Two weeks ago, India’s Supreme Court dismissed Swiss drugmaker Novartis AG’s attempt to win patent protection for its cancer drug Glivec, paving the way for Indian firms to be able to sell affordable versions of the medicine. Shares in Indian pharma majors Cipla and Natco Pharma who sell Glivec at a tenth of the price of Novartis’ branded drugs, have risen around 5% in the subsequent two weeks. It is a case that has huge implications for affordable medicine for hundreds of millions of people across the world.

Novartis’ patent plea was first rejected by the Indian Patent Office, its appeal turned down by the Madras High Court, and then again by the Intellectual Property Appellate Board. Finally, the Supreme Court decision went against it.

‘The Australian’ newspaper proclaimed India’s Supreme Court had put “life before profits”. It gave the example of the 25,000 Indian women a year diagnosed with the HER2+ strain of breast cancer, out of which only 8% are able to receive Swiss pharma giant Roche’s drug Herceptin – the rest simply cannot afford it.

Last year, the Indian government granted Hyderabad-based Natco Pharma a compulsory license to manufacture and sell its generic version of German pharma giant Bayer’s patent-protected cancer medicine Nexavar – so that more Indians could afford it. The generic version is available at less than US$200 for a month’s treatment, while Nexavar costs around US$5,500.

It’s difficult to look at this issue in an objective manner – the opinion on the one hand is that big pharma cares only of profits, and not for the common man; the counter view is that without IP protection especially with drugs that are patent-protected, drugs companies have little incentive to innovate.

Looking at history, it was in 1970 that India eliminated patents on drug products. This enabled India, a country with a relatively large domestic market, to develop a strong generic drug industry. In 1994, India was required to extend patent protection to drugs after negotiations with the World Trade Organisation (WTO). In 2005, India implemented the changes required. In doing so, India limited patents in some areas, such as those on new uses or new formulations of drugs unless they differ greatly in properties related to efficacy (the so-called “evergreening”).

Yet the Euopean Union (EU) is pushing for IP protection that is much stronger than that required by the WTO (remember that Roche, Bayer and others are based in Europe). The EU grants up to 11 years of exclusive rights which require generics companies to reproduce expensive clinical trials if they want to register a version of the drug.

Other developed economies are taking note of India’s approach though – the Sydney Morning Herald outlined concerns that Australian taxpayers were bankrolling the evergreening of drugs, which allowed drug companies to continue charging full price despite only incremental improvements. Australia’s Pharmacutecial Patents Review concluded recently that AUD$200m a year was being spent on evergreening, thereby delaying the introduction of potentially life-saving generics. It gives multiple examples where the Review body considered the taxpayer paying over-the-odds for drugs.

Applying strong EU rules on IP protection would surely damage India, which has a large enough market to stimulate entry by generics manufacturers. But many other developing nations, including Bangladesh, Kenya, South Africa, do not. Indian drug manufacturers are hugely important to global health –  India is the most important source of generic drugs for cancer, heart disease, and other diseases and conditions. Which means the Supreme Court’s decision may be one of huge importance in the years to come as a precedence for other regulatory bodies around the world.

The post The Balance Sheet: Morality wins, profit loses, but what happens to IP? appeared first on Economic Policy Group.

A major new research report by the Henry Jackson Society (HJS), a cross-partisan British think-tank, says that Hindus are under-represented in the media. The reason appears to be a lack of media-trained, articulate and savvy Hindu representatives, as well as a lack of Hindu civic engagement with issues that affect the wider society.

The report “Faith in the Public Sphere” assessed the impact of faith communities on public life by analysing all articles in three major newspapers from across the political spectrum. It identified 3,945 articles in the period 2000-2010 that reported either a request (a call for the government, state, or a public institution to act) or a response (support for, opposition to, or criticism of the government, state, or a public institution or policy) from faith communities.

