World Trade Organization.

India had led a small group of countries that objected to the WTO agreement, which was worked out at a WTO ministerial conference in Bali nearly a year ago. India and the other countries had worried the deal could lead to food shortages in their countries.

To that end, the talks also produced an understanding on food security, which will keep some WTO dispute settlement procedures in place until a permanent solution has been adopted.

The U.S. business community praised the deal.

Linda Dempsey, vice president of international economic affairs with the National Association of Manufacturers, called it “welcome news” and said the deal was “an unparalleled opportunity to boost global growth and commerce.”

Supporters say it could create 21 million jobs — the bulk of them in nations with developing economies — and produce $1 trillion in global economic activity.

President Obama and India’s Prime Minister Narendra Modi discussed the deal during Modi’s September trip to Washington.

Modi had argued that there needed to be considerations around food security issues, and those needed to move in parallel with the trade pact.

The agreement is also intended to show that the WTO itself can still function and perhaps give a boost to the long-delayed Doha talks launched in 2001.

Following the July collapse of the deal, the first multilateral trade agreement in the WTO’s history, Director-General Roberto Azevêdo had questioned the trade body’s effectiveness and suggested a review of how it operates.

Froman said that the agreement reaffirms the United States’ and India’s “joint commitment to the success and credibility of the WTO.”

Is the Indian economic giant finally waking up?

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By Desmond Lachman

Napoleon famously said that when China woke, the world would shudder. With Indian Prime Minister Narendra Modi visiting Washington, President Obama might be advised to consider whether the same might be said of India, the world’s most populous democracy. After many years of slumber, the Indian economy is at last showing signs of awakening. And with reform-minded Modi now at India’s helm, there is the very real prospect that India could emulate China’s impressive economic growth performance of the last two decades

Long after India gained independence in 1947, it was thought the country was condemned to so-called Hindu-style low economic growth of around 3 percent a year. However, following the progressive liberalization of the Indian economy initiated in 1992 by then-Finance Minister Manmohan Singh, India began to experience Chinese-style economic growth. In the years immediately preceding the 2008 global economic crisis, the Indian economy grew at annual rates of 8 percent to 9 percent, making it, along with China, among the world’s most dynamic economies.

Sadly, following the 2008 crisis, India’s economy lost momentum as a variety of its economic weaknesses was exposed by a more challenging global economic environment. Among those weaknesses was the deepening of corruption scandals around the National Congress Party, which had ruled India for almost all of its 70 years of independence, and an overbearing government bureaucracy that found itself increasingly tied down by red tape. Not helping matters was a prime minister’s office that became increasingly ineffective at coordinating policies among the different government ministries.

Fortunately for India, its economic prospects have brightened considerably with the landslide election in May 2014 of Modi’s Bharatiya Janata Party. Not only does Modi have a well-deserved reputation as an effective economic reformer in his native state of Gujarat, he also won the election on a pro-business reform agenda that promised to fundamentally shake up the Indian economy. If he manages to deliver on that agenda — especially in the areas of labor market reform, infrastructural investment and financial market reform — there is every reason to believe that the Indian economy’s best days lie ahead.

To be sure, Modi will face considerable challenges in trying to deliver on his mandate that will test his political abilities to the full. While he does have control of India’s lower house of parliament, he faces strong opposition in the upper house where elections are only scheduled to be held in 2016. At the same time, he faces a cumbersome bureaucracy that is very much set in its ways and that is no friend to basic economic reform.

From a U.S. perspective, India has several advantages over China that might favor its economy over the longer run and that warrant U.S. support. As the world’s largest democracy, India shares certain common values with the U.S and is not prone to the same political and social upheaval that China might eventually face. India also has a very much younger and more rapidly growing population than does China, which implies that it can sustain rapid economic growth for longer than can China. Also favoring India is the fact that it is starting from a very much lower base than China, which affords India with great opportunities of catching up with the world’s more advanced economies.

One has to hope that President Obama gives Prime Minister Modi’s economic reform efforts his whole-hearted support. For not only will a faster growing Indian economy that is opening up to international investment offer U.S. business great opportunities abroad, it will also help lift millions of Indians out of poverty and provide the U.S. with a potentially strong ally as a counterbalance to China’s foreign policy ambitions across the Asian continent.

