Editorial 1:Common Practice Standards must have India outlook
Context
International carbon finance platforms must revise their standards to better align with the realities of Indian agriculture.
Introduction
India’s vast potential in the agroforestry sector is a unique opportunity to integrate with carbon finance projects through Afforestation, Reforestation, and Revegetation (ARR) initiatives. There is a possibility to expand the area under agroforestry from the current 28.4 million hectares to 53 million hectares by 2050.
About Agroforestry?
- Agroforestry accounts for 8.65% of India’s total land area and contributes 19.3% of the country’s carbon stocks.
- Thus, agroforestry plays a significant role in environmental sustainability and economic development.
What is the Carbon finance contribution?
- Recent research suggests that if adequate policies, financial support, and incentives are implemented, the sector could contribute an additional carbon sink of over 2.5 billion tons of CO2 equivalent by 2030.
‘Common Practice’ in Carbon Standards
- In the realm of carbon finance, “common practice” is a key criterion used to assess whether a project is additional — meaning, it goes beyond what is typically done in a given region.
- For ARR projects, this involves determining whether similar activities are commonly practised without the financial incentives provided by carbon credits.
- Current Standards: According to carbon standards such as Verra’s Verified Carbon Standard (VCS) or the Gold Standard, if an activity is deemed “common practice”, it may not qualify for carbon credits, as it is not seen as contributing additional environmental benefits beyond the norm.
- The current definition: of common practice in global carbon standards often reflects the realities of large-scale agricultural practices found in regions such as Latin America, Africa, or the United States, where landholdings are extensive and contiguous.
The Indian Context
- Fragmented land: In contrast, India is characterised by small and fragmented landholdings.
- Data inputs: Recent data indicate that 86.1% of Indian farmers are small and marginal, with landholdings of less than two hectares.
- Planting practices: These farmers often engage in agroforestry in a non-systematic, scattered manner, planting trees alongside crops or on small patches of fallow land.
- Need for additional criteria’s: While beneficial, these practices may not meet the additionality criteria set by current carbon standards because they are perceived as “common” within the Indian context.
Need for India-Centric Approaches
- Redefining common practice: Given India’s unique agricultural landscape, there is an urgent need to redefine and consider the common practice criterion to better reflect the specific challenges and opportunities within the Indian agroforestry sector.
- An India-centric approach would recognise that even small, incremental changes in land management practices such as adopting more systematic agroforestry techniques or utilising carbon finance to maintain tree cover can be transformative.
Potential benefits
- Revising and consideration of the common practice standards: to accommodate the fragmented, small-holder model prevalent in India would unlock the vast potential for carbon sequestration.
- Inclusion of farmers: This would enable a greater number of farmers to participate in carbon finance projects, providing them with additional income streams while contributing to India’s climate goals.
- By acknowledging the fragmented nature of Indian agriculture: carbon credit platforms could design incentives that encourage systematic agroforestry, thereby enhancing both environmental sustainability and rural livelihoods.
Challenges and opportunities in agroforestry
- Addressing Agricultural Challenges: Agroforestry, when integrated with ARR initiatives, offers a viable solution to the various challenges faced by India’s agricultural sector.
- By promoting alternative livelihoods and providing additional income streams for farmers, these projects can help address issues such as low productivity, dependence on monsoons, and environmental degradation.
- The carbon finance provided by ARR projects enables a more systematic and sustained approach to agroforestry, which would otherwise be difficult to achieve given the financial pressures and market constraints faced by many Indian farmers.
- Income Diversification: For farmers grappling with unpredictable weather patterns and fluctuating crop yields, participating in ARR projects presents a pathway to income diversification.
- By integrating trees into their agricultural landscapes or restoring degraded forest areas on their land, farmers can tap into additional revenue streams through carbon sequestration.
- Beyond economic gains, ARR projects deliver crucial environmental benefits, such as enhancing soil fertility, improving water retention, and mitigating erosion, thereby bolstering agricultural productivity and ensuring long-term sustainability.