Christians participated in 67% of these requests and responses (jointly called ‘claims’), Muslims in 31%, Jews 7%, Sikhs 4% and Hindus 3%. Adjusted by the respective populations in Britain, it meant that Jews were the best represented, by a factor of more than two relative to Muslims. Sikhs were nearly three times better represented than Hindus, and Christians were least well represented. However, “in the least active Christian year, its claims were still higher than the total Hindu claims for the decade,” according to report author Hannah Stuart, a Research Fellow at the HJS.

For Hindus, the leading representative was the Hindu Forum of Britain (HFB). It’s former Secretary General, Ramesh Kallidai, was the spokesperson in 18 of the 23 claims attributed to the HFB. More than 50% of all HFB claims were in just one year, 2007, in opposition to the slaughter of Shambo the cow in Wales. Many of the other claims were to do with asking Royal Mail to remove Christmas stamps featuring Hindu deities in 2005. The only other Hindu representative of note was the Welsh temple, Skanda Vale, for whom 22 of 23 claims were reported in 2007 and linked to the Shambo case. By contrast, one individual, Davender Ghai, was cited more times than the Hindu Council UK in the entire period. Ghai had fought a case against Newcastle City Council asking for land to be dedicated for open air pyres for Hindus and Sikhs.

There were almost no Hindu opinions expressed in the media with relation to foreign policy, international aid, community cohesion, discrimination, defence, environment, justice, anti-terrorism, economic policy, employment, family, immigration and abortion. Around 90% of the 109 Hindu claims related to rural affairs (Shambo), public life (Royal Mail stamps), education (almost all multi-faith) and public policy (burial practices). In contrast, 20% of Sikh claims related to employment issues and 5% to abortion, while many of its public life claims related to the hosting of an allegedly dishonourable play hosted at a gurudwara.

According to Hannah Stuart, “Hindu claims were often more specific, and not about wider society and contributions to public policy.” This means that the data showed Hindus were not shaping wider public discussions in the same way as other faith communities. Admittedly, the author used only three newspapers, but they were chosen for the richness of data, and the research itself is a careful and analytical piece of work of the kind that has not been done in Britain before.

These data highlight several possible trends within the Hindu community. One, that Hindus in Britain do not care much about macro issues, but do care about specific, local-only issues. Two, that Hindus are economically the most successful minority in Britain and therefore focus on business, rather than think about civic engagement. Three, that Hindus often lack cohesion to be able to present a single, unified point of view. Four, that Hindus lack a sole representative body – otherwise why would a single-issue temple in Wales be the second-most represented Hindu body in the country over the last decade, given they only appeared in the news in just one year, 2007? Five, that Hindus don’t have many media-trained, articulate and savvy representatives to present the community. Six, that perhaps Hindus have the will to do this, but not the resources.

The last point is an introspective one for community leaders as well as ordinary Hindus – Hindus are willing to donate to temples and build commemorative schools back home in India, but they collectively lack the foresight to do capacity building within their community in Britain. At the report’s launch this month, John Glen MP, said: “most comments were responding reactively to government policy, rather than proactively asserting a point of view and getting Parliament to notice.”

Without the capacity building, and strong media representatives, Hindus may continue to be under-represented. Of course the real question is – if trends one and two above are true, do Hindus feel strongly enough about issues that affect the country to demand this representation?

The post Asian Voice / Gujarat Samachar: New report – Hindu views least represented in media of all major religions appeared first on Economic Policy Group.

The post The Balance Sheet: Indian philanthropy takes a turn appeared first on Economic Policy Group.

You can read the full pdf of the article here and the original web version here.

The post Spear’s Magazine: Philanth-Rupee (featuring interview with EPG) appeared first on Economic Policy Group.

Pratik Dattani explains the difference between SROI and social accounting, and the factors in deciding the best approach

Which impact measurement tool would best suit your charity? Photograph: Catherine Shaw

This article first appeared in The Guardian on 4th March 2013.