(Lachman is a resident fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.)

Ten laws that India should scrap

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Soutik Biswas

Old sign “Bangalore Telegraph Office” India still has a law regulating possession of telegraph wires – but telegram services ended last year

India’s archaic and obsolete laws are seen by many as its most burdensome legacy.

Among those which remain on the books are more than 300 dating from the colonial era, as well as rules to manage issues arising out of the Partition of India. There are more than a dozen laws imposing redundant taxes that yield little and cost a lot to collect, as well as outdated laws relating to former princely states and the nationalisation of industries and banks.

Prime Minister Narendra Modi says one of his missions is to rid India of a “maze of useless laws”.

During the election campaign he promised that for every law passed, his government would repeal 10 obsolete ones. More recently, in a speech at New York’s Madison Square Garden, he said he planned to get rid of one such law every day. His government has already placed a bill in parliament, recommending 36 obsolete laws be revised. A Delhi-based citizens’ group has gone a step further and compiled a list of 100 laws to delete from the statue books.

Here are 10 laws, picked at random, that India could easily get rid of:

India Treasure Trove Act, 1878

The law defines treasure specifically as “anything of any value hidden in the soil” and worth as little as 10 rupees (16 cents; 10 pence).

The finder of such treasure, according to the law, will need to inform the most senior local official of the “nature and amount or approximate value of such treasure and the place where it was found”.

Also, if the finder fails to hand over the booty to the government, the “share of such treasure … shall vest in Her Majesty”. It’s worth remembering that the British left India in 1947.

The Bangalore Marriages Validating Act, 1934

Walter James McDonald Redwood, a priest in the southern city of Bangalore, solemnised many local marriages during his time, mistakenly believing that he was authorised to do so.

The law was introduced to validate those marriages.

It’s less clear what relevance it has these days.

Salt Cess Act, 1953

The law levies a cess – a tax imposed for special administrative expenses – on salt manufacturers at the rate of 14 paise (2 cents) per 40kg on all salt made in a private or state-owned salt factory.
Salt worker in India A law imposes a marginal tax on salt, but the cost of collection is high

The proceeds – after deducting the cost of collection – are used to meet expenses of salt-making, labour welfare and research.

In 2013-14 collections from the tax amounted to $538,000 (£343,400), which was nearly half the cost of collecting it. Given that collections are so low, says the Delhi-based Centre for Civil Society, removing this act – and tax – would have little effect on the government’s finances.

A High Level Salt Enquiry Committee set up in 1978 recommended that the tax should be scrapped since the “annual collection was very small” while the total cost of collecting it was more than half of the total collection. The recommendation is still pending.

Although 92% of salt in India is produced by private companies, its salt industry is controlled by what is called the Indian Salt Service, employing some 800 officers.

Telegraph Wires (Unlawful Possession) Act, 1950

The law regulates possession of telegraph wires by Indians.

A person who possesses telegraph wires – with precisely defined diameters – is expected to inform authorities about the quantity in his possession. Anybody possessing more than 10lb (4kg) of such wire has to convert the excess into ingots.

The problem with this law is India sent out its last telegram in July 2013, after which telegraph services were shut.

The Indian Post Office Act, 1898

The law says only the federal government has the “exclusive privilege of conveying by post, from one place to another”, most letters.
India post office The law says only the government is responsible for sending most letters

There are a few exceptions, including one particularly bizarre one: “Letters sent by a private friend in his way, journey or travel, to be delivered by him to the person to whom they are directed, without hire, reward or other profit or advantages for receiving, carrying or delivering them”.

India’s thriving courier industry circumvents this law by sending “documents” rather than letters.

The Sarais Act, 1867

The 145-year-old law deals with regulating public sarais (rest houses), including duties of the manager and “removal of noxious vegetation” on the site.

The law says sarais should also provide free drinking water to passers by – reports say it is often misused instead to harass hotel owners.

Young Persons (Harmful Publications) Act, 1956

The law was enforced to “prevent the dissemination of certain publications harmful to young persons”.

