India could face ‘Imported Inflation’: Asian Development Bank (ADB)

A warning letter about India’s vulnerability to imported inflation owing to possible currency depreciation in the context of rising interest rates in the West was recently released by the Asian Development Bank.

What is Imported Inflation?

• The term “imported inflation” describes the rise in domestic prices of goods and services brought on by an increase in the cost or price of imports.
• This phenomena happens when the cost of imported products and services rises due to reasons including rising import costs, declining currency, or rising worldwide prices.
• As a result, companies might raise their prices to cover these increased expenses, which would put pressure on inflation in the home economy.
• This concept is related to the cost-push inflation theory, which states that rising input costs may result in higher final product prices.

Reason behind the imported inflation:

• Capital Flows: Foreign investors seeking higher returns are drawn to Western economies with higher interest rates. This phenomenon causes capital to leave countries like India and may cause the Indian rupee to weaken.
• When a currency weakens, local buyers need more of their own money to buy items from elsewhere, which drives up import costs.
• Borrowing Costs: Indian businesses and the government may face higher borrowing costs for infrastructure projects and investments if they raise funds in foreign currency-denominated international markets.
• Inflationary Pressures: As a result of currency depreciation, capital outflows may put pressure on the Indian rupee and increase the cost of imported commodities.
• Trade Competitiveness: India’s trade competitiveness is impacted by exchange rate variations resulting from changes in Western interest rates, which in turn affects imports, exports, and domestic consumption.

Mudumalai Tiger Reserve

In Mudumalai Tiger Reserve (MTR), a group of wild dogs known as Dholes has developed a serious peeling skin condition that is concerningly bacterial and fungal in nature.

About Mudumalai Tiger Reserve

• The Mudumalai Tiger Reserve is located in the Nilgiris District of Tamil Nadu, where Kerala, Karnataka, and Tamil Nadu converge.
• It is a part of the Nilgiri Biosphere Reserve, which is the first biosphere reserve in India, together with the Silent Valley, Bandipur National Park (Karnataka), Wayanad Wildlife Sanctuary (Kerala), and Mukurthi National Park.
• The term “Mudumalai” refers to “the ancient hill range,” which was formed 65 million years ago when the Western Ghats were formed.
• Flora: Tall grasses, including Elephant Grass, and diverse flora such as giant bamboo, Teak, and Rosewood.
• Fauna: Tiger, Asian Elephant, as well as the Indian Gaur, Spotted Deer, Malabar Giant Squirrel, and Jungle Cat, etc.
• Mudumalai hosts 8% of India’s avian species, including rare birds like the Malabar grey hornbill and Malabar pied hornbill.

Why has India allowed FIIs to invest in its Green Bonds?

• Foreign Institutional Investors (FIIS) are permitted to invest in Sovereign Green Bonds (SGrBs) issued by the Reserve Bank of India (RBI) as of April 5.
• These investors include sovereign wealth funds of nation-states, insurance firms, and pension funds.

Why has India allowed FIIs to invest in its Green Bonds?

• To draw in Foreign Investments: India draws in foreign money for its green initiatives by permitting FIIs to purchase green bonds.
• In order to increase the amount of capital available for India’s ambitious climate goals—which include reaching net zero emissions by 2070 and raising the percentage of non-fossil fuel-based energy sources to 50%—allowing FIIs to engage in the nation’s green initiatives broadens the pool of capital.
• To fulfill climate commitments, Prime Minister Narendra Modi promised at COP26 in Glasgow in 2021 to raise the proportion of renewable energy in India’s energy mix and cut the nation’s carbon emissions by 45%.
• Regarding Investment Diversification: FIIs are seeking to expand their investment portfolios and explore green investment options as a result of government assistance, especially in industrialized nations.
• By offering a reliable structure for green investments, India’s Sovereign Green Bonds structure (2022) allays worries about greenwashing.

Limitation For Govt. of India:

• Projects’ low credibility: Investors are unable to evaluate the financial risk involved in green bonds because there are no particular laws in place.
• Increased issuing costs: The market is challenged by India’s high green bond issuance costs. Although initially expensive, green bonds offer long-term cost benefits.
• Greenwashing might not end: The dishonest marketing of a company’s environmentally conscious image, or “greenwashing,” is common in the green bond market. Even if they don’t fit the requirements, some bonds are given the designation of “green.”

Way Forward:

• Provide Strict laws: The government ought to provide strict laws that clearly define the requirements for projects that qualify for green bonds.
• Boost the Credibility of the Project: Establish systems for impartial project certification and verification to guarantee the legitimacy of green initiatives.
• Reduce Issuance Costs: Look into ways to lower the cost of issuing green bonds, like offering issuers discounts or incentives.

On India’s ‘heat action plans’

We are accustomed to receiving heat advisories for different regions of India from the India Meteorological Department (IMD) come summertime. These warnings started this year in February.

A heatwave: what is it?

• The IMD states that the physiography of a location determines what constitutes a heatwave.
• If a station records a maximum temperature of 40 degrees Celsius or higher in the plains, 37 degrees Celsius or higher along the coast, or 30 degrees Celsius or higher in the hills, the IMD will proclaim a heatwave.

Heat Action Plans (HAPs) to tackle heatwave

• Goal: By providing ideas and actions for anticipating, mitigating, and recovering from heat waves, HAPs seek to improve readiness and lessen the negative effects of excessive heat.
• It is stated that 23 States are collaborating with the National Disaster Management Authority and IMD to create HAPs.
• Problem with Database: Although there isn’t a single, central database on HAPs, there are at least 23 HAPs at the state and local levels, and some states—like Maharashtra and Odisha—have established HAPs at the district level.

Limitation

• Problems with Determining Heatwaves: Although a national threshold is currently used to identify heatwaves, it is difficult to identify them at smaller scales, such as states, districts, and cities, because of differences in local factors such as humidity, the urban heat island effect, roofing type, and proximity to water or green areas.
• Unreliable Techniques and Vulnerability Evaluations: There is variability in the vulnerability assessment methods employed in HAPs due to the different physiography of different places.
• Handling Vulnerable Populations: Although safeguarding vulnerable populations is a top priority for HAPs, focused interventions sometimes overlook changing needs depending on regional socioeconomic and demographic variables.
• Resource Allocation and Financing: Due to a localized financial crunch, the implementation of HAPs differs based on local government priorities and available resources.
• Integration and Cooperation: Since HAPs are presently stand-alone plans with little funding, it is important to integrate them with more comprehensive action plans that support urban resilience and climate adaptation in order to efficiently share resources.

Way Forward:

• Local Scale Determination: Make an investment in monitoring systems that record changes in temperature, humidity, and other pertinent variables locally.
• Standardizing Methods: Provide instructions for carrying out vulnerability assessments that take into consideration local context and physiography diversity.