According to the NCVO, there are more than 160,000 charities in Britain. Of these, nearly 80% believe that measuring impact makes their organisation more efficient. More than 70% have increased their efforts in measuring results over the past five years. But, according to James Newell, a fundraising consultant and senior associate at Kingston Smith, there are several hundred tools for measurement available. So in order to choose between measurement tools,you need to think about why your organisation wants, or needs, to measure its impact.

Voluntary organisations may want to measure their impact because of bottom-up factors, such as a desire to improve services, or a wish to see what difference the organisation makes to society. These were certainly the most important factors highlighted in New Philanthropy Capital’s(NPC) recent research. But equally, organisations may need to measure their impact as a result of top-down factors, such as funder or trustee requirements. This could be true for organisations more reliant on grant applications.

When you know the reason for measurement, you can work out which method or tool is most suitable.

One possible tool is Social Return on Investment (SROI), which is able to assign a monetary figure for social, environmental and economic benefits minus costs. Tomorrow’s People is an example of an organisation that has used SROI well. They measured the value of all benefits that would occur over a 20-year period, and showed that £1 in costs resulted in up to £2.90 in benefits for society, in net present value terms.

Another tool that can be used is social accounting. This is a more qualitative approach that focuses on tracking outputs over a number of years. It seeks to assess whether an organisation is achieving its aims, and provides ongoing feedback of how performance has changed.

For example, a charity may want to track how the perceived quality of its service has changed over time. It may therefore decide to track whether the emotional wellbeing of its clients has increased after an intervention. If it asks clients via questionnaires and compares the results across different time periods, it can improve the service it delivers, or report progress to trustees.

These are two common approaches to measuring impact. On the spectrum of qualitative and quantitative approaches, SROI counts among the most quantitative. It is qualitative approaches, however, that are often more intuitive and easier to understand.

SROI is often preferred by larger organisations that have the necessary resources to collate the data required. Alternatively, it could be used by smaller organisations for focused projects, where the benefits are tangible and easily measurable. For example, the savings created by reducing the need for social care by providing sheltered housing, or the savings made for government by providing education and training for homeless people.

It works less well for organisations where the benefits are intangible, or not as easily measured. For the Family Rights Group, for example, FTI Consulting found a SROI-ratio ranging from £1 to £48 for every £1 spent. In this particular instance, the analysis was driven by funder requirements. But generally for organisations whose outputs are intangible, such as community or faith-based organisations, social accounting or other qualitative approaches are more useful.

The City Hindus Network (CHN) is a case in point. It is a voluntary body that promotes networking, personal development and charitable activities among young Hindu professionals in London. Its impact is probably best measured through individual success stories and a narrative, whether in tackling mental health issues in the South Asian community, in individual transformative mentoring relationships, or enabling spiritual development. The Anne Frank Trust is similar, in that it seeks to spread positive attitudes and respect. But a narrative and set of individual case studies may convey its impact more powerfully than attempting to quantify it.

Understanding what the objectives for measurement are, and therefore what approaches to measure may be suitable, is important to successfully measuring an organisation’s impact.

This content is brought to you by Guardian Professional. To join the voluntary sector network, click here.

The post The Guardian: The right impact measurement tool depends on the objectives concerned appeared first on Economic Policy Group.

The Indian Parliament is likely to discuss the Real Estate (Regulation and Development) Bill in its upcoming Budget Session. Although the draft Bill has been pending since 2009, if passed as anticipated in 2013, it is likely to inject transparency and accountability into an industry which needs to institutionalise consumer protection.

One key proposal is to create a regulatory authority for the sector in each state. In particular, the proposed Bill will compel development to disclose project details and contractual obligations, and declare the status of the relevant clearances needed. Failure to do so may result in the developer paying a hefty fine of up to 10 per cent of the cost of the project or, worse, prison. The Bill may also introduce an “escrow-lite” facility whereby the developer must hold a high proportion of funds in a particular bank account, to ensure a more accurate money trail. I hope that in the future, the government can also consider allowing retail investors to invest in REITs, but again this proposal has been on the cards for many years.

