Daily News Compilation (HINDU) June 7 Editorials

El Niño will be disastrous for the world’s coral reefs

First we need to understand coral bleaching

Under normal conditions, the zooxanthellae algae living in coral tissue absorb energy from the sun and use it for photosynthesis. However, when the water gets too warm, zooxanthellae can produce toxins, which are harmful to both the algae and their coral hosts. For self-preservation, the coral polyps must expel the zooxanthellae, even though they rely on these algae for key life processes such as eating and calcification. Because coral tissue is transparent, coral reefs appear white (the color of their aragonite skeletons) without the zooxanthellae algae. This is why we call this process coral "bleaching."

And also what is Coral triangle:

The Coral Triangle is a geographical term so named as it refers to a roughly triangular area of the tropical marine waters of Indonesia, Malaysia, Papua New Guinea, Philippines, Solomon Islands and Timor-Leste that contain at least 500 species of reef-building corals in each ecoregion. This region encompasses portions of two biogeographic regions: the Indonesian-Philippines Region, and the Far Southwestern Pacific Region. The Coral Triangle is recognized as the global centre of marine biodiversity and a global priority for conservation. It also called the "Amazon of the seas" and covers 5.7 million square kilometers of ocean waters.

A growing number of scientists are predicting a major El Niño weather event this year, which could wreak havoc across South America and Asia as droughts, floods and other extreme weather events hit industry and farming. But the impacts on the world’s coral reefs could be even more disastrous.

The last big El Niño in 1997-98 caused the worst coral bleaching in recorded history. In total, 16 per cent of the world’s coral was lost and some countries like the Maldives lost up to 90 per cent of their reef coverage. The Australian Bureau of Meteorology suggests there’s a 70 per cent chance of an El Niño occurring this year — and all the signs are that it will rival the ‘98 event.

This could spell disaster for the Coral Triangle, a southeast Asian bioregion that’s the underwater equivalent of the Amazon, home to more marine species than anywhere else on Earth.

The Coral Triangle sees prolonged periods of temperature anomaly during an El Niño because the equator passes through the middle of it, so it experiences both northern and southern hemisphere summers.

The Coral Triangle is particularly vulnerable because it’s more prone to non-climate related pressures than other reefs. According to the World Resources Institute, more than 85 per cent of reefs within the bioregion are threatened by local stressors (overfishing, destructive fishing and pollution), which is substantially higher than the global average of 60 per cent. About 120 million people depend directly on these reefs for their livelihood. As the coral dies, more and more of them will be forced to migrate to live.

The only meaningful solution in the long term is to drastically reduce carbon emissions worldwide. Not much can be done to mitigate the impact of an impending El Niño, but some of the other non-climate related stresses can be removed. This means establishing areas of undisturbed marine habitat — lots of them — and reducing pressure on fisheries.

Coral bleaching is actually quite a common occurrence and bleached reefs can make comebacks — many of the reefs affected by the 1998 El Niño have made at least partial recoveries. “The thing is, under mild conditions, corals can recover their symbiotes,” says Professor Guldberg. “But because background temperatures are warmer, the corals can’t recover as before.” Even when reefs do recover, old growth corals that may have taken centuries to mature are often replaced with faster growing species that quickly colonise large areas, homogenising the ecosystem.

Tackling India’s economic headwinds

Current Indian economy is marred with a high rate of inflation that persists, declining growth, inadequate employment generation, fiscal deficit, current account deficit (CAD) and corruption.

The problem has been compounded by the capital intensive nature of current investment which uses less labour and more capital, so that even when output rises, employment hardly grows. Most are forced to work in the informal sector at low wages which when coupled with high persisting inflation, causes economic distress and political unrest.

This state of affairs is due to the decline in the rate of investment from its peak of 38 per cent in 2007-08 because of the global economic crisis.

Why Investment has become so important for growth of economy?

Economy rapidly increased in the 2000s leading to the boom of 2003-2008. The rapid increase in investment was engineered by allowing national income to shift rapidly in favour of the high savers — those who have high property incomes. This was evident from the direct tax data which showed that corporate tax collections boomed after 1999. This trend has led to a rapid increase in inequality in society and a slow rise in mass consumption so that the growth of the economy has depended more than before on rising investment levels.Hence the crucial determinant of growth in the economy in the period after 2000 has been investment.

Investment in the economy depends on private investment, both foreign and domestic and on public investment. There has been a problem with each one of them. Situation worsened as:

1. Exports declined: The green shoots in the United States did not bloom, Eurozone went into a double dip recession, Japan continued its sluggish growth and the Chinese and the other BRICS economies slowed down.

