Time for sustainable growth?
The Baghjan blowout and its tragic consequences must serve as a lesson for the state of Assam in the follies of chasing quick, lucrative development that comes at the cost of the environment and future of the State
Baghjan oil well blowout has raised many relevant questions for people of Assam. Most of them are addressed, save one. How does Assam — as a developing and primary products economy — achieve sustainable development & growth? Even though its lucrative desirability as a guiding mantra for prosperity, has the society committed to a widely accepted definition of 'development that meets the needs of the present, without compromising the ability of future generations to meet their own needs?' Was Baghjan the point of inflexion for Assam decide to move towards the ideal definition of 'sustainable development,' the most aspired growth model in the world? Is the Assamese society finally ready to consider the economic cost for sustainable growth? Are we ready to pay for the environment by foregoing the increasingly obsolete energy sector fueled development and growth?
The foundation of modern Assam's economy can be traced back to colonial commercial interest; i.e., natural resources like coal, oil and commercial crops like tea and jute. Since the time McKillop, Stewart & Co struck oil near Makum in 1867; the petroleum industry in Assam has grown leaps and bounds. So much so that it remains a major fuel for the running of 350 tea gardens in the upper Assam region till today; the other major economic driver of the state. While the state failed to diversify its primary products based economy since then; do we realise the desperate need for Assam economy to diversify from its heavy dependence on petroleum and tea?
Assam missed a huge opportunity of early 90s globalisation due to either political indecisions, policy inertia or prolonged period of insurgency. This thwarted the attempt to bring the then-booming service sector to act as economic differentiators. I am not sure if there was a conscious attempt made by Assam until recently when the Sarbananda Sonowal government made a pitch to woo India Inc. to invest in the state through 'Advantage Assam'. While the state secured a commitment of investment worth over Rs 65,000 crores, then most of it is linked to the petroleum industry. The state-run petroleum PSUs with a strong presence in the State like ONGC pledged to invest Rs 13,000 Crores, the OIL to invest Rs 10,000 crores, IOCL to invest Rs 3,432 crores and NRL to invest Rs 3,410 crores. The diversification beyond petroleum remains a distant cry for now.
Over the years, while the development of the petroleum sector grew unabated, the cost of it was borne by the environment. The state has been reaping the benefits through revenue, employment and forward linkages without much hullabaloo. However, with the growing population, the pressure on finite natural resource like land, energy etc. has been also increasing manifold. The natural calamities like the floods have only added to the misery and accentuated the cost on the environment. This has further impaired chances of a new industry to thrive.
Let us do a quick examination of the financial contribution made by the petroleum companies to Assam's state exchequer. In the last three years, the contribution by the petroleum companies has ranged between 27.20 per cent and 19.05 per cent of the budget, the single largest sector (refer to the table).
Apart from directly contributing to the state exchequer, this buoyant petroleum eco-system has the potential towards setting up of service hub for upstream and midstream sectors from neighbouring states and countries. Apart from this leverage, the constant endeavour to improve production, there have been many capacity expansions in refining as well as incubation allied industries in the State like the upcoming Plastic Park in Tinsukia or expansion of methanol production in Namrup Fertilisers. The latter has been poised as the torchbearer to the Niti Aayog's flagship programme, 'Methanol Economy', that is likely to contribute significantly to mitigate the environmental hazard. Methanol is considered a clean fuel which has the potential to replace petrol, diesel and LPG as cooking fuel. As per Hydrocarbon Vision for 2030, the government aims to provide clean fuel access to 100 per cent of households in the region at an affordable price. This remains a big part of the money which is likely to flow into the state economy.
Logic behind bandhs
A major bane in providing a convenient business environment is the spurt of protest and bandhs by any organisation. While there are many excuses used to push forth an agenda though these bandhs, one allegation has always stood out that the natural resources are being exploited and exported to other parts of the country without adequate revenue return except for a meagre royalty of Rs 2,000/2,300 crore every year. We failed to realise that with rapid urbanisation Assam has increased consumption of petroleum as well. When we review our exact balance of trade, the consumption of petroleum products is more than the production of crude oil in the region. Of the total consumption of NE, 62 per cent consumption is attributed to Assam. The total consumption of 4.610 MMT petroleum products in FY 2019-20 is more than the production of crude oil at 4.294 MMT in the same year. While there is an import of crude to make up for optimal utilisation of the State's refining capacity, the 'exploit' narrative is nothing but political propaganda that has only dented the economic proposition of Assam. We must put to rest this redundant dated idea of bandhs.
While the cost of sustainable development kept increasing, the onus of financing this depended on the good old petroleum industry of Assam. Of course, the collateral damage to the environment was ignored until the oil well blew out and caught fire at Baghjan. We are not living in a fool's paradise to imagine that industry is accident-proof. Whether we like it or not, there is always a chance of error or accident in an industrial site. This premise remains true universally and there is no walking out from this. So, where does this leave us, the State of Assam?
We must educate ourselves from Baghjan blowout. That, all the primary products like minerals, petroleum, natural gas, are in finite supply. The 'easy money' by exploring them and selling them is going to be over someday. For a landlocked and low-income economy like Assam, we have long depended on a narrow range of products. Traditionally, both petroleum and tea are relatively volatile products bringing a shroud of uncertainty over their economic contribution. Ideally, export diversification from primary products is a good solution for swift economic growth.
