India could see its economy grow by an additional $371 billion (approximately Rs 29 lakh crore) by 2036 if it stays on track to achieve its long-term net zero target, according to a new analysis.
Growth will be mainly driven by higher investment in the power sector in the short and medium term, supported by investment in energy efficiency and carbon sink potentials in the longer term, said a report by the Asia Society Policy Institute.
That would boost the country’s gross domestic product by 4.7% more compared to a baseline scenario with just policies implemented prior to the targets announced by Prime Minister Narendra Modi at COP26 last year, it said.
The report has been prepared by a high-level policy commission comprising former Australian Prime Minister Kevin Rudd, former UN Secretary General Ban Ki-moon, economist and former Niti Aayog Vice Chairman Arvind Panagriya and International Finance Corporation’s Vivek Pathak.
India is aiming to achieve net zero emissions by 2070, with a series of short-term goals of adding clean energy capacity and reducing emission intensity of the economy by 2030.
According to the report, the gains in GDP for India from decarbonisation efforts will peak in 2036 and taper off from 2050 onwards. Still, it is estimated that GDP would be 3.5% higher than the baseline scenario in 2060.
The report also simulated other scenarios where India targets net zero by 2050, and accelerates its coal phaseout, where projected gains are even more.
Risk Of Consumers Bearing The Cost
The gains in GDP, however, come with trade-offs.
If India has to fund its net zero journey through domestic resources by the government, households will end up bearing the cost of the transition.
Household consumption would reduce by up to $79 billion—1% lower than baseline—by 2060 as prices go up, the report said. Higher industry costs due to carbon pricing and other taxes would be passed on to consumers and, in turn, would reduce their purchasing power.
“The impacts of both lower purchasing power and a higher tax burden outweigh the positive impact on nominal income associated with a higher level of GDP and employment relative to baseline,” the report said. “As a result, there is a net negative impact on household income and consumption, implying that consumers directly bear some of the cost burden of the transition.”
This gap in investments can be bridged through international investment support and other policy tools that can help boost government revenues, it said.
“International support is not only important for India reaching net zero but also for maintaining India’s economic and social development goals, including tackling poverty and improving energy access for the population,” the report said.
The report urges India to double down on its net zero reform and call on the globe for cooperation on climate. In particular, it said India should pursue climate finance as a key priority at the intergovernmental G20 summit that is set to be hosted by Jammu and Kashmir next year.
That would help “establish a platform for India to elevate a pipeline of bankable projects”.