After the reduction in Reserve Bank of India repo rates in 2001, India’s property market at first grew slowly, and then boomed. But it took until 2005 for average house prices to reach their previous peak of 1996. The next chapter in real estate’s growth, however, needs to address some significant challenges.

One such example that has spooked investors is the announcement last week by the Securities and Exchange Board of India (SEBI) that it could freeze up to $3 billion of real estate assets from the Sahara Group, following the Supreme Court’s agreement with SEBI that Sahara had masked a bond issuance in 2011 as a private placement in order to avoid regulatory scrutiny.

At international property investment firm Unesta’s conference in London last week, Yomesh Rao, its executive director, spoke about the need to sometimes acquire up to 50 permits from various government departments before the construction of a project can begin. On the one hand, the progress of each permit is trackable by potential investors online via http://goidirectory.nic.in, which is a significant improvement for consumers. On the other hand, 50 permits is still a ridiculous figure, and that it can take up to two years to obtain these permits is equally absurd for a market the size of India.

Vikram Goyal, managing director of Unesta – offering India property services, said careful homework by investors can lead to better returns and easier liquidity, especially in urban areas. He added: “A quick survey of the other developments within the vicinity will help evaluate if the area has the real estate potential and also help understand the demand vs supply housing dynamics in the region. It is advantageous if the project has been pre-approved by a reputed lending institution.”

The reasons for investing remain the same as they were in the previous boom in 1995-1997, before the stock market and real estate markets crashed in quick succession – favourable demographics, higher disposable incomes, negative real interest rates, excess demand of land especially in urban areas. But one factor is different this time – the emergence of a more favourable environment for real estate investment, such as the policy change to permit up to 100 per cent foreign direct investment (FDI) in real estate projects.

Overseas investors have invested $14 billion into the Indian real estate sector over the period from 2006 to 2012, according to Alastair Hughes, Asia-Pacific CEO of real estate consultancy firm Jones Lang LeSalle.

Around half of these were invested in residential property and a quarter in offices. Hughes reckons that in 2013-14, there will be foreign investment of $4-5 billion, mainly to buy income-yielding Special Economic Zone assets. This figure could well be an underestimate if much-needed regulatory reforms are pushed through Parliament in pre-election year 2013.

This article was published by India Incorporated here.

The post The Balance Sheet: The next stage of Indian real estate growth appeared first on Economic Policy Group.

A new report looks at how the social innovation movement in Pakistan can become more dynamic. Photograph: Daniel Berehulak/Getty Images

This article first appeared in The Guardian on 7 February 2013.

The social enterprise landscape in Pakistan is nascent but fast-growing. From diverse sectors ranging from dairy farms to educational hubs to micro drip irrigation, early-stage enterprises have the potential of achieving hybrid financial return and social impact. Crucially, they are attracting interest from impact investors and business angels alike.

But how can these entrepreneurs be better financed, nurtured and trained?

Crucially, funding for small enterprises should meet the specific needs of the entrepreneur from seed financing to venture capital to growth equity. Social entrepreneurs need financial, but also non-financial, support such as mentoring, implementation guidance, and skills training development. Business school ‘accelerator’ programs and incubator hubs, which aim to accelerate the development of successful enterprises through such support mechanisms, combined with strong policy frameworks, can help create a long-term, self-sustaining ecosystem.

A report launched today by the Economic Policy Group (EPG) explores how incubator hubs can unlock the innovation potential of Pakistan’s social entrepreneurs.

Successful incubator models already exist in some of Pakistan’s premier business schools. The country’s top business school, the IBA in Karachi, has in fact launched a partnership with Invest2Innovate (i2i), a social impact intermediary, to fast track the best entrepreneurs through its i2i Accelerator, a four-month program providing access to quality entrepreneurship education, skills, and opportunities.

