By Abhisht Chaturvedi India's recent decision to allow 100% foreign direct investment (FDI) in the space sector marks a significant milestone in the country's quest for space exploration and commercialization. The proposed FDI Space Policy, with its clear guidelines and thresholds, is likely to spur a wave of innovation, collaboration, and growth in the Indian space industry. India's decision to liberalize the space sector and open it up to 100% FDI presents a host of opportunities for both domestic and foreign stakeholders. By attracting foreign investment and expertise, India can accelerate the pace of innovation, expand its industrial base, and strengthen its position in the global space market. Foreign collaboration can bring in advanced technologies, best practices, and access to new markets, driving efficiency, competitiveness, and growth in the Indian space industry. It can also facilitate technology transfer, skill enhancement, and knowledge exchange, empowering local businesses (especially for component sourcing) and workforce. Under the new policy framework, various activities within the space sector have been categorized, each with its own FDI thresholds and entry routes. Opportunities in Specific Product Segments Satellites: Manufacturing & Operation, Satellite Data Products, and Ground Segment & User Segment The FDI threshold for activities related to satellites, including manufacturing, operation, satellite data products, and ground segment & user segment, is set at up to 74% under the automatic route. This means that foreign investors can directly invest up to 74% in these activities without requiring prior approval from the government. Beyond 74% (up to 100%), approval will be needed through the government route. This provision opens up avenues for collaboration and investment in satellite technology, data analytics, and ground infrastructure with companies in the US (such as Tesla) and other global players. It paves the way for the development of advanced satellite systems, enhanced data services, and improved connectivity, which are crucial for applications ranging from telecommunication and navigation to weather forecasting and disaster management. Launch Vehicles and Associated Systems or Subsystems, Creation of Spaceports For activities related to launch vehicles, associated systems or subsystems, and the creation of spaceports, the FDI threshold is set at up to 49% under the automatic route. Beyond 49% (up to 100%), approval will be required through the government route. This provision encourages investment in launch vehicle technology, infrastructure development, and spaceport facilities. It presents opportunities for collaboration in the design, manufacturing, and operation of launch systems, enabling India to enhance its capabilities in space transportation and satellite deployment. Manufacturing of Components and Systems/Sub-systems for Satellites, Ground Segment, and User Segment The FDI threshold for manufacturing components and systems/sub-systems for satellites, ground segment, and user segment activities is set at up to 100% under the automatic route. This means that foreign investors can fully own and operate businesses engaged in the manufacturing of key components and systems essential for satellite operations and ground infrastructure. This provision promotes investment in high-tech manufacturing facilities, research and development initiatives, and skill development programs. It fosters the growth of a robust ecosystem of suppliers and service providers, supporting India's ambition to become a global hub for satellite manufacturing and technology development. Potential Risks and Pitfalls However, while the liberalization of the space sector presents immense opportunities, it also poses certain challenges and considerations that need to be addressed. These include issues related to national security, intellectual property rights, technology transfer, and regulatory compliance. There is still no clear protocol to identify which technology counts as “dual use” i.e. can both have commercial application and pose a military threat. Our discussions with leaders in the space industry suggest that the lack of such a protocol stifles progress leads to bureaucratic roadblocks. India must ensure that adequate safeguards and mechanisms are in place to protect its strategic interests, safeguard sensitive technologies, and maintain sovereignty over its space assets. It must also establish clear guidelines, regulations, and oversight mechanisms to govern foreign investment and ensure compliance with international standards and obligations. Conclusion India's decision to allow 100% FDI in the space sector under the proposed FDI Space Policy heralds a new era of collaboration, innovation, and growth in the Indian space industry. By embracing foreign investment and fostering strategic partnerships, India can unlock the full potential of its space sector, propel technological advancements, and emerge as a global leader in space exploration and commercialization. As India embarks on this transformative journey, the world eagerly anticipates the remarkable achievements and contributions that lie ahead. Abhisht is a Research Analyst at Insights International. His research interests include tech policy, media, and communications.

By Abhisht Chaturvedi Elon Musk, CEO of Tesla, has been in conversation with the Government of India to enter the Indian market with the recent announcement of Tesla's plans to manufacture electronic vehicles in the country. This strategic move follows the Indian Government's decision to impose a 15% import duty electric vehicles down from a 100% tariff, with a requirement of sourcing 50% of the components from local sources. While Musk's announcement has stirred excitement among Tesla enthusiasts, it has also triggered apprehensions among existing automobile manufacturers in India. The Indian Government's decision to levy a 15% import duty on electric vehicles reflects its broader agenda of promoting domestic manufacturing and fostering the growth of the electric vehicle ecosystem in India. By encouraging local production, the government aims to create jobs, stimulate economic growth, and reduce dependence on imported goods. Tesla's decision to set up manufacturing operations in India aligns with these objectives and signals its commitment to the Indian market. The Indian automotive industry, renowned for its resilience and adaptability, now finds itself at a crossroads as Tesla prepares to make its mark on Indian soil. With a commitment of $2 billion towards its Indian operations, Tesla's entry signifies a significant investment in the country's burgeoning electric vehicle sector. The company is reportedly exploring various locations, including Gujarat and Maharashtra, for the establishment of its manufacturing plant. However, Tesla's foray into India hasn't been met with universal acclaim. Established automobile companies in India are grappling with the prospect of increased competition and disruption within the industry. Tesla's reputation for cutting-edge technology and sleek design poses a formidable challenge to traditional automakers, who now face the daunting task of defending their market share amidst Tesla's entry. Tesla's entry into India has the potential to accelerate the adoption of electric vehicles and drive innovation in the automotive sector. With its state-of-the-art technology and global brand appeal, Tesla could catalyze a shift towards sustainable mobility in India, contributing to efforts to mitigate climate change and reduce pollution. Moreover, Tesla's presence could stimulate competition and incentivize existing automakers to invest in research and development, ultimately benefiting consumers with advanced technologies and improved products. However, Tesla's success in India is not guaranteed, and the company faces several challenges as it navigates the complexities of the Indian market. Infrastructure limitations, including inadequate charging infrastructure and logistics challenges, pose significant hurdles to the widespread adoption of electric vehicles in India. Moreover, Tesla must navigate regulatory and bureaucratic hurdles to ensure smooth operations and compliance with local laws and regulations. Despite these challenges, Tesla's entry into the Indian market represents a significant milestone in the country's journey towards sustainable mobility. It offers an opportunity for collaboration and partnership between Tesla and existing players in the Indian automotive industry, fostering innovation and driving growth. As India embraces the electric vehicle revolution, the stage is set for a transformative shift in the automotive landscape, with Tesla leading the charge towards a greener and more sustainable future. Tesla is also reportedly in talks with Reliance Industries Limited (RIL) to form a joint venture to set up a manufacturing facility in the country. However, as per experts, the move shouldn’t be taken as Reliance’s entry into the automobile space. RIL’s objective in the joint venture is to create capacities for electric vehicles in India. While the role of RIL hasn’t been crystalised yet, it is expected that the Indian conglomerate may play a significant hand in establishing the manufacturing facility and the allied ecosystem for Tesla in India. Partnering with high capability Indian organizations, seems to be a viable way forward for foreign organizations to navigate the Indian markets as it provides a reliable partner with domestic knowhow. We expect such joint ventures to accelerate as more companies plan their entry into the Indian markets. About the Author: Abhisht is a Research Analyst at Insights International. His research interests include tech policy, media, and communications.