A harmful publication is one that “tends to corrupt a young person” with pictures and stories which depict “violence or cruelty” or “incidents of a repulsive or horrible nature”.

Many believe that words such as repulsive and horrible are “vague and subject to arbitrary interpretation, and consequently lead to widespread discretion and serve as an excuse for harassment”.

For example, earlier this year, police in southern Kerala state raided shops selling Bob Marley T-shirts on the grounds that these encouraged youngsters to consume drugs – and shopkeepers were charged under the law.

The Aircraft Act, 1934

The law defines an aircraft as “any machine which can derive support in the atmosphere from reactions of the air”. So it includes “balloons, whether fixed or free, airships, kites, gliders and flying machines”.
Balloon sellers in India A law regulating airplanes includes balloons and kites

It also says only the government can make rules regarding “possession, use, operation, sale, import or export of any aircraft or class of aircraft”.

By this logic, it would be illegal to fly kites and balloons without government clearance in India.

The Registration of Foreigners’ Act, 1939

This law requires every foreigner staying in India for more than 180 days to report his/her entry, movement from one place to another and departure, to the authorities.

Introduced by the British to regulate the entry and movement of foreigners in India – particularly of Indian revolutionaries from abroad – the law also requires owners and managers of hotels and boarding houses, and aircraft or ships to report the presence of any foreigners.

Many say the law has become a tool to harass foreigners and is an impediment to India’s efforts to boost tourism.

The Sonthal Parganas Act, 1855

This discriminatory colonial law exempted areas populated by India’s Sonthal tribespeople from general laws and regulations because they were an “uncivilised race”.

The law, introduced to curb uprisings by isolating tribal populations, “violate the principles of equality under law adopted by our Constitution and give legitimacy to discrimination and ill-treatment of tribal populations in India”, according to a citizens’ group.(BBC)

I give you Narendra Modi

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“YEAH, go that way,” yells a frazzled cop guarding a security cordon outside Penn Station. Which pain-in-the-ass sports star or musician is snarling traffic around Madison Square Garden, an arena normally graced by WrestleMania, the Knicks and the Rolling Stones? Actually, today’s performer is a politician: Narendra Modi, India’s Prime Minister. Inside are over 18,000 Indo-Americans, as prosperous and upstanding a diaspora as you will find from the Redwood forests to the Gulf Stream waters. They are willing themselves into the kind of obedient hysteria they were meant to have left behind generations ago in the badlands of Asia, along with hunger and snakes. “Modi, Modi, Modi,” shout the massed oncologists, engineers and entrepreneurs, wearing T-Shirts bearing his face and the slogan “Unity, Action, Progress”. An Americanised Bollywood dance troupe wearing fluorescent military uniforms gyrates to Bruce Springsteen’s anthem “Born in the USA”. The cries reach a lustier pitch. “Modi, Modi, Modi!”

In the India of the past six decades, events like this were a reliable shambles of short-circuiting loudspeakers, security guards with lathi sticks and feudal leaders with appalling punctuality. But since elections in May, India has been run by Mr Modi. He is, this adoring crowd believes, India’s Margaret Thatcher or Lee Kuan Yew. In time he will make India a success, not a continent-sized embarrassment; and the augury of that triumph is this show, slickly choreographed and punctuated by adoring Twitter messages shown on giant screens. Mr Modi hopes to achieve two things today: to begin to build an American support base strong enough to influence American policy towards India; and to provide TV images that can be beamed back home, confirming his status as a giant of the global stage, not just of India’s political scene.

At 11.45am precisely, a film shows a fantasy India of robots, billionaires’ houses and vast green fields. It meshes these images with shots of those who did not support, or probably would not have supported, Mr Modi: praying Muslims, and the two deceased heroes of India’s independence movement, Jawaharlal Nehru and Mahatma Gandhi. Modi claims ownership of all of India now, even his foes. After decades of political struggle, he has transcended politics. Next, in response to a meticulous cue, a handful of blinking American Congressmen, who have been flattered or press-ganged into appearing, go on stage. They get a cheer: this may be the only place in the disunited states of America where that happens. The national anthems are sung: the Star Spangled Banner, first and with care, then India’s, with abandon.