“The IBA-i2i partnership helps start-ups who have passion and ability, but not the resources, to start their own businesses. It is a necessary step for growing and scaling viable businesses in the Pakistani market,” says Kalsoom Lakhani, founder of i2i.

Other independent incubators across Pakistan, such as the Pasha Social Innovation Fund and Women’s Business Incubation Centre, work with entrepreneurs across demographic segments in both rural and urban areas. The rise in popularity of these players is largely due to their ability to harness technology and digital media as communication platforms to empower entrepreneurs.

In the northern areas of Pakistan, where honey is one of the main agricultural commodities, Hashoo Foundation’s Honeybee Project provided women beekeepers with beehives, as well as the associated training programmes to transfer this specialised skill-set to the wider community.

According to the report, there are specific roles that investors, entrepreneurs and policymakers can play to make the social innovation movement in Pakistan more dynamic.

Investors can support the growth of high-potential social enterprises by placing initial seed funding in business school incubators across a predefined growth cycle. According to Lakhani, the enterprises that are incubated within these hubs can become ‘investor ready’ more rapidly, and capital can be directed more effectively.

In addition, entrepreneurs or innovators can finesse their own hubs by exploring business school incubators in other countries. The report showcases one of India’s top business schools, the Indian Institute of Management in Ahmedabad (IIMA), which, with the help of its alumni pool, has created an entrepreneurship fund, in conjunction with the government, for graduating students to provide seed funding of up to £35,000. The incubator delivers an initial salary to entrepreneurs to allow for a steady student loan payoff and a clause in the funding agreement stipulates payback within a particular timeframe if the venture starts making profit.

Similarly, Pakistan’s social entrepreneurs can pitch for non-financial resources to fill employee skills gaps and shortages in their enterprises. Examples include business development services, financial literacy programmes, technology advice and mentoring, alongside access to networks and markets. We’ve seen that often, the most important factor for success is not funding, but the free coaching and mentoring, particularly for ventures in rural areas or those started by women.

Lastly, policymakers need to take an interest in supporting incubator hubs for social enterprises in Pakistan. A Social Innovation Coalition such as that proposed by the report, and comparable to the UK’s own Big Society, could be implemented, consisting of interlinked units such as stakeholder dialogue, a social investment fund, an innovation lab and cross-border entrepreneurship modelling.

By leveraging public private partnerships, as well as alliances with government units such as the Pakistan Innovation Board and the Competitiveness Support Fund, multiple players can be aligned to drive social innovation forward in Pakistan.

According to Dr Iman Bibars, regional director of Ashoka Arab World, “creating awareness for the potential of entrepreneurship among policymakers, relevant institutions and the public at large is essential to help establish an enabling environment that social entrepreneurs can flourish in.”

On a macro level, the investment in human talent and institutions will raise both investor confidence and entrepreneurial confidence in the country. By changing minsets through incubator hubs, education, mentoring and training programmes, a strong enabling environment for social entrepreneurship can be fostered in Pakistan.

Pratik Dattani is Managing Director and Priya Shah is a Consultant at EPG. EPG’s new report ‘Social entrepreneurship in Pakistan: Unlocking innovation through enterprise incubation’ was launched on 7 February 2013. You can read the press release here.

This article first appeared in The Guardian on 7 February 2013. This content is brought to you by Guardian Professional. To join the social enterprise network, click here.

Versions of this article also appeared in Asian Voice, Eastern Eye and The Samosa.

The post The Guardian: Pakistan’s social entrepreneurs eager to unlock innovation potential appeared first on Economic Policy Group.