By Abhisht Chaturvedi India's strategic initiative to establish a domestic semiconductor industry represents a significant shift in its technological and economic policy, with the government approved a substantial investment of 1.26 trillion rupees (approximately $15.2 billion USD, with 1 USD = 83.3 INR). This move is aimed at reducing dependency on semiconductor imports, notably from China, and fostering an indigenous manufacturing ecosystem will come with a substantial government subsidy (nearly half of the invested value). The hope is that this subsidy will place India on a strong footing in the global semi-conductor supply chain in particular and global technology supply chains in general. The plan includes setting up three semiconductor chip-making plants and to inaugurate them by July-August, 2024. The largest of these, a collaboration between Tata and Taiwan's Powerchip, will see a combined private and public investment of 910 billion rupees (approximately $10.92 billion USD) in Gujarat's Dholera. Furthermore, CG Power will partner with Japan's Renesas Electronics Corp and Thailand's Stars Microelectronics to establish a 76 billion rupees (approximately $912 million USD) chip packaging plant, also in Gujarat. The third facility, with a combined investment of 270 billion rupees (approximately $3.24 billion USD), will be a chip packaging plant set up in Assam by Tata Semiconductor Assembly and Test Pvt Ltd. Economic Implications Indian Electronics Minister Ashwini Vaishnaw indicated that construction for these plants would start between June to August 2023, focusing on sectors like defense, electronic automobiles, and telecommunications. This development is not just an economic endeavor but a testament to India's aspirations for technological self-reliance and enhanced economic security. Yet there are other direct and indirect economic benefits involved. The semiconductor industry is labor-intensive, requiring a vast array of skilled labor. Thus, establishing local manufacturing will likely spur job creation across various sectors, including engineering, manufacturing, research, and development. This job growth extends beyond the immediate semiconductor industry, potentially benefiting ancillary sectors such as logistics, construction, and services. Moreover, the need for a sophisticated semiconductor manufacturing base will drive substantial investments in research and development, fostering an environment ripe for innovation and technological advancement. This could not only spur the growth of India's broader technology ecosystem but also facilitate knowledge transfer and collaboration with global semiconductor powerhouses. A thriving semiconductor industry could significantly contribute to India's GDP growth, enhancing manufacturing output, stimulating domestic demand for electronic products, and reducing import dependency. The industry's expansion might attract foreign direct investment (FDI), bolstering India's position in the global electronics market and contributing to overall economic resilience. From a supply chain perspective, localizing semiconductor production aims to diversify India's supply chain, reducing economic vulnerabilities associated with import dependencies and enhancing national economic stability. This strategic shift could shield the country from global supply chain disruptions, as witnessed during the COVID-19 pandemic, which highlighted the risks of heavy reliance on semiconductor imports. In Comparative Terms Comparing India's efforts with those of established players like the United States, South Korea, and China provides a broader perspective on its ambitions. The U.S. has a mature semiconductor industry, supported by government funding and a focus on innovation, while South Korea's government-backed policies have fostered a robust semiconductor ecosystem. China, on the other hand, has aggressively pursued semiconductor self-sufficiency through substantial state investments and technology acquisitions. India's venture into semiconductor manufacturing, though in its infancy, is critical for its strategic and economic aspirations. Unlike the established semiconductor markets, India faces challenges such as infrastructure development, skill shortages, and funding needs. However, the strategic significance of this initiative lies in its potential to bolster national security, support strategic industries, and enhance technological sovereignty. Moreover, India's semiconductor initiative can be seen as a move to mitigate geopolitical risks associated with over-reliance on foreign technology and supply chains. The global semiconductor supply chain is highly concentrated, with major manufacturing hubs located in geopolitically sensitive regions. By developing its semiconductor industry, India seeks to reduce its vulnerability to international tensions and supply chain disruptions. Moreover, this initiative aligns with India's broader economic and strategic goals, such as the "Make in India" campaign, aimed at transforming India into a global manufacturing hub. It also reflects a strategic calculus to balance economic growth with national security concerns, ensuring a stable supply of critical components for key sectors like defense, telecommunications, and healthcare. Conclusion Realizing the vision of a self-reliant semiconductor industry requires navigating complex challenges, including aligning policy frameworks, ensuring sustained investment, and developing the necessary infrastructure and skilled workforce. It also requires careful management of international relations, as building a domestic semiconductor industry might affect trade dynamics and necessitate negotiations over technology transfers and intellectual property rights. India's efforts to build a semiconductor industry are not merely economic; they are a strategic imperative to enhance technological independence and sectoral resilience. The initiative represents a long-term vision to position India as a significant player in the global semiconductor market, aligning with its broader economic and strategic objectives. The success of this initiative could redefine India's economic trajectory and enhance its standing in the global technological landscape, making it a pivotal moment in India's economic and technological history. About the Author: Abhisht is a Research Analyst at Insights International. His research interests include tech policy, media, and communications.

Author: Abhisht Chaturvedi, Research Analyst, Insights International On March 1, 2024, The Ministry of Electronics & Information Technology (hereafter referred to as the Ministry), Government of India, issued an Advisory for Big Tech Firms like Google, Adobe, etc., which are working on their AI, not on startup firms. All those firms that want to put out their AI in the public domain first should seek permission from the government. Additionally, if a firm wants to release its AI in the public domain while it is still in the underdeveloped stage, it should include a disclaimer stating that the AI is still under development and may not be fully reliable. However, these two advisories have sparked discontent among many firms working on their AI, who believe that this could be a significant obstacle for India to compete on the global stage in terms of tech. Challenges Faced by Big & Small Tech Firms due to Government Regulations While the advisory aims to prevent malpractice in AI, for big tech firms, these advisories may pose logistical challenges and regulatory burdens. The process of obtaining government permission could be time-consuming and bureaucratic, potentially delaying product launches and hindering innovation. For big tech firms, the requirement to seek government permission before deploying underdeveloped AI solutions and the mandate to include a disclaimer about the AI's unreliability could have significant financial implications. The permission process may introduce bureaucratic delays and administrative costs, potentially affecting investment decisions and project timelines. Furthermore, these regulatory advisories may discourage small firms from making significant advancements in the future. The stringent regulatory requirements could create barriers to entry, making it challenging for small firms to compete with established player. Additionally, concerns about the market acceptance of underdeveloped AI solutions may impact the financial viability of AI projects, leading to cautious investment strategies in India's evolving tech landscape. Moreover, concerns about compliance and market acceptance may deter small firms from investing in AI research and development, limiting their ability to innovate and make breakthroughs in the future. For small tech firms, navigating these regulatory requirements could pose challenges. The process of seeking government permission and adhering to disclaimer mandates may seem daunting, particularly with limited resources and expertise. Moreover, the stigma associated with underdeveloped AI may deter potential users and investors, impacting the firm's growth and viability. Benefits and Challenges of AI Disclaimers in Ensuring Credibility and Transparency As for the disclaimer requirements, they may raise concerns about the credibility and market acceptance of underdeveloped AI solutions. However, the disclaimers could benefit the public as well as AI developers themselves. There have been cases where machine learning and large language models instead of getting trained on human produced data, also inadvertently feed on to AI generated data. This can cause distortions and discrepancies that can grow substantially and make the models erroneous and even make them hallucinate more. A label that clearly spells out that an output is AI generated could go a long way in not only helping the public in discriminating between AI generated and human generated data/outputs but also other AI developers as well. Current Situation and Future Directions In response to criticism from both local and global entrepreneurs and investors. The Ministry of Electronics and IT released an updated version of the advisory on March 15, which no longer mandates government approval before launching or deploying AI models in the South Asian market. Instead, firms are advised to label under-tested and unreliable AI models to inform users about potential fallibility or unreliability. The ministry stated earlier this month that while the advisory is not legally binding, it serves as an indication of the future direction of regulation, with government compliance expected. The advisory underscores that AI models must not be utilized to disseminate unlawful content as per Indian law, and should not condone bias, discrimination, or threats to the integrity of the electoral process. Intermediaries are also encouraged to employ "consent popups" or similar mechanisms to transparently notify users about the potential unreliability of AI-generated output. The ministry maintains its focus on ensuring the easy identification of deepfakes and misinformation, advising intermediaries to label or embed content with distinct metadata or identifiers. However, it has removed the requirement for firms to develop a method for identifying the "originator" of specific messages. Despite these challenges, there are avenues for small tech firms to thrive amidst regulatory constraints. By leveraging agile development practices and focusing on iterative improvements, these firms can demonstrate their commitment to addressing AI's developmental challenges. Additionally, fostering open communication with users about the AI's limitations can help build trust and manage expectations effectively. Eventually, it is imperative for the Ministry and top forms to consult with each other and more importantly, it is important for the Ministry to consult with smaller firms because they hold the potential to grow in the future. The effort should be to reach a common ground to ensure that regulation does not impede India's journey to the global stage in terms of technology and doesn't compromise the reliability of AI for People. About the Author: Abhisht is a Research Analyst at Insights International. His research interests include tech policy, media, and communications.