And suddenly, just after mid-day, Mr Modi is standing on the same floodlit spot where Mick Jagger probably sang “Sympathy for the Devil”. Mr Modi ignores the dignitaries completely: idiots. He looks around the crowd smiling, savouring it all. After riots in the state of Gujarat in 2002 in which at least a thousand people, mainly Muslims, were killed, Mr Modi, then the state’s chief minister, was banned from travelling to America. American officials called him a monster, a demagogue, a fanatic. Now they close down Manhattan’s streets for him, and America’s politicians stand here as his stage props. Sweeter still, Mr Modi’s acceptability is not a product of his remorse or decisive acquittal, but of his power: winning an election in a country of 1.25 billion people. He doesn’t let his anger or sense of triumph show, though. To get here, to the Garden, Mr Modi has spent decades roaring himself hoarse thousands of times before crowds of peasants in parched fields. Now it is time for some magnanimity, at least at first.

He starts by explaining what is at stake for most Indians, which means reminding the crowd of the misery they left behind, a result of decades of failed economic policy. In India, he says, “the poorest of the poor are asking ‘How much longer can we live like this?’” Mr Modi calls himself a small man; a former tea-seller. He says he reveres democracy. Indians have lived like slaves for a thousand years, he notes, ruled by outsiders, most recently the British. Gandhi led the country to freedom, he says. Now India’s economic development “has to become a public movement,” too. “I have to create that kind of movement.” To anyone who has heard Mr Modi’s remarkable oratory at work in India, he seems subdued.

At least the crowd is not. “Modi, Modi, Modi!” Slowly, the bombast builds and with it the volume of Mr Modi’s trademark riffs on development, good governance and national glory. India has sent a rocket to Mars that cost less per kilometre than a rickshaw ride. India’s politicians have been obsessed by passing “this law and that law”—Mr Modi will “destroy” all redundant legislation and rules. The holy but toxic river Ganges will be purified by Mr Modi. “Will you help me?” he asks, and the audience screams back. “I have a dream,” he confides. By 2022 he promises every Indian will have a house. The pledge is significant for the implication that he will still be in power then.

“You have given me a lot of love,” Mr Modi cries. “This kind of love has never been given to an Indian leader before! And I will repay you by forming an India of your dreams!” Huge swarms of balloons tumble from the rafters. Mr Modi walks off the stage. “Man, that was something,” says a spectator in a suit as the crowd exits. Outside, in a strange salute to the mother country, there is a mini-riot over free handouts of Bhelpuri, a rice snack. And then the bearers of Mr Modi’s T-shirts spill out into Manhattan’s streets, suddenly swallowed by groups of orthodox Jews, Chinese tourists and billboards advertising Irish beer and Swedish bikini waxes. America’s Indian diaspora, entertained and enchanted, is heading back to the suburbs. And Mr Modi? His next stop will be the White House. (The Economist, London)

Bank accounts to 1.25 billion people?

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By Jungkiu Choi

When it comes to ambition, one cannot find fault with India’s new Prime Minister Narendra Modi.

His recent pledge to provide bank accounts to all of his country’s 1.2 billion people – and in particular its poorest citizens – is one of the most audacious ever announced by an Indian government.

It is ambitious because nearly 40% of Indians, or some 480 million people, have little or no access to financial services.

To put that in context, that is nearly one-and-a-half times the US population and nearly 17% of world’s entire “unbanked” population.

Even if the task at hand is difficult, it does not mean it is not a worthy goal.

As more people – especially the poor – gain access to financial services, they will be able to save better and get access to funding in a more structured manner.

This will reduce income inequality, help the poor up the ladder, and contribute to economic development.

But there are many hurdles India will need to overcome before its plan can make a significant impact.
The infrastructure barrier

The first is changing the mindset of what a bank “looks” like. And this will have to happen at all levels, from government to consumers to the banks themselves.