Speaker panel at the report at Allen & Overy in London: (left to right) Dylan Matthews, Senior Associate, Allen & Overy; Dr Iman Bibars, Regional Director, Ashoka Arab World; Suniya Qureshi, Executive Director, British Pakistan Foundation; Priya Shah, Consultant and Lead Author, EPG; Ali Akbar, Pakistan Country Director, Hashoo Foundation

LONDON - The Economic Policy Group (EPG) and i-genius launch a report entitled Social Enterprise in Pakistan: Unlocking Innovation Through Enterprise Incubation. The report says business schools in Pakistan can offer huge growth potential in delivering hybrid financial return and social impact to investors, and help create a sustainable ecosystem for social entrepreneurs in Pakistan.

The breakthrough report, written by Priya Shah and Shailabh Shubhisham, provides a macro perspective for the first time to the business education sector in Pakistan. It explores how incubator hubs can harness the potential of young entrepreneurs.  It sets out the potential for the education and business sectors in Pakistan to step forward and create a “social innovation coalition” framework in which social enterprises are nurtured and given support to succeed.

The report also examines how both public and private sectors in Pakistan can maximise the opportunities in the nascent social enterprise sector. It promotes innovative social businesses as effective means to address skills shortage, employment and vocational training issues in the business education sector.

Priya Shah said: “We studied a comparative Indian business school case study using value chain analysis to help demonstrate how research and development, infrastructure and policy frameworks can be used to change the macroeconomic environment.”  Managing Director of EPG, Pratik Dattani added: “By creating an ecosystem where social entrepreneurs thrive, Pakistan’s policy makers can address community needs, and investors can achieve financial returns.”

At the launch event this morning attended by over 100 policy makers, social entrepreneurs, educational heads and investors, Asif Rangoonwala, Chairman of the British Pakistan Foundation added, “Many people are waking up to the potential in Pakistan. This is a very important report because it provides a clear and practical route to how various parts of Pakistani society can be brought together to help generate change.”

i-genius is using the report as a basis for its trade tour to Pakistan later this year which will connect social entrepreneurs in Pakistan with those from other countries. i-genius’ Founder, Tommy Hutchinson, who closed this morning’s briefing said, “Business schools can play a unique role in laying the foundation for sustainable growth in Pakistan. The report illustrates how the incubation of social enterprises can enable them and all stakeholders to discover on a step-by-step basis what works, and what does not.”

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Download the report

Social entrepreneurship in Pakistan: Unlocking innovation through enterprise incubation - pdf, 879.26 kB

Download the speaker presentations

• Presentation - Ali Akbar, Country Director, Hashoo Foundation - pptx, 2.4 MB
• Presentation - Dr Iman Bibars, Regional Director, Ashoka Arab World - pptx, 6.23 MB
• Presentation - Priya Shah, Consultant, EPG - pptx, 421.04 kB
• Presentation, Executive Director, British Pakistan Foundation - ppt, 382 kB

Photos

• Photo of Lead Author and Consultant of EPG Priya Shah here.
• Photo of Managing Director of EPG Pratik Dattani here.
• Full more photos visit the i-genius Facebook page.

Press articles

Videos of the event

Parts 1-2

Parts 3-4

Part 5

About the Economic Policy Group (EPG)

About i-genius

i-genius is a world community of social entrepreneurs with members in over 200 countries and focused on early stage businesses. Based in London. For more information about the study tour, contact team@i-genius.org

Contact

• Pratik Dattani, Managing Director of EPG, at pdattani@economicpolicygroup.com.

The post PRESS RELEASE: The Future for Pakistan: Incubating Social Enterprises in Business Schools appeared first on Economic Policy Group.

We expect over 100 guests to attend this breakfast seminar including Pakistani public policy officials, venture capital and impact investors, foundations and philanthropists, as well as UK and South Asian media.

You can download the report at the bottom of this page.

Details of the launch

Location: Allen & Overy LLP, One Bishops Square, London, E1 6AD.

Time: 8-10am. Tea/coffee and breakfast will be provided.

Format: Overview of report, panel discussion, followed by Q&A.

RSVP: If you would like to attend, please email admin@economicpolicygroup.com with your Name, Position and Organisation.