By Jay Makhijani Less than 25% of Micro, Small and Medium Enterprises (MSMEs) have access to credit in India. The credit gap for MSMEs is estimated at INR 20-25 trillion. MSMEs account for nearly 27% of India’s GDP. On average, the MSME sector comprises approximately 36 million units, providing employment to about 80 million individuals. MSME-related products constitute a significant portion of India’s exports. During 2021-2022 (April-September), they accounted for 45.8% of overall exports. Traditional lending models, geared towards long-term commitments and stringent eligibility criteria, often leave out a significant portion of businesses, particularly those without stable incomes. This disparity in access to credit stifles growth and innovation within the MSME sector. The Open Credit Enablement Network (OCEN) attempts to fill this gap by allowing lenders to access data on MSME firms that enables them to offer short tenure and small ticket loans. The recently launched OCEN 4.0 platform introduces a promising shift in MSME lending. By leveraging technology and innovative financial instruments, Open 4.0 aims to democratize access to credit, particularly for the 85% of MSMEs currently underserved by traditional lenders. OCEN 4.0 provides an API (Application Programming Interface) framework that serves as a standardized platform for lenders and borrowers to connect and transact. With the integration of account aggregator frameworks, Open 4.0 empowers lenders with comprehensive, high-provenance data. This allows for better risk assessment and enables cash flow-based lending, unlocking access to credit for previously underserved MSMEs. OCEN, through its API framework, simplifies the process for borrowers to access credit. Borrowers can use the platform to apply for loans, receive credit offers, and interact with multiple lenders seamlessly. This increased accessibility can be particularly beneficial for individuals and businesses that may have had limited access to credit in the past. Further, this platform, incorporates real-time reporting mechanisms, reducing regulatory compliance burdens for lenders. This ensures adherence to guidelines while fostering a conducive environment for innovation and growth. Moreover, in many such platforms, just the creation of a meeting space for lenders and borrowers is not enough. Someone playing the role of a connector or a catalyst is usually desirable. Therefore, OCEN 4.0 introduces the concept of borrower agents, streamlining the lending process and fostering relationships between borrowers and lenders. These agents act as intermediaries, facilitating loan applications, verifying borrower information, and expediting the approval process. By reducing administrative burdens and enhancing transparency, borrower agents play a crucial role in improving access to credit for MSMEs. Potential Risks and Mitigation Strategies Implementing OCEN 4.0 entails various risks, but proactive risk mitigation strategies can help address these challenges effectively. One significant risk is related to data security and privacy concerns arising from the extensive collection and sharing of sensitive financial information within the OCEN ecosystem. To address this, robust encryption protocols and data protection measures must be implemented, along with regular security audits and compliance with relevant data protection regulations. Additionally, operational challenges and infrastructure readiness pose a risk, particularly in areas with limited digital infrastructure and connectivity. Investing in expanding digital infrastructure, providing training on digital literacy, and developing offline capabilities can help overcome these challenges. Credit risk and default management are also critical considerations, given the inherent volatility of MSME lending. Implementing robust credit risk assessment models, diversifying lending portfolios, and offering financial literacy programs to MSMEs can help mitigate these risks. Furthermore, regulatory compliance and legal risks must be carefully managed to avoid fines, penalties, and reputational damage. This involves staying updated on regulatory changes, establishing compliance frameworks, and fostering dialogue with regulatory authorities. Market concentration and competition risks refer to the possibility of a few large players gaining significant control or dominance within the OCEN ecosystem. In such a scenario, these dominant players may have the power to influence market dynamics, potentially limiting competition and choices available to borrowers. This concentration of power could lead to less favorable terms for borrowers and hinder the development of a diverse and competitive lending landscape within the OCEN framework. To mitigate these risks, regulatory interventions are crucial. Regulatory bodies can enact policies and regulations that promote fair competition within the OCEN ecosystem. These regulations may include measures to prevent anti-competitive practices, ensure transparency in lending processes, and promote equal access to lending opportunities for all players, regardless of their size or market presence. Furthermore, collaboration among stakeholders is essential to foster innovation and diversity within the OCEN ecosystem. By encouraging collaboration between large financial institutions, fintech startups, and other players, stakeholders can pool their resources, expertise, and ideas to develop innovative lending solutions that cater to the diverse needs of MSMEs and borrowers. This collaborative approach can help create a more inclusive and competitive lending environment, where borrowers have access to a wide range of lending options and services. Support for alternative lending models is also critical in mitigating market concentration and competition risks. Alternative lending models, such as peer-to-peer lending platforms and community-based lending initiatives, can provide additional options for borrowers, reduce reliance on traditional financial institutions, and promote healthy competition within the OCEN ecosystem. By providing support and incentives for the development and adoption of these alternative lending models, stakeholders can help diversify the lending landscape and reduce the risk of market concentration. The role and active consultations with the Reserve Bank of India and the Finance Ministry would be crucial here to foster easier credit access to the MSME sector. About the Author: Jay Makhijani is a Program Manager at Insights International with a focus on finance, tech, and inclusion policies.

2023, so far seems to be promising for India, taking over the presidency of the G20 seems to be a year of tremendous opportunity, especially for the developing world to see international cooperation across multilateral forums. Read our Mid-Review and Outlook 2023 to asses and make sense of 2023 so far - and to know what to expect in the world of geopolitics and public policy for the remaining of the year!

by Jay Makhijani and Mansi Bahl Background ESG, or Environmental, Social and Governance is one of the core essentials of any business today. It is formulated out of the United Nations’s sustainable development goals and hopes to make the world shift to more sustainable forms of living. Though ESG has showcased importance for a long time it was earlier ignored as the business world did not take the field seriously, however it is now gaining significant momentum as countries worldwide are trying to live up to the promises they have made during COP27 and the Paris Agreement to shift to more sustainable forms of energy. Therefore, countries are implementing stricter regulations in the field of ESG and also giving concessions to companies that comply with the regulations. Hence, ESG is beginning to impact the business world in a way that no one had foresighted. Forms of ESG Reporting In order to report their ESG data organizations use many different frameworks some of the popular frameworks are the Carbon Disclosure Project which is primarily based in India, China, the UK, Japan, Germany, Brazil, and the USA and focuses on issues of water, forests and climate change and is popularly used in India by companies like Tata Steel. Other popular frameworks include Global Real Estate Sustainability Benchmark (GRESB), Global Reporting Initiative (GRI) and the Task Force on Climate-related Financial Disclosures (TCFD) companies have become attentive towards their consumer needs and satisfying the growing demand of the stakeholders and investors which align best with the business's goals and SDGs.The Global Reporting Initiative (GRI) is largely accepted by Indian businesses to support their global presence. Major ESG Regulations in India ESG reporting in India officially started in 2009 with the Ministry of Corporate Affairs issuing voluntary guidelines for Corporate Social Responsibility. The Securities and Exchange Board of India (SEBI) has been a major driving force in implementing ESG regulations in India. It issued guidelines for mutual funds to integrate ESG practices in their investments in 2018. The Reserve Bank of India has been taking similar steps in the banking domain with creating a mandate for Banks to conduct Environment and Social Impact Assessments for all new projects, to ensure ESG principles are integrated into financing new projects. ESG in the World of Indian Businesses In the world of business, one of the biggest ESG developments has been the mandating of Corporate Social Responsibility (CSR) activities in 2013 under the Companies Act, which made it compulsory for all companies to conduct CSR activities. Another major development took place in 2019, when the National Guidelines on Responsible Business Conduct (NGRBC) came into effect, which were the founding principles for Business Responsibility and Sustainability Report (BRSR). Before the mandate in 2021 most CSR reporting in India was limited to big corporations like Tata and Reliance which usually complied with the GRI and UNGC principles as of 2009. However, after the introduction of BRSR there now exists a comprehensive framework that is mandated by the Indian government, that would involve cross-checks and further investment in the division of CSR and ESG. Initially, BRSR was voluntary but as of 2021, it has been made mandatory for the financial year 2022-2023 for the top 1000 listed companies. This framework is based on the nine principles and it replaced its processor Business Responsibility Reporting (BRR) and is more qualitative in nature BRR was supposed to function as a tool for an easy transition to BRSR. BRSR format is aligned with the Global Reporting Initiative which allows it to appeal to global standards as well, and considering how popular the framework is among Indian companies, the transition would also be easier. In terms of format, BRSR is divided into two major parts, these are essential and leadership indicators. The essential indicators are mandatory for every company under the guidelines of the report, while the leadership indicators are voluntary. Most of the essential indicators focus on details of a company’s impact on the environment, human rights indicators, health and welfare of employees, and their efforts to promote economic and social development. The leadership indicators go beyond these indicators to focus more on the company’s efforts towards innovating and adopting new sustainable mechanisms, it looks at all levels of a company’s engagement from stakeholders, consumers, and employees to analyze what has been done on each level to encourage a more sustainable and growth-oriented