Rewind. Financial capitalism versus natural capitalism

In almost every major issue we witness today, it is the consequence of financial capitalism hitting against natural capitalism. Richard Mattison, CEO of Trucost, is trying to put a value to natural resources, which would enable governments, companies and other stakeholders better evaluate the environmental impact of consumptive growth.

A case in point is the court-ordered shifting of the IPL cricket matches out of Maharashtra, because it hit the wall of natural capital in the form of a major shortage of water in the State.

Shifting of the IPL matches due to excessive water consumption controversy is, as pointed out by Vivek Paul, a red herring.

The real problem is that Maharashtra, among Indian States, is ranked second for sugar consumption in India, and this is for purely political reasons, and not economic.

It takes 2,100 litres of water to produce 1 kg of sugar in Maharashtra, versus 882 litres in Bihar. So the six million litres of water to be used for all IPL matches would produce three tonnes of sugar.

Sugarcane is grown on less than 4 per cent of the cultivable land in Maharashtra, but consumes 70 per cent of the water. A responsible government would consider the State’s agricultural policy, since agriculture is a State subject, and view it in the context of perennial water scarcity. Sugar is the most perversely controlled industry.

Similarly, China's economy grew rapidly, as spending on infrastructure, propelled by cheap money, spurred it. Infrastructure spending accounts for nearly 50 per cent of GDP, a totally unsustainable and insane figure. China has used more cement in three years (2011-13), than the US did in the entire 20{+t}{+h} century. As a result, it has empty towns, called ghost towns, and unused roads running through them, a total misuse of capital.

To feed the construction boom, it set up steel making capacity of 1.16 billion tonnes, which now exceeds fallen demand by over 250 million tonnes. This, in turn, has impacted other players, such as Tata Steel in the UK. So the UK, and other countries, have imposed an anti-dumping duty on Chinese steel. Recently, China imposed a 46 per cent import duty on high-end steel from the EU, South Korea and Japan.

We see the clash of financial capitalism versus natural capitalism in the case of Peabody Energy also, which last week filed for bankruptcy protection to reorganise itself. It is the largest private sector coal company in the world (Coal India, which produces more, is majority owned by the government). It has been hit by stricter environmental laws on coal, combined with availability of cleaner natural gas and the collapse of coal prices after Chinese demand evaporated. Metallurgical coal prices have fallen 75 per cent since their 2011 peak.

Coal, though, accounts for 40 per cent of the energy produced in the world will continue to remain important in the medium term. Renewable energy will take time to replace coal-fired plants. , and Peabody is seeking protection until it manages to restructure itself. India’s story looks good and foreign investors will return.

Besides this, institutions like LIC plan to invest ₹2.7 lakh crore in capital markets (equity plus debt) this year. India’s main problem will be to create jobs and it is heartening to read that the development of coastal waterways can help create 10 million jobs.

If Indian policymakers govern sensibly, with consideration for economic growth to create jobs while looking after our natural capital, and if they can ensure that the law will prevail and defaulters severely punished, the India story will be attractive and the market will rise. It’s all about good governance.

The writer is India Head, Euromoney Conferences

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