GS (M) Paper-3: “Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.”
GS (M) Paper-3: “Environment related topics”
Raising resources using climate-resilient bonds
As the likelihood of climate disasters goes up, the need to mobilize additional finance to address the losses is greater.
What is Climate resilient bond?
- A climate-resilient bond (CRB) requires public money to be paid for market or higher rates of return on the investment, which would be used for adaptation projects while thinly spreading the impact of loss and damage of the climate risk between the investors.
- A green bond is the most common form of CRB which channels debt capital for projects with environmental benefits, predominantly for mitigation activities like renewable-energy deployment, decreasing the future climate risk.
- A Publicly issued bond is a type of CRB which insures against the outcome of a specific climate risk.
- For example, Tax free, market return yielding bond with a 5 year duration can be issued by the govt of West Bengal. In case of major flooding in that 5 year period due to a rise in precipitation, the investment is sacrificed by the investor and is used by the state to cover the loss and damage caused by the flooding.
- CRBs can leverage high government credit rating to attract investors with the market interest rates compensating for the climate risk being passed on to the investor.
Climate change negotiations in Marrakesh:
- The lack of any concrete advances on finance pledges amplifies the need for innovation in financing mitigation and adaptation activities, as well as to insure against loss and damage caused by climate change.
- Parties have approved a five-year work plan on loss and damage starting on 2017.
- It will see countries formally address topics such as the slow-onset impacts of climate change, non-economic losses and migration.
- However, developing countries are fast realizing that financial support for loss and damage (which is not governed by a legally binding framework) from developed countries is likely to be very small.
Estimate of climate disasters:
- Research by the Council on Energy, Environment, and Water (CEEW) in collaboration with the IIM, Ahmedabad and the IIT, Gandhinagar estimates that direct costs of extreme events spurred by climate change in India are $5-6 billion per annum.
- The associated economic costs and non-economic impacts are several orders of magnitude higher.
- India needs mechanisms to protect the investments in development agenda against climate risks.
- There has been many instances of flooding, heat& cold waves, major droughts in the country in last 14 years.
- All these have far-reaching financial impacts & needs, when combined with India’s mammoth renewable-energy targets, and the annually rising adaptation spending.
- The world and India in particular, is at a critical juncture in climate history—where mitigation, adaptation, and loss and damage all need to be addressed urgently and this cannot be done by public money alone.
- International debt markets estimated to be around $95 trillion, are the largest pool of capital in the world and they can be tapped to fund for the projects with climate risk.
- Spending on adaptation actions across five sectors—agriculture, forestry, fisheries, water and ecosystems—is estimated at $206 billion by 2030.
- Adaptation actions across infrastructure (energy, transport, roads, buildings, bridges) and health are likely to be significantly higher.
- For every $1 trillion of new infrastructure investments, adaptation costs are likely to range from $30-100 billion.
- For existing infrastructure, adaptation costs could be from 15-20%.
- Therefore, the adaptation gap for India by 2030 could be around $1 trillion.
- In case of a climate disaster, the bond investors forfeit their capital up to the limited liability of their investment.
- In the absence of a disaster, the climate-resilient bond would work like any ordinary debt instrument with the capital and interest paid out in accord with the terms of the bond issue.
- As the likelihood of climate disasters goes up, the need to mobilize additional finance to both address the losses from the disaster as well as adapt to the likelihood of growing climate impact is imminent.
- In order to transit from a high-emission pathway and adapt to existing & future climate impacts, governments would have to test and promote several permutations of existing and additional financial instruments.
- While developing countries need to continue seeking clarity on the pathways of financial support under the UNFCCC regime, they cannot depend only on it.
GS (M) Paper-3: “Money-laundering and its prevention”
Black Money and Terror
- One of the reasons quoted by the PM for demonetisation of Rs.500 and Rs.1000, is to effectively clamp down terror financing.
- In the article, the relation between Black money and terrorism shall be examined.
Black money and terrorism: Survey
- In November 2014, CNBC conducted a survey of the 10 top “cashless” societies.
- It found Belgium to be the world’s top cashless society with 93 per cent non-cash consumer payments and 83 per cent debit card use.
- France was second, then Canada, the UK, Sweden, Australia, Holland, the US, Germany and South Korea.
- Unfortunately, Belgium and France were also the worst victims of indigenous and trans-border terrorism.
- Global research has now found that terrorists seldom use tax dodgers or hawala agents of target countries as they are known to local agencies.
- “Black money” is not preferred since it does not satisfy the principle of “volume, risk, convenience, simplicity, costs and speed”.
- Terrorists never hire crime cartels because they shift loyalty.
- Terrorists usually do not collect funds from the places of their residence and certainly not in the country where attacks are planned.
- The UK was saved from the ISIS, because of its “channel process” programme from 2009. Under this, 4,50,000 frontline staff were trained on the legal “prevent” strategy, supplementing vigilance by the MI-5 and local police. UK has been terror free since 2013 even though nearly 850 of its youth had joined ISIS.
Routes used for terror financing:
- Funds are moved using phoney legal means, although their origin might be through crimes like robbery, extortion or fraud.
- Many individuals not directly connected to “charities” were collecting funds through their personal bank accounts and transferring funds to terrorist organisations under proper “cover”.
Shortcomings of Indian agencies fighting terrorism:
- In India, a centralised monitoring is rendered difficult with a structural inadequacy and bureaucratic inelasticity to keep pace with innovative terrorism.
- Our counter-terrorism (CT) machinery is under 29 state governments and the NIA has not expanded to take over a country-wide mandate.
- India never took note of the ISIS threat until late 2015, although the government was warned since 2014.
- It was only during late 2015 that we started considering the need for de-radicalisation despite global indications of its benefits.
It is the quality of our counter terrorism machinery which prevents terrorism and not our currency. The joint ambush by the anti-talks ULFA and NSCN(K) in Pengari, Assam on November 19 killing three army Jawans is a clear indication that terrorists would strike with or without demonetisation.
The connection between fake currency and terrorism is closer, than that between black money and terrorism.[Ref: Indian Express]