Help small and marginal farmers
- Successful Initiatives: Research institutes such as The Energy and Resources Institute (TERI) have already demonstrated the potential of ARR projects in India, spearheading 19 projects across seven States, benefiting over 56,600 farmers.
- o However, for such initiatives to scale up, it is imperative that international carbon finance platforms revise their standards to better align with the realities of Indian agriculture.
- Call for Evolving Standards: As India looks to expand its agroforestry sector and leverage the benefits of carbon finance, it is crucial that international standards evolve to reflect the specific conditions of the Indian subcontinent.
- Revising the “Common Practice” guidelines: to be more inclusive of Indian agroforestry practices will enable millions of small and marginal farmers to participate in ARR projects.
- This would not only drive sustainable development but also provide a much-needed boost to the incomes of millions of rural households, ultimately contributing to the overall economic and environmental resilience of the country.
Conclusion
It is imperative that carbon credit platforms such as Verra and Gold Standard recognise the need for India-centric standards. Only then can the full potential of agroforestry and ARR initiatives be realised, creating a brighter, more sustainable, and economically thriving future for India’s farmers.
Editorial 2: Demand flux
Context
Growth dynamics may falter with waning urban consumption.
Introduction
India’s resounding 8.2% GDP growth in 2023-24 came with two worrying portents. The farm sector lost momentum due to an unhelpful monsoon, and private consumption spends rose at less than half the economy’s pace. In fact, the 4% growth in private final consumption expenditure (PFCE) was the weakest since 2002-03, if one excludes 2020-21, when COVID-19 first hit the world.
Factors affecting consumption
- Impact of rural demand: Some of this stemmed from the farm sector’s rain woes that weighed down rural demand.
- Economists flagged a K-shaped consumption pattern: of higher-end goods and services seeing greater offtake than the rest.
- Monsoonal expectations: A normal monsoon would help the farm sector and rural demand rebound, and shore up overall consumption to levels that spur growth as well as hasten an uptick in industrial capacity utilisation rates to thresholds that compel private investors to ramp up.
- Attracting investments: This much-awaited outcome is vital for the virtuous cycle of more investments leading to more jobs and higher consumption to kick in.
What are the early indicators of recovery?
- Growth numbers for the first quarter suggested this story was playing out, with the PFCE rising at a seven-quarter high of 7.4%, outpacing the 6.8% GDP uptick.
- Rural demand signals such as two-wheeler sales also perked up.
- India Ratings reckons that real rural wage growth turned positive in July and is expected to stay positive, aided by cooling inflation. This bodes well for consumption.
Concerns related to urban demand
- Declining urban demand: A twist in this tale may be imminent, with urban demand beginning to show some fatigue.
- S&P Global Ratings: expects India to grow 6.8% this year (lower than the 7.2% rise penned in by the Reserve Bank of India), said high interest rates are tempering urban demand.
- The RBI’s consumer confidence survey: for July shows a turn in the tide, with current and future confidence levels of urban buyers dropping.
- Drop in the sales of automobiles: The Finance Ministry has taken note too, pointing to a dip in passenger vehicle sales through April to August as a barometer of stuttering urban demand.
- Need for monitoring: The trend warrants monitoring, it said, while expressing hope that festive fervour could trigger a course reversal.
Way forward
With wallets crimped by persistently high food inflation (that also clouds rate cut hopes), the ability of urban Indians to create room for discretionary spends through the festive season and beyond would be critical for growth as well as the virtuous private investment cycle.
Conclusion
With global oil prices turning benign, the Centre must consider passing through the reduced costs to consumers, and cut levies embedded into retail fuel prices. A substantive fuel price cut, as opposed to the token two rupees of relief per litre unveiled this March, can support demand in the economy. Thus, addressing food inflation and implementing substantial fuel price cuts are essential for enhancing urban discretionary spending and fostering economic growth.