environment. Though voluntary, adopting leadership indicators can have a deeply positive effect on a company’s overall image, especially considering the Indian government’s push toward sustainability. Table 1: Comparisons between 2021 and 2016 Sustainability Frameworks to indicate change in number to indicators and the increase in complexity. The table illustrates the increase in complexity and detail in the 2021 framework compared to the 2016 one. The number of indicators and the details that need to be disclosed by a company have increased from 18 to 29 and the information is much more specific. This complexity is only bound to increase as India’s regulations aim to meet international standards. Over the years, ESG frameworks have evolved, especially post the introduction of BRSR. An example of the same can be seen in the table below, if one compares the frameworks used by Tata Power in 2021 and the ones used by them in 2016. Table 2: Tata Power GRI Indicators 2021-22 Annual Report v/s Tata GRI ESG Reasons Behind India’s Push For ESG The world is becoming increasingly climate-conscious. Events like COP and the Paris Agreement are no longer for show and have to be taken seriously to have a good global reputation. India aspires to be a global leader and has promised to have net zero emissions by 2070 and it is one of the largest carbon emitters in the world. Hence, to live up to its promises the country needs to make drastic decisions, and encouraging companies to adopt a comprehensive ESG framework is a step in the right direction. Additionally, investing in ESG will boost the capital of Indian companies as the pool of global ESG-driven capital is in the trillions. Firms and stakeholders all over the world look at a company’s CSR performance and ESG indicators before investing, international standards for sustainability are also on the rise, and the inability to comply with these standards could reduce the investments for Indian companies. Following ESG mandates is not just an environmentally conscious decision but also one of economic advancement. ESG also ensures the provision of better and cleaner services to clients as they receive products that are more sustainably manufactured. In Addition, increasing ESG investments can reduce India’s dependence on coal and push businesses to innovate new technologies that have lower carbon emissions. Some of the ESG indicators also ensure the protection of a country’s labor force, by ensuring that businesses do not employ child or slave labor in any domain of their businesses. Hence, ESG frameworks benefit both the business and the employees of a business. Lastly, establishing proper ESG frameworks can allow India to make its products globally famous by contributing to more sustainable supply chain methods. Letting them compete with their global counterparts in global markets. Importance of ESG for SMEs Small and medium enterprises encompass a wide range of businesses across various industries. These enterprises play a crucial role in the Indian economy, contributing significantly to employment generation, GDP growth, and overall industrial development. SMEs are the ones that will have to develop an ESG framework from scratch as the regulations are fairly new to them in comparison to large businesses. Though investing in an ESG framework will be costly, it is the only way they can ensure their businesses stay relevant for the future. It can offer then a variety of benefits such as: Access to Capital and Investment: Investors and financial institutions are increasingly considering ESG factors when making investment decisions. SMEs that prioritize ESG reporting may attract more interest from socially responsible investors and gain better access to capital, including loans and funding opportunities. Improved Risk Management: ESG reporting helps SMEs identify and address potential risks related to environmental regulations, social impacts, and governance issues. By proactively managing these risks, companies can avoid costly penalties and reputational damage. Talent Attraction and Retention: Many employees today prioritize working for companies that align with their values and contribute positively to society. ESG reporting can help SMEs attract and retain top talent by demonstrating their commitment to sustainability and social responsibility. Competitive Advantage: SMEs that integrate ESG principles into their business strategies may gain a competitive edge in the marketplace. ESG-conscious consumers and businesses may prefer to engage with companies that demonstrate ethical practices and sustainability efforts. Enhanced Innovation and Efficiency: Implementing ESG reporting can drive SMEs to adopt more sustainable and efficient practices. This focus on innovation and efficiency can lead to cost savings and improved resource utilization. Regulatory Compliance: ESG reporting can assist SMEs in meeting evolving regulatory requirements related to environmental protection, social welfare, and corporate governance. By staying ahead of compliance obligations, companies can deal with government tenders and international partnerships. Stakeholder Engagement and Trust: ESG reporting fosters transparent communication with stakeholders, including customers, suppliers, employees, and local communities. Building trust for SME business is essential to serve long-term partnerships. Enhanced Reputation and Brand Value: ESG reporting showcases a company's commitment to responsible business practices. By demonstrating their efforts to address environmental and social issues, SMEs can enhance their reputation and build a positive brand image among customers, investors, and other stakeholders. Hence, there are more advantages than disadvantages to the investment. Case Study of a Successful ESG Transition in an SME An SME that has successfully made a transition to comprehensive ESG frameworks is SELCO India. Their primary mission is to provide sustainable energy solutions to underserved and marginalized communities in rural and urban areas. They specialize in offering solar energy products and services to improve the livelihoods of low-income households and small businesses. SELCO India took the ESG initiatives and reporting and recognized the importance of formalizing its commitment to Environmental, Social, and Governance (ESG) principles. They began to document and report on their sustainability efforts, highlighting the positive impact they were making on various stakeholders. Environmental Initiatives: SELCO India focused on providing access to clean and renewable energy solutions through solar power systems. By promoting solar energy adoption, the company significantly reduced carbon emissions and helped combat climate change. Social Impact: The core of SELCO's business was centered around social impact. They provided solar lighting solutions to rural households, reducing the dependence on kerosene lamps and improving the living conditions of thousands of families. Access to reliable and clean electricity also enabled children to study after dark, leading to improved education outcomes. Governance and Transparency: SELCO India prioritized strong corporate governance practices and transparent reporting. They maintained a high level of transparency in their financial reporting and operational processes. This level of transparency built trust with customers, investors, and other stakeholders. Some results and growth by ESG reporting and sustainable practices led to several positive outcomes for SELCO India: Increased Access to Capital: As the company established its commitment to social and environmental impact, it attracted impact investors and socially responsible investors who were keen to support its mission. This influx of capital helped them expand their operations and reach more underserved communities. Business Expansion: The growing demand for clean energy solutions and the company's reputation as a socially responsible organization allowed SELCO to expand its reach to new regions and markets within India. They opened new branches and formed partnerships with NGOs and government agencies. Recognition and Awards: SELCO India received several awards and recognitions for their ESG initiatives and impact on society. This recognition further enhanced their credibility and helped them gain a competitive advantage in the industry. Job Creation: As the company expanded its operations, it created job opportunities, particularly in rural areas, leading to improved livelihoods for the local communities. The case of SELCO India exhibits how ESG reporting and a strong commitment to sustainability and social impact can drive growth and success in the SME sector. By addressing environmental and social challenges while maintaining transparent governance practices, SMEs cannot only make a positive difference in society but also attract investment and achieve sustainable growth in their businesses. The Way Ahead for Indian SMEs SMEs can follow in the footsteps of SELCO in the following way: Step 1: ESG Assessment and Materiality Analysis Conduct an ESG assessment to identify the environmental, social, and governance factors that are most relevant to your SME's operations and stakeholders. Prioritize these factors based on their impact on the business and the expectations of stakeholders. Step 2: Setting Clear ESG Objectives and Targets Establish clear and measurable ESG objectives that align with the company's overall business strategy. Set achievable targets to address identified ESG issues and continuously monitor progress. Step 3: Leadership Commitment and Employee Engagement Secure leadership commitment to incorporating ESG principles into the company's values and operations. Educate and engage employees at all levels to foster a culture of sustainability and responsibility. Step 4: Integrating ESG into Business Strategy Embed ESG considerations into the company's business strategy, risk management practices, and decision-making processes. Align ESG goals with core business objectives and explore synergies between financial performance and sustainable practices. Step 5: Compliance and Reporting Comply with relevant ESG regulations and reporting requirements. Utilizing Develop a comprehensive ESG report that highlights the company's progress, achievements, and plans. Step 6: Stakeholder Engagement and Communication Engage with stakeholders, including customers, investors, suppliers, employees, and local communities, to understand their expectations and concerns related to ESG. Maintain transparent communication with stakeholders about ESG initiatives and progress, fostering trust and building long-term relationships. Step 7: Resource Optimization and Efficiency Implement resource optimization measures to reduce energy consumption, water usage, waste generation, and emissions. Focus on operational efficiency to drive cost savings and improve overall performance. Step 8: Social Impact and Community Engagement Engage in activities that positively impact local communities and society. Support initiatives related to education, healthcare, livelihood, and environmental conservation. Collaborate with stakeholders and NGOs to enhance social welfare efforts. Step 9: Supply Chain and Vendor Management Encourage sustainable practices among suppliers and vendors. Implement criteria that consider ESG factors when selecting and working with partners. Collaborate with suppliers to improve supply chain sustainability. Step 10: ESG Risk Management Identify and mitigate ESG-related risks that could impact the company's operations and reputation. Develop contingency plans to address