However, it is easier said than done. Assam's comparatively lesser economic prowess with limitation to optimally utilise economies of scale poses a challenge to move into a new product. The easier route out of this puzzle is to start with diversification within existing products and their ancillaries. With a rich natural gas potential in the Assam-Arakan belt, there is a huge potential there. We must not take our eyes off the challenge here that petroleum, as source energy to drive the global economy, is fast eroding its credibility due to huge environmental cost. With pollution and climate change becoming more than a talking point, an attempt has been made to slowly move away from fossil-based fuel to more renewable energy sources. The doom of the fossil fuel-based industry can be recognised when Norway's Sovereign Wealth Fund decided to divest, and eventually phase out, from its earlier stance to keep invested heavily in petroleum companies into renewable energy source companies. More than their concern for the environment, it was essential to reduce their exposure from petroleum volatility, if not fall, in the times to come. The Sovereign Wealth Fund of Saudi Arabia — another petroleum-based economy — has been investing heavily in knowledge and renewable energy-based industries.
Assam can take a leaf out of this brilliant Norwegian model to energies sectors with growth potentials. This simple model puts the money from petroleum in to a Sovereign Wealth Fund. The fund acts like a Special Purpose Vehicle to develop a new sector or resources, like human resources or renewable energy, which are likely to benefit the economy in the long run. If we adapt this for Assam, it may be used to develop human resources and strengthen agriculture — the other two major sectors where Assam has potential. That would also strengthen its ancillary industries with a potential to reap the service industry. It is this way that the volatile revenues can be put into use for smooth consumption path. As the world starts valuing quality products, there is an urgency for us to move from the obsolete colonial economic model of earning by exploiting natural resources to use the natural resources for rejuvenation economy for sustained economic progress spread over a period of time with minimum environmental cost.
Supporting sustainable developement
Presently, the energy requirement of Assam is largely fulfilled via thermal (gas-based) and hydropower plants. There is some potential for the state for renewable energy sources like solar, wind and bio-mass but not even close to that of fossil fuel. While diversification in renewable energy may be desirable, we must factor in the opportunity cost in investing in sources like solar or wind vis-à-vis hydropower. Yet, we can't ignore the fact that energy — along with human and material infrastructure — is a pivotal ask for any economy. The buoyant petroleum industry can satiate this demand, until a time when it can be phased wise replaced by a more environmentally friendly energy source. This will serve the twin purpose of rejuvenating environment and obtain the much-needed impetus to grow the economy in a diversified manner.
With the advent of groundbreaking technology, the traditional limitations for a landlocked economy like Assam are on the wane. However, to reap the maximum out of this, we need a strong educational system that produces human resources. A conscious effort must be made to design public investments and policy reforms crucial for bringing in structural and policy changes in this regard by the State. There is a huge ask for infrastructure to facilitate growth. However, the smartest way is to build a sovereign fund to finance such infrastructure, without compromising the fiscal health of the State. It must be integrated with the existing institutions to achieve this objective.
The Micro, Small & Medium Enterprises (MSME) is another sector where Assam can look at exploring for some diversification. While policy decisions like recently announced stimulus package as a counter of COVID-19 losses is a welcome step, structural changes to stride ahead in economic rejuvenation through MSME units is a necessity. But make no mistake, these industries in Assam must rely
heavily on the capital base of the petroleum industry to scale up. The scope of MSMEs to draw potential technological, managerial or preferential support will boost the economy to diversify without affecting the overall economic health of the state.
With the onset of COVID, the deceleration of economic growth at the world stage has already been set. The economies are paying the price of not investing in universal health coverage. The sudden spike in health expenses has thrown the whole economic situation off balance. The situation in Assam is akin to this, but thankfully not bad yet. So far, there is an opportunity at hand for Assam to do what it has not done until now: diversification in primary goods as well as in the service industry. This is not a new concept as illustrated earlier. Economies across the board have been trying to build the foundation on multiple pillars to achieve sustainable development. But, it will have a flurry of challenges from economic, fiscal and social sectors. Are we
as a state ready to accept the new realities and build our economy on redrawn priorities?
Assam needs a springboard to jump into this uncharted territory. It has to have the comfort of a steady flow of income until the time other sectors or ancillary industries are developed to provide employment and attain sustainable growth. There is a need to move beyond the dependence of the public sector. A private business enterprise with an intent to make profits is poised to bring in more productivity from resources. While the need to disincentivise government and public sector employment avenues, it should, at the same time, offer incentives for setting up business enterprises in the state that can provide for employment. While the state must take measures and implement safeguards stringent enough to prevent any future mishaps like Baghjan, then it can never be made sure that an industrial accident would not occur.
Oddly, Assam is no longer evenly poised. There is a growing threat to the oil-dependent economies with few differentiations. The push for environmentally viable renewable energy sources are making a huge stride and Assam is yet to harness its hydropower potential
again caught in the paradox of economic development and environmental cost. With an exposure of one-third of the state's budget, we are surely a lopsided economy. There is no doubt that the pressure on the environment is humongous. While the resources are getting scarce, the pressure to utilise them is growing to accommodate a growing population. As a welfare state, Assam must strike a balance between the two.
To make our growth story a sustainable one, there is a need to strike a balance between the two sides: industrialisation and environmental safeguards. Let the Baghjan blowout be used as learning for both the State and the industry to acknowledge the cost and benefit one draws from such wells.