2. Imports increased: Imports rose sharply due to the high import bill for petro products and the increase in the gold import bill

Result of 1+2 = high trade deficit and CAD and a decline in demand in the economy

This has also been accompanied by a reduced inflow of foreign investments so that the value of the rupee vis-à-vis the dollar declined sharply in the last few years. This added to the imbalance on the external front with speculation and a flight of capital aggravating it. The threat by credit rating agencies to downgrade the country has been looming large which could lead to an increase in cost of borrowing abroad and a rise in CAD.

Foreign investment has slowed down but it only constitutes around 10 per cent of the total investment in the economy. The bulk of investment is internal and this has slowed down due to several factors. 

1. One of them has been the unravelling of scams since 2009 and the subsequent intervention of courts. This has impacted the confidence of the business community which was used to employing crooked means to manage its investments and the markets. 

2. Their confidence has also been shattered by widespread public protest against large-scale acquisition of land needed for major projects. This goes back to the days even before Singur. Resistance has continued in Jaitapur, Kudankulam, POSCO, Tata Mundra and so on.

In brief, the slowdown in internal investment is a result of the discredited model of investment in the country which has been based on collusion between businessmen, politicians and the bureaucracy. Thus, for different reasons, both foreign and domestic private investment has slowed down.

The last element, public investment has also slowed down because of policy paralysis in the government and even more importantly due to the sharp cutback in Plan size in each of the last five years so as to keep the fiscal deficit down; compared to budget estimates, the actual has been less by Rs.5 lakh crore in these five years. This has led to a slowdown in investment in infrastructure and an aggravation of shortages.

Now coming to solutions:

1. Foreign Investments: While the rise in the stock markets signals the flow of funds from FII, it does not mean that foreign direct investment will suddenly increase. Further, there is the danger of a speculative bubble building up — as in the past — which could collapse and adversely impact the investment climate. This could be triggered by the continuing easing of the Fed intervention in the U.S. — something that is ongoing. Even if foreign investment increases, it is a small part of the total investment so it cannot be the major stimulus needed. 

2. Internal investment: Domestic investment — public and private — needs to be revived. Large investment is going to remain hamstrung by environmental and other clearances and difficulties in acquisition of land unless laws are changed but that would take time. Transparency in business decisions is needed to revive investment, which also needs time. 

So, the only thing that can be done soon is to increase public investment, especially in rural areas where infrastructure is woefully inadequate.

Schools, dispensaries, roads, telecom, water, small irrigation and so on are needed urgently in rural India. This has the potential to create lots of jobs unlike the big investments and would be much less expensive than in urban areas because land is less expensive. Thus, it would benefit many more people and slow down the expensive and environmentally damaging urbanisation currently taking place. But this requires efficient governance.

Boosting markets for new issues

The stratospheric valuations that the share markets currently command should have automatically led to a revival of the moribund primary markets. This, however, has not happened — for many reasons. There is often a considerable time lag between conceiving a project and getting it financed through the stock market route. As recent macroeconomic data show, the levels of savings and investments have been coming down. This, along with governance failures, have led to a situation where a number of projects, including large infrastructure projects, get stuck even during the early stages of their execution. The new government has said it will unclog stalled projects on a priority basis, but it will take time before their promoters are able to raise resources from the capital market. Moreover, when they are finally ready for a public issue launch — usually at the fag end of financing arrangements — they may not be able to tap the kind of money they require. For instance, there is a paucity of investors in infrastructure companies. In the developed countries, insurance companies and pension funds provide a large part of the funds required by infrastructure projects. Raising the limit for foreign direct investment in insurance will help. At the same time, it is necessary to educate retail investors of the advantages in buying long-dated instruments which will provide steady, non-cyclical returns.

In the final analysis, it is the retail investors who provide depth and stability to the capital market. Unfortunately, this class has not only not received the right regulatory support, but there are also some provisions that discriminate against them. For instance, some of the initiatives of the Securities and Exchange Board of India completely bypass retail investors. Over the years there have been but token attempts to attract small investors, such as by giving them a small discount on public sector share issues. Recently, SEBI Chairman U.K. Sinha advocated a rationalisation of public issue norms relating to promoters’ holding as a means to increase the supply of shares. The idea is to prescribe a uniform minimum public float — of 25 per cent — in a share issue irrespective of the size. At present, public sector undertakings and companies with a post-issue capital of above Rs.4,000 crore, need offer only 10 per cent. The motives behind the proposal are laudable, but an increase in the quantum of shares by itself cannot do much to boost retail investments. Considering the requirements of infrastructure finance, it is time that debt and quasi-debt instruments such as convertible debentures are popularised. Those should attract risk-averse investors too.