A nationwide network of typical brick-and-mortar branches is simply not a feasible option, from a timeline or profit standpoint. The government needs to realise this fast. At present, it is issuing licenses for new banks with a condition that 25% of the branches will be opened in rural areas.
PM Narendra Modi unveils the logo of a campaign aimed at opening millions of accounts for poor Indians in Delhi on Thursday, Aug. 28, 2014 On 15 August, PM Narendra Modi pledged to provide bank accounts to all of India’s 1.2 billion people

This may not a workable idea on many fronts, not least because of the lack of trained staff to work at these branches.

At the same time, the amount of profit and revenue that the branches in rural areas would generate may not justify the expenses.

As a result, banks must adapt their business models.

One way to do this is to tap into mobile banking, using the more than 900 million mobile phones in use in India.

Another is by using the ubiquitous mom-and-pop stores as channels for collecting and distributing funds, especially in rural areas, with simple cards to track money flows.

These shops provide great local access, as their customers tend to be regulars who have built a relationship of mutual trust with the owners.

Mann Deshi Mahila Bank in India, a co-operative bank, has used e-card technology to take its services to rural women. These e-cards instantly allow the bank’s field agents and clients to view savings account balance, loan account status, and repayment history.
Red carpet or red tape

On his recent visit to Japan, Mr Modi declared that India was replacing its infamous “red tape” culture with a “red carpet” mindset. The comment was aimed at attracting more foreign investors to India. His ambitious domestic banking plan could do with a similar change in attitude.

A key aspect to expanding the reach of the financial services to more people will be simplifying the regulatory environment around it.
Indians gather inside a state-owned bank to open accounts as part of a countrywide campaign to open millions of accounts for the poor in Delhi on Thursday, Aug. 28, 2014. The government aims to provide bank accounts to 75 million households by 2018

To begin with, customer documentation – currently a byzantine process requiring many forms of proof – must be simple enough so that people, especially those who have never been to a bank, won’t be scared off.

State-owned banks currently dominate India’s banking sector and they will be key to making Mr Modi’s plan a success.

However, they have long been averse to offering accounts to people with little money because of costs and low profits. The government has to make it easier and more lucrative for these lenders to operate in these areas.
Financial literacy

The unbanked in rural areas must adapt to the idea of banking and believe it is worth their time. The key to this is increasing financial literacy. Most of the target people are unlikely to have much knowledge about how they can use banking services to their benefit.

The government and banks have to take the lead in educating people about how they can use these services – savings or loans – to create wealth.
In this photograph taken on August 22, 2014, a customer deposits cash into his account at an Oriental Bank of Commerce branch in Mumbai. Cash is costly to print, move, secure, and store

One aim of the plan is to help the government pay rural poor their welfare benefits directly into accounts, cutting layers of corruption. This is an area where banks can tap into and create tailor-made products and services for customers to help them utilise these benefits better.

The banks can also reach out to these customers with more personalised help. For example, if farmers from a certain village are supplying milk to a dairy plant, the bank can use the plant’s accounting team to inform and educate farmers about how they can save money or get loans for buying new cattle.

The success of such an ambitious plan hinges on a holistic approach and multiple stakeholders playing a part, not just government policy.
Cashless future?

While we are talking about big ambitions, one major step could help this plan succeed: cutting India’s dependence on cash.

Cash is costly to print, move, secure, and store, yet it is basically free to users. Mobile and technology-enabled payments, on the other hand, can prove cheaper and more beneficial for the economic system including for the government, retailers, telecom operators and the banks.
An Indian bank official takes the thumb impression of a woman before opening her account as part of a countrywide campaign to open millions of accounts for the poor in Delhi, India, Thursday, Aug. 28, 2014 It is crucial to increase financial literacy, especially in rural areas

It won’t be easy to change this, but a combined effort by the various stakeholders can help build an electronic payment system. Not only would that reduce the costs of making banking more accessible in rural areas, it will also help India address the country’s many unaccounted cash transactions and the parallel underground economy.

Reaching 1.2 billion people may prove impossible in the long run – no developed country has achieved 100% banking so far. But if India can work towards addressing these challenges, financial inclusion in the country could increase significantly.

That can only be good news for Asia’s third-largest economy.

Jungkiu Choi, a former banker, is Partner, Financial Institutions Practice, with global management consulting firm AT Kearney.

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