Panellists

The panel discussing the report will include:

• Priya Shah: Lead author of the report and Consultant at EPG;
• Dr Iman Bibars: Regional Director of Ashoka Arab World, co-founder and chair of Association for the Development and Enhancement of Women (ADEW);
• Suniya Qureshi: Executive Director of British Pakistan Foundation;
• Ali Akbar: Pakistan Country Director at Hashoo Foundation and former Head of Programme Management at Big Lottery Fund; and
• Tommy Hutchison: Founder and CEO of i-genius, Visiting Fellow at Liverpool Hope University, Advisor to Hunan University.

Additional resources

We have published several articles on social entrepreneurship, innovation and impact measurement in South Asia:

The post REPORT LAUNCH: Social enterprise in Pakistan: Unlocking innovation through enterprise incubation (8am, 07 February 2013) appeared first on Economic Policy Group.

In my last article, I wrote about how India was living beyond its means, but how this could be said of many other countries too. I argued part of the problem was political gridlock, as well as the 2.5% of GDP handed out in mainly food and fuel state subsidies. As fiscal deficits persist, India’s policymakers have been pushed to take measures to reduce deficits by cutting the hugely inefficient fuel subsidies. Just this week, the Finance Ministry asked the Petroleum Ministry to price motor and kitchen fuels to facilitate a substantial subsidy cut.

India paid Rs 81,000 crore (US$18 billion) in fuel subsidies for year 2010-11, with the majority made up of under-recovery of revenues from government and upstream oil companies. The direct cash subsidies made up only Rs 3,000 crore (US$637 million). In 2011-12, the combined level of subsidies to fuel, fertilizer and food increased by nearly 27%. Despite talk about reducing subsidies, by late July 2012, most of the budget allocated for fuel subsidies had been spent seven months into the year, before the fuel subsidy was cut in September. The three state-run fuel retailers suffered losses in 2012 that were four times that of the previous year.

Political influence, coalition politics and public anger form a nexus that discourages the establishment of a pricing mechanism that can reflect market prices in the prices that are charged to consumers.

There are good economic arguments for doing so. One is to improve India’s fiscal position, in the face of the very real threat of a ratings downgrade, which would make financing India’s existing debt more expensive. Freezing prices when world prices increase, like in India and China in 2010-11 simply mean the need for steeper increases in the future. It would reduce perverse incentives that has led 70% of cars sold in India to be diesel-powered vehicles (40% of India’s fuel subsidies are for diesel). Given that diesel is more polluting than petrol, this would increase energy efficiency and reduce pollution levels. Finally, corruption in selling fuel on the black market for inflated prices would dramatically decrease.

In practice, it’s not so easy. Raising fuel prices is a delicate matter. Diesel, in particular, is the poor man’s fuel and reduced subsidies on this would hit the poorest hardest. Rajiv Pratap reddy, a leader in the opposition BJP party, announced last year that cutting the subsidy amounted to “financial terror.” A weak rupee has meant higher import prices for fuel, which has merely widened the fiscal safety net required. Although cutting subsidies drives up inflation in the short-term, it also cuts the fiscal deficit (a structural driver of inflation), meaning inflation should fall in the longer term.

But removing subsidies that have led to inefficient resource allocations for too many years too quickly means, in effect, a massive income transfer from all strata of Indian society to the government. This should be offset by other government transfers to the strata of society that require them most – the Aadhar-based cash transfer scheme. The national government could study the case of Gujarat, which consistently increases energy tariffs by 3% a year and where the energy suppliers are profitable and more efficient.

Combining these cash transfers with localised educational and practical schemes to support households move to cleaner fuel sources could save the government money, make India’s economy function more efficiently, and create a considerable positive social impact.

This article was published by India Incorporated here.

The post The Balance Sheet: India’s own fiscal cliff – Fuel subsidies appeared first on Economic Policy Group.