potential ESG challenges and crises Step 11: ESG Incentives and Recognition Explore incentives and benefits offered by the government or financial institutions to encourage SMEs to adopt ESG practices. Seek ESG-related certifications or awards to enhance the company's reputation and credibility. Step 12: Continuous Improvement and Innovation Foster a culture of continuous improvement and innovation to address emerging ESG challenges and seize new opportunities. Regularly review and update ESG strategies to stay relevant and responsive to changing circumstances. Following these steps will ensure that SMEs can successfully incorporate ESG frameworks in their businesses. By following this comprehensive plan and actively integrating ESG principles into their operations, SMEs in India can gain a strategic advantage, leading to improved reputation, access to capital, customer loyalty, and long-term sustainability. Conclusion The climate crisis is real and in the coming years, the world is going to face the brunt of it. Hence, ESG becomes all the more essential as the world needs to adopt cleaner forms of energy to survive. As the world continues to strive toward sustainability, ESG regulations are going to continue to gain more prominence in the future. Hence, businesses need to start identifying and complying with ESG reporting, which best suits their business demand. The evolution of ESG frameworks is important for companies to learn about. Over time, all ESG frameworks have become more deep and demanding for businesses, which has led to an additional cost attached to them. However, the various frameworks have also ensured that the purpose of ESG implementation is met and the SDGs are more in focus. ESGs have also created a positive impact which has attracted more investments for ESG-focused businesses, which has led to an increase in employment. Whereas, innovation is bringing solutions to businesses and solving complex issues. ESG could also deeply benefit SMEs as they can reap the benefits of ESG reporting by attaining investments to scale up the business and the benefits of government schemes and incentives. In addition, they can also be champions and serve as successful examples of ESG reporting for businesses all over the world, adding to their prestige and global brand value. References What are ESG Frameworks? | IBM. (n.d.). https://www.ibm.com/topics/esg-frameworks Choosing the Best ESG Framework. (n.d.). ESGgo. https://www.esggo.com/blog/best-esg-framework#:~:text=The%20GRI%20framework%20assists%20companies,are%20the%20most%20popular%20worldwide. Ahuja, N. (2022, November 14). Introduction To Environmental, Social, And Governance (ESG) Disclosures In India With An Overview Of. https://www.mondaq.com/india/diversity-equity--inclusion/1250572/introduction-to-environmental-social-and-governance-esg-disclosures-in-india-with-an-overview-of-the-global-standards-on-esg#:~:text=ESG%20reporting%20in%20India%20commenced,Guidelines%20on%20Corporate%20Social%20Responsibility ESG regulations gain prominence in India: A positive step towards sustainable development. (2023, May 10). Times of India Blog. https://timesofindia.indiatimes.com/readersblog/esg-insights/esg-regulations-gain-prominence-in-india-a-positive-step-towards-sustainable-development-53683/ ESG: Regulatory Framework in India. (n.d.). https://samistilegal.in/esg-regulatory-framework-in-india/ DiVito, C. (2023, April 10). BRSR 101: Everything You Need to Know About India’s Business Responsibility & Sustainability Report - FigBytes. FigBytes. https://figbytes.com/blog/brsr-101-everything-you-need-to-know-about-indias-business-responsibility-sustainability-report/ Csr, I., & Csr, I. (2023, May 10). What is BRSR and What are the 9 Principles of BRSR? India CSR. https://indiacsr.in/what-is-brsr-and-what-are-the-9-principles-of-brsr/#:~:text=The%20BRSR%20Framework%20is%20based,and%20equitable%20development%2C%20among%20others. Das, A., Goswami, A., & Jain, A. (2023, February 28). An Introduction of ESG Disclosures in Indian Regulatory Space – Part 1. Business Today. https://www.businesstoday.in/technology/news/story/an-introduction-of-esg-disclosures-in-indian-regulatory-space-part-1-371707-2023-02-28 The importance of ESG for SMEs | Insights | HSBC. (2022, June 1). https://www.business.hsbc.com/en-gb/insights/sustainability/the-importance-of-esg-for-smes 92% of Indian SMEs are focused on adopting ESG measures: DBS and Bloomberg Media Studios Survey. (n.d.). https://www.dbs.com/newsroom/92_percent_of_Indian_SMEs_are_focused_on_adopting_ESG_measures SMEs Should Embrace Sustainability. (2022, December 6). SMEs Should Embrace Sustainability. https://www.cogoport.com/en-IN/blogs/sme-and-sustainability

Beginning 2023, we predicted that this year will be characterized by 3 Rs – Recession, Regionalization, and Reordering. Insights International CEO Arpit Chaturvedi Moderating a Discussion with EU Parliamentarians' Delegation to New Delhi to discuss the European Free Trade Association (EFTA) collaborations and Agreements with India If you were a business who did not keep a close watch on politics and geopolitics, gone are those days when these could be ignored. Political headwinds create unique challenges and opportunities for businesses, once again. Businesses without a keen understanding of political risk have faced severe setbacks in the first quarter of 2023. On the other hand, businesses with insight into how policymaking and the politics of policymaking works, are finding this capability to be of strategic and competitive advantage. From the beginning of 2023 up until now, we have witnessed many disruptions, here are our top picks: 1. Increased supply chain disruptions due to the war in Russia and Ukraine: Some supply chains are genuinely shifting and others are being “white-labelled”, i.e. you do not import from Russia but you really do import from Russia. The Ukrainian counter-offensive set to begin this summer is likely to cause even more of these disruptions across the board. The Indo-Pacific countries are hurriedly developing regulatory codes, implementing reforms, and doling out incentives and subsidies to companies to attract investments ever since the outbreak of Covid-19, with mixed results. In India, the production linked incentives are increasingly tied to not just production, but investment targets and this is causing some consternation among manufacturing giants. What happens next, is yet to be found out. Also, The expected period of Chinese escalation with Taiwan is mid-late 2025 and this should give some time to companies to diversify their supply chains. 2. Increased Extended Producer Responsibility: In a bid to make businesses more sustainable, more and more countries are requiring manufacturers to report on their carbon footprint and Environmental Social Governance (ESG) parameters. While India has come up with Business Responsibility in Sustainability Reporting (BRSR) requirements and plans to expand on its scope/coverage. The challenge is that it triggers a ripple effect where large companies have already started demanding their suppliers (and their suppliers have started demanding their own suppliers) to report on ESG parameters. The smaller players are finding it difficult to do so, and most larger players are also relatively new on the learning curve. 3. Carbon Taxes and Carbon Markets: The European Union (EU) is set to impose a carbon border tax – the Carbon Border Adjustment Mechanism (CBAM) making carbon reporting mandatory to exporters sending their goods to EU from October 2023 (CBAM will cover all industries by 2026). At the same time other countries are likely to impose carbon border taxes of their own. Taxes indeed are accompanied with incentives and market opportunities such as carbon credits markets. The challenge currently is the lack of demand for the carbon credits and imperfect market structuring. 4. AI Policy: With the rise of ChatGPT, Google’s Bard, Microsoft’s AI enabled Bing, generative AI and the capabilities/risks it unleashes is on the minds of every large government. India, Germany, Japan, Brazil, USA, China, and France among other countries are working speedily to develop their own AI policies and looking at each other as they do so. The G7 and the G20 meetings have developed significant agendas around AI. The diffusion of policies is taking place with respect to 3 global hotspots – China, EU, and the USA. In almost all countries, various interest groups are either advocating to hasten or to slow down AI regulations depending on their relations and investments in China. 5. Monetary Tightening: The first half of 2023 has witnessed monetary tightening mainly because of the US Fed’s attempt to get the country back on its feet. The second half of 2023 is likely to see some relief with the easing of interest rates. However, with no end in sight for the Russia-Ukraine war and US beginning to contemplate categorizing the Russia-Ukraine War as a frozen conflict, the relief could turn out to be too little, too late – at the detriment of developing economies. 6. The government re-emerges as a large buyer: 2023-24 are years of big elections. 2023 is the year of many state elections in India. Major (and politically critical) states such as Chhattisgarh, Rajasthan, Telangana, Madhya Pradesh, and Karnataka are going into elections. On a global level, India goes into general elections in April-May 2024, the United States in November 2024, and the UK in January 2025. This means a continuation and increase in subsidies with increased pressures on governments to tax the higher income brackets. Further, this means large spending by the governments with a caveat – most of the spending is either already happening or new contracts will be awarded once a new government takes office. Most importantly, elections mean new interest groups and newer bureaucrats gain importance at various levels. At Insights International we have a dual focus: (1) A deep insight into policymaking, politics, and geopolitics: We inform businesses of political and regulatory risk and support them in anticipating and navigating through these currents to gain strategic advantage. (2) A deep understanding in new age business sectors: Sustainable development, space, water, recycling, technology, artificial intelligence – if you are in an “new age sector” we believe that your business will be core to the national and global economy, sooner than you might expect. Now, time for a story A veteran public affairs professional was contemplating on the fate of two of the largest Indian companies – first, a tremendously successful Indian company that recently become one of the world’s largest but now embroiled in controversy; and second, an old and large business house credited to have played a great role in India’s development story since the Independence. Both companies have sound credentials. However, the first company (the newer one) is developing infrastructure in India and abroad, creating many jobs, and is bringing in foreign capital. The second (the old conglomerate) while it does all that, is also purchasing aircrafts from abroad, and has significant debt (more than the first company. Yet, the second company, the old and stable one gains all the applause (it always has), and despite the good work the first company has done, it gets public derision. Why? The reason is, that the second company has a history of 3 potent practices: (1) Tying its narrative intricately with the country’s growth. This way the company almost becomes seen as a public institution or an institution for the public good. (2) Using Corporate Social Responsibility initiatives and meaningful investments, not directly for their own benefit but quite genuinely for the public good (sometimes overtly and sometimes silently) as a cushion against future reputational risk. (3) Conducting a long and thorough Political, Economic, and Cultural (PEC) Analysis before it enters a new market and conducting regular PEC audits to track and forecast change in the current markets. Strategically positioning its image and business initiatives informed by the PEC imperatives. Building lasting relations, rapport, and goodwill with key players in the economic, scientific, academic, cultural, civil, and political communities. Most companies are not able to do that. While many companies do 1, only some companies are able to do 2 with much success. Rarely do companies even know or do 3 in a structured manner. The 3 Levels of Companies So what do we do at Insights International? We make your company a Level 3 Company. Please remember that your company size, revenue, years of operations etc. do not play a significant role in defining a company’s level. What matters is your level of “influence”, “agility”, and “resilience”. Level 1 A Level 1 company, is financially stable and possesses the right messaging to position itself as contributing to a cause larger than enhancing shareholder value. This company publishes occasional thought leadership pieces, typically around 6-9 publications or blogs annually, focusing on industry insights and trends. It engages in CSR programs that indirectly benefit the company or its employees, such as employee volunteer programs or charitable donations. Collaborations with local organizations or institutions are limited to joint initiatives or events. The company has a broad understanding of changes in the political economy and political risk but does not conduct regular or structured PEC analysis. It develops patronage relationships with a few decision-makers or bureaucrats (3-5 individuals). The company's impact on societal or public good beyond financial stability is limited, as is its ability to navigate and mitigate political, financial, and reputational risks. A Level 1 company is able to influence some policy outcomes, but not in a significant manner and not consistently. Level 1 Companies: Characteristics: Financially sound. Has the right messaging positioning itself as contributing towards a cause larger than enhancing shareholder value. Level 1 Behaviors: Publishes occasional thought leadership pieces reflecting on how it contributes to the larger good (6-9 publications/blogs annually) with a focus on industry insights and trends. Engages in CSR programs related to issues that indirectly benefit the company or its employees, such as employee volunteer programs or charitable donations. Develops limited collaborations with local organizations or institutions for joint initiatives or events. Broadly understands changes in political economy and political risk but does not conduct PEC-type analysis on a regular or structured basis. Develops patronage relationship with few (3-5) decisionmakers/bureaucrats Level 1 Outcomes: Limited impact on societal or public good beyond financial stability. Limited engagement in in-depth analysis of political, economic, and cultural factors. Limited ability to navigate and mitigate political risk, financial risk, and reputational risk. Is able to influence some policy outcomes, but not in a significant manner and not consistently. Level 2 A Level 2 company in addition to possessing characteristics of a Level 1 company, actively engages in Corporate Social Responsibility initiatives and meaningful investments for the public good as a cushion against future reputational risk. This company demonstrates a broader understanding of changes in the political economy and political risk. It conducts periodic PEC analysis before entering new markets, assessing regulatory frameworks, cultural nuances, and economic trends. Regular PEC audits are conducted to track and forecast changes in current markets, adjusting strategies accordingly. The company strategically positions its image and business initiatives based on PEC imperatives, aligning with local values and priorities. It develops collaborations with local NGOs, national nonprofits, or research institutions to address specific social or environmental issues. The company participates in industry-specific events, conferences, or forums, contributing to knowledge sharing and thought leadership through detailed reports and memos. The scope of CSR initiatives expands to include sustainable practices, environmental conservation, community development, or social welfare projects that align with community needs. The company develops long-standing but transactional relationships with a significant number of decision-makers or bureaucrats and institutions. The company's impact on societal or public good is significant, and it demonstrates a moderate ability to navigate and mitigate political, financial, and reputational risks. The government and civil society consider the company a key interested stakeholder on industry and public good issues. A Level 2 company is able to is able to influence policies significantly to its advantage. Level 2 Companies: Characteristics (in addition to Level 1): Engages in Corporate Social Responsibility initiatives and meaningful investments for the public good (sometimes overtly and sometimes silently) as a cushion against future reputational risk. Demonstrates a broader understanding of changes in the political economy and political risk. Level 2 Companies Behaviors: Conducts periodic PEC (Political, Economic, and Cultural) analysis before entering new markets, assessing regulatory frameworks, cultural nuances, and economic trends. Regularly conducts PEC audits to track and forecast changes in current markets, adjusting strategies accordingly. Strategically positions its image and business initiatives informed by PEC imperatives, aligning with local values and priorities. Develops collaborations with local NGOs, nonprofits, or research institutions to address specific social or environmental issues. Hosts or participates in industry-specific events, conferences, or forums to contribute to knowledge sharing and thought leadership (For example, publishes or sponsors detailed reports, memos etc.) Expands CSR initiatives to include sustainable practices, environmental conservation, community development, or social welfare projects that go beyond the current scope of business interests but are more aligned towards community needs. Develops long standing but transactional relationship with a significant number of decisionmakers/bureaucrats and institutions (1-2). Level 2 Companies Outcomes: Significant impact on societal or public good through targeted CSR initiatives, such as education programs, environmental initiatives, or community development projects. Improved reputation management and risk mitigation through CSR investments. Enhanced understanding of the political, economic, and cultural landscape, leading to better navigation of political risk and financial risk. Moderate ability to pre-empt, mitigate and manage reputational risk through proactive engagement in social and environmental issues. Is seen as a key interested stakeholder by the government and civil society on issues relevant to industry. Is seen as a key stakeholder by the government and civil society on issues of public good. Is able to is able to influence policies significantly to its advantage. Level 3 A Level 3 company in addition to possessing the characteristics of a Level 2 company, intricately ties its narrative with the country's growth, positioning itself as almost a public institution or an institution for the public good. It presents itself as an expert or aggregator of experts on an issue of public importance or public good. This company actively integrates its narrative with the country's growth, aligning goals and initiatives with national priorities such as sustainable development or innovation. It invests significantly in CSR initiatives for the public good, with a genuine focus on long-term societal impact, including large-scale environmental conservation projects or educational scholarships. The company conducts comprehensive and regular PEC analysis to inform strategic decision-making, incorporating deep cultural understanding and economic forecasts. It proactively builds strong relationships with key stakeholders in political, economic, scientific, academic, cultural, civil, and political communities, fostering partnerships for joint initiatives. Collaborations with leading national and international academic institutions, think tanks, government bodies, and multilateral institutions, are established to conduct research or share knowledge on critical issues. The company organizes high-profile events, conferences, or symposiums to drive discussions on key industry challenges and societal impact. It develops long-standing and meaningful relationships with a network of decision-makers or bureaucrats at all levels across geographies and multiple institutions. The company's impact on societal or public good is high, and it demonstrates advanced abilities in pre-empting, navigating, and mitigating political, financial, and reputational risks. The government and civil society consider the company an expert and collaborator on issues relevant to industry and public good. A Level 3 company is able to co-create policies with the government and relevant institutions and set the policymaking agenda. Level 3 Companies: Characteristics (in addition to Levels 1 & 2): 1. Ties its narrative intricately with the country's growth, making it seen as a public institution or an institution for the public good. 2. Positions itself as an expert/aggregator of experts on an issue of public importance/public good. Level 3 Behaviors: Actively integrates its narrative with the country's growth, aligning its goals and initiatives with national priorities, such as sustainable development or innovation. Invests significantly in CSR initiatives for the public good, with a genuine focus on long-term societal impact, such as large-scale environmental conservation projects or educational scholarships. Conducts comprehensive and regular PEC analysis to inform strategic decision-making, incorporating deep cultural understanding and economic forecasts. Proactively builds strong relationships with key stakeholders in political, economic, scientific, academic, cultural, civil, and political communities, fostering partnerships for joint initiatives. Collaborates with leading national and international academic institutions, think tanks, government bodies, and multilateral institutions. Organizes high-profile events, conferences, or symposiums to drive discussions on key industry challenges and societal impact. Develops long-standing and meaningful relationships with a network of decisionmakers/bureaucrats at all levels across geographies and multiple institutions. Level 3 Outcomes: High impact on societal or public good through extensive and meaningful CSR initiatives, addressing critical social, economic, or environmental challenges. Strong reputation management and risk mitigation through proactive engagement in social and environmental issues, positioning the company as a trusted and responsible entity. Strategic positioning of the company's image and initiatives based on a deep understanding of the political, economic, and cultural context. Advanced ability to pre-empt, navigate and mitigate political risk, financial risk, and reputational risk through comprehensive PEC analysis, strong relationships, and proactive measures. Is seen as an expert and collaborator by the government and civil society on issues relevant to industry. Is seen as an expert and collaborator by the government and civil society on issues of public good. Is able to co-create policies with the government and relevant institutions and set the policymaking agenda. So, how do we help you? Our team of experts which includes former diplomats, bureaucrats, current international business and development practitioners, and academics from all over the world provides you with strategic advice to make your business thrive in a complex and uncertain world. Step 1: Our team sets up 1-2 introductory calls to gain a deep understanding of your business (Complementary). Step 2: We conduct a briefing session with your organization’s leadership team where our expert apprises your company of regulatory risks, challenges, and strategies relevant for your business (Complementary). Step 3: We organize an expert panel discussion (online) to discuss an issue relevant to your business and the larger policy/sustainability landscape (Complimentary). Step 4: We zero down on our terms of engagement to solve your organizations growth challenges (Contractual). So What do we Really Do? As Insights International, we offer a comprehensive range of services to help companies become Level 3 companies by enhancing their influence, agility, and resilience. Specifically, we do the following and more based on the specific needs of your company and industry: Comprehensive PEC Analysis: Our team conducts in-depth and regular Political, Economic, and Cultural (PEC) analysis, enabling companies to gain a deep understanding of the evolving market dynamics, regulatory landscapes, cultural nuances, and economic trends. This analysis serves as the foundation for informed strategic decision-making, allowing companies to anticipate and navigate potential risks and capitalize on emerging opportunities. CSR Strategy and Implementation: We collaborate with companies to develop and implement impactful Corporate Social Responsibility (CSR) strategies that extend beyond traditional philanthropy. Our experts help identify and prioritize social, economic, and environmental initiatives aligned with the company's values and business objectives. This includes designing and managing CSR programs, such as education initiatives, sustainable practices, environmental conservation projects, and community development programs. Stakeholder Engagement and Partnerships: We facilitate proactive stakeholder engagement by helping companies build and maintain relationships with key stakeholders in political, economic, scientific, academic, cultural, civil, and political communities. Through strategic partnerships, companies can position themselves as trusted experts and aggregators of expertise on issues of public importance. We assist in forming collaborations with relevant organizations, think tanks, and academic institutions to drive joint initiatives, research, and knowledge sharing. Reputation Management and Risk Mitigation: Our services support companies in managing their reputation and mitigating risks through proactive engagement in social and environmental issues. We work closely with companies to develop robust reputation management strategies, crisis communication plans, and stakeholder mapping exercises. By aligning their goals and initiatives with national priorities and demonstrating responsible business practices, companies can enhance their reputation and minimize potential reputational risks. Advocacy Campaigns: We design and execute advocacy campaigns on behalf of companies to promote specific causes, influence policy decisions, and drive positive change. Our team helps companies identify relevant issues, develop compelling narratives, engage with policymakers, and mobilize stakeholders to amplify their impact and advance their advocacy goals. Events and Roundtables: We organize high-profile events, conferences, and roundtables where industry leaders, policymakers, and experts come together to discuss key challenges and opportunities. These platforms facilitate knowledge sharing, thought leadership, and networking opportunities for companies to showcase their expertise, contribute to industry discourse, and build meaningful relationships with stakeholders. Reports and Publications: We support companies in producing detailed reports, blogs, podcasts, publications, and thought leadership pieces that reflect their expertise, insights, and contributions to the larger good. These publications serve as valuable resources for industry stakeholders, policymakers, and the wider public, establishing the company as a thought leader and trusted source of information. Training Programs: We develop customized training programs to enhance the knowledge and skills of company employees on topics such as CSR, stakeholder engagement, reputation management, and risk mitigation. These programs empower employees to effectively navigate complex challenges, align their actions with company values, and contribute to the company's Level 3 aspirations. Knowledge Sharing Programs: We facilitate knowledge sharing initiatives, including webinars, workshops, and online platforms, where companies can share best practices, lessons learned, and innovative approaches. These programs foster collaboration, exchange of ideas, and peer learning among companies striving to become Level 3 entities. Fellowship Programs: We design and implement fellowship programs that provide opportunities for professionals and experts to engage with companies on a deeper level. These programs facilitate knowledge exchange, collaborative research, and mentorship, allowing fellows to contribute their expertise and insights to the company's strategic initiatives. By fostering these collaborative relationships, companies can tap into diverse perspectives and strengthen their position as thought leaders. Membership Programs/Forum Building: We assist companies in establishing membership programs or forums that bring together like-minded organizations, industry leaders, and stakeholders. These programs serve as platforms for networking, collaboration, and collective action. By fostering a community of engaged members, companies can drive industry-wide discussions, advocate for common interests, and leverage collective expertise to address key challenges and promote the public good. Our Biggest Updates of the 1st and Second Quarter 2023 CEO Insights International, Mr. Arpit Chaturvedi moderated a discussion between Indian public policy experts and a delegation of Parliamentarians from the European Free Trade Association (EFTA) nations: 2. We hosted a panel discussion on Water, Technology, and Our Common Future with Dr. Lior Asaf, Water Attache, Embassy of Israel in New Delhi and Desire Energy Solutions Pvt. Ltd. in Jaipur and were joined by eminent members from the UNDP, Indian media, Asia Development Banks etc. 3. CEO Arpit Chaturvedi delivered a talk on "Indian Foreign Policy : Tracing the Trajectory” hosted by Global Youth India. He noted that the future of India is in becoming an independent pole with closer cooperation with the USA. Furtherobserved that the importance of #Geotech in addition to Geo-economics and Geopolitics as a key driver of foreign policy.He spoke alongside speakers such as Ambassador Rtn. Anil Trigunayat (IFS Retd). 4. We hosted the Climajo Sustainability Conclave at the Constitution Club of India. The panellists included H.E. Amb. Diana Mickeviciene (Ambassador of Lithuania to India), Suresh Kumar, IAS (Former Chief Principal Secretary to Chief Minister, Punjab, IAS (Retd.), Ajitabh Sharma, IAS (Managing Director, Jaipur City Transport Services Limited), Dipakshi Mehandru (Director for Government Affairs and Public Policy, India, Dell Technologies), John Dickson (President, World Trade Partnership), Amb. Anil Trigunyat (Former Ambassador of India to Jordan, Libya & Malta), Abhishek Jain (Head, Investment Cell at O2 Power), Sandeep Dabur (Director, Comptroller and Auditor General of India), Dhruv Sharma (Election Campaign Manager – Political Advisor, Himachal Pradesh), and Rohit Chauhan (Former GM, Strategy, Policy and Business Development at Adani Enterprises Limited). 5. We were part of the Think 20 Inaugural Event hosted by the G20 Secretariat in India 5. CEO Arpit Chaturvedi Addressed the National Street Vendors' Association of India

On 9 December 2022, the UAE released the Corporate Tax (CT) law through Federal Decree No.47 of 2022 (CT law) signalling the imminent implementation of a corporate tax, set to take effect on June 1, 2023. The tax regime dictates that a taxable entity or enterprise will be liable to a 9% corporate tax from the inception of their initial financial year, beginning on or after the aforementioned date. Given this context, this memo seeks to offer recommendations on innovative tax models that can enhance corporate compliance through behavioral economic research and use case studies. Specifically, the policy suggestions will prioritize designing tax frameworks that are congenial to corporations while also increasing voluntary tax compliance. Download:

The issue of organ donation and transplantation is an important area of concern in India. This report provides an overview of the current state of organ donation policy in India, highlighting key issues and potential solutions. Currently, India faces a significant shortage of organs for transplantation, leading to long waiting lists and high mortality rates. Despite the government allocating budgets for organ donation-related initiatives, the country continues to fall behind in comparison to other countries in organ donation rates. Awareness campaigns have been launched to promote organ donation, but behavioral economics research suggests that awareness alone is not sufficient to drive behavior change. Organ donation systems need to be redesigned to incentivize and encourage donation. In this analysis, we note that a tailored version of the "mandated consent" system of organ donation may work best for the Indian context. Embedded inequities in organ transplantation systems in India, particularly in renal transplants, highlight the need for policy interventions to ensure fair and equitable access to organs. Further, we note that the potential for blockchain technology to transform organ donation is significant. Blockchain could help increase transparency, reduce fraud, and improve the efficiency of organ allocation and transplantation. Country examples of successful organ donation policies, such as those implemented in Spain, the United Kingdon, Brazil, and Belgium, can provide valuable insights for India to develop a unique organ donation model. It is time for India to adopt a unique organ donation model that incorporates best practices from around the world and addresses the specific challenges facing the country. This model must be designed with a focus on the incentivizing donation, improving transparency and efficiency, and promoting equity in access to organs. Download:

In October 2014 the government first announced the revised target of scaling up installed solar capacity to 100 GW by 2022. Indeed, there was much scepticism around this target but targets have a way of directing people towards achieving them. Even if the goal is not met, the presence of a goal pushes achievement at a faster rate. As of 2022, India has an installed capacity of 61.97 GW, which is a marked rise from the 2.6 GW in 2014. Moreover, India’s estimated solar potential is 748.98 GW which means that there is still room for the market to grow at least by seven to eightfold assuming that we have around 110 GW capacity either implemented, under implementation or tendered. Renewable Power Sector at a Glance Source: https://powermin.gov.in/en/content/power-sector-glance-all-india Solar Energy Potential Vs Current Capacity (as of 2021) in GW The Need for Ancillary Markets to Achieve India’s Solar Potential The leap from 110 GW to 748 GW is not going to be easy. It is not a linear industry growth curve where more players come in and set up solar plants or other capacities, and the industry grows automatically. We have to get the finances in place, the right incentives, policies, and a whole bunch of technological changes in the existing grid structures to great the right mix for the market to grow eightfold. Enter ancillary markets. For any industry to develop, it is essential that a thriving ancillary market exists. Imagine, for example, that no ancillary markets existed for the automobile industry. Your car needs repair, but there are no parts available. Or you damaged your car but the alloy your bumper is made of cannot be easily procured. The automobile industry relies on anciliary industries such as manufacturers of engine parts, transmission parts, and electrical components to produce complete cars. Without a reliable supply of these materials from ancillary industries, the automobile industry would be unable to function effectively. In fact, many automobile brands have failed in India because they did not have a great ancillary supply chain to support them. Many have succeeded because they did. Ancillary industries such as manufacturers of solar panels and components, as well as suppliers of raw materials, are important for the development of the solar market. Similarly, the availability of solar installation and maintenance companies are important for the growth of the solar industry. For an ancillary industry to exist, there must be a functional ancillary market. The growth of India's solar power industry is contingent upon the development and implementation of solar ancillary markets. These markets serve as a mechanism for solar power producers to sell excess energy to the grid, thereby stabilizing the power supply and reducing dependence on fossil fuels. Furthermore, the establishment of ancillary markets can foster the advancement of new technologies and attract investment to the industry, ultimately leading to a reduction in the cost of solar power and increased accessibility for a broader range of consumers. The provision of ancillary services, such as frequency regulation, spinning reserve, and voltage control, is crucial for ensuring the stability and reliability of the grid as renewable energy sources are integrated. Ancillary services are provided by specialized power generators, such as hydroelectric and thermal power plants, that can quickly adjust their output to match changes in demand. These services include things like frequency control, voltage control, and reserve capacity, which are all necessary to ensure that the grid can handle the variable and unpredictable nature of solar power generation. Ancillary services also include system balancing, black start capability, reactive power support, and other services that are necessary to maintain the stability and reliability of the power grid. Ancilary Market Volume and Value in India https://bridgetoindia.com/an-essential-step-towards-deepening-ancillary-services-market/ Ancillary Services are necessary to help the power system handle large amounts of renewable energy (RE) being added to the grid. These services help manage and balance the variability in the system, but can be costly for governments to provide. In order to make sure that adding these services does not make renewable energy less economically viable or deter investors, a market mechanism is needed to fairly distribute the cost of these services. Ancillary Services are also necessary for maintaining the quality, reliability, and security of the electricity grid, as well as handling sudden failures, load forecasting uncertainties, and congestion in the transmission network. They also help restore the grid after a blackout. The electricity system is traditionally set up so that large generators produce power and send it to the transmission systems, while the distribution grid is responsible for getting electricity to homes and businesses. However, with the increasing use of Distributed Generators (DGs) and Distributed Renewable Energy Resources (DRESs) that are connected to the transmission and distribution system, it's becoming harder for grid operators to ensure stability and reliability. This is because these types of generators don't have the same capabilities as traditional generators to provide ancillary services which are necessary to keep the electricity supply stable and reliable. This is causing a shift in the way these services are provided, and the role of ancillary services is changing as the electricity market becomes more liberalized. As the use of renewable energy sources like wind and solar increases, there are more fluctuations in the amount of energy being produced. This can cause problems for traditional power plants, which need to quickly increase or decrease the amount of energy they produce to keep the power grid balanced. This can lead to higher energy prices. Grid operators and transmission system operators (TSOs) need to find ways to manage these fluctuations and ensure that there is enough flexible power generation to balance the grid. Examples of this problem include the "duck curve" in California, where solar power production drops quickly at sunset, and operating reserve demand curves in U.S. markets, which can create price spikes when there is not enough reserve power available. These issues can affect the economics of renewable energy sources, making it important for TSOs to find solutions to manage these fluctuations. The Solar Power Duck Curve Source: The Visual Capitalist (https://elements.visualcapitalist.com/the-solar-power-duck-curve-explained/) Having efficient ancillary markets can help to solve the issue of net load variations caused by increased penetration levels of variable renewable energy resources (RES) by providing a mechanism for procuring the necessary flexibility to maintain power balance in the transmission system. This can be achieved through various market design mechanisms such as implementing dynamic pricing schemes, creating a separate market for balancing services, or offering financial incentives for flexible generation or demand resources. These mechanisms encourage the participation of various flexible resources such as energy storage, demand response, and flexible thermal generation, which can provide the necessary flexibility to balance the system and mitigate the steep rise in ramp rates and extreme price spikes caused by renewable generation ramp downs. Additionally, these markets also provide a transparent and efficient way of procuring the flexibility services, which helps to ensure that the costs associated with these services are allocated in an efficient and equitable manner. What are Ancillary Services Anyway? An Overview Typical Ancillary Services: 1. System balancing: This refers to the process of adjusting the output of various sources of power generation to match the demand for electricity on the grid. This is necessary to ensure that the grid remains stable and reliable. Power plants and other generators are continuously adjusting their output in real-time to match the demand for electricity. 2. Black start capability: This refers to the ability of a power generation facility to start up and begin producing power without any external power source. This is important because it enables the facility to restore power to the grid in the event of a blackout. A black start facility is a power plant that can start generating power using only its own energy source, without any external power source. 3. Reactive power support: This refers to the provision of power that is used to maintain the proper voltage levels on the grid. Reactive power is used to control the flow of electricity on the grid, which is necessary for maintaining stability and reliability. Power generators and consumers are typically required to provide and consume reactive power as needed to maintain voltage levels within acceptable limits. 4. Frequency regulation: This refers to a service that ensures that the grid's frequency stays within a certain range, typically around 50 or 60 Hz. Power generators and other facilities are required to provide or absorb small amounts of power as needed to maintain grid frequency within this range. 5. Spinning reserve: This refers to a service that provides extra power to the grid in the event of an unexpected increase in demand. It's the ability of generators to respond to a change in demand in a very short time and provide additional power to the grid. 6. Voltage control: This refers to a service that is used to keep the voltage level on the grid within a certain range. Voltage control is necessary to ensure that the voltage level on the grid remains within a safe and acceptable range, which is essential for maintaining the stability and reliability of the grid. Typical components used in providing these ancillary services are the following: 1. Battery storage systems: These systems can store excess energy generated by solar power plants during times of high production, and then release it back into the grid during times of low production. This helps to smooth out the variability of solar power and ensure a steady supply of electricity. 2. Electric generators: These generators, such as hydro or gas power plants, can quickly adjust their output to match changes in demand, which helps to maintain the stability of the power grid. 3. Power inverters: These devices convert the direct current (DC) electricity generated by solar panels into alternating current (AC) electricity, which is compatible with the power grid. 4. Grid-tie systems: These systems allow for the seamless integration of solar power into the existing power grid, and include monitoring, control, and protection equipment. 5. Transmission and distribution lines: These lines are necessary to transport electricity from solar power plants to the grid, and to distribute it to customers. 6. Control centers: These centers are responsible for monitoring and controlling the power grid, and for ensuring that the right amount of electricity is being produced and distributed at all times. Examples of global ancillary services markets: • United States of America: The Independent System Operator (ISO) and Regional Transmission Organizations (RTOs) in the United States provide ancillary services through organized markets. • Australia: The Australian Energy Market Operator (AEMO) operates the National Electricity Market (NEM) that provides ancillary services such as black start and frequency control ancillary services. • Germany: The country has established a feed-in tariff system and a market for anciliary services, which has helped to promote the development of solar power and anciliary markets. • California: The state has established regulations for anciliary services, and has implemented a market-based mechanism for providing these services. This has helped to promote the development of solar power and anciliary markets in the state. • Brazil: The country has implemented regulations for anciliary services and has established a market for these services. The regulations ensure the availability of anciliary services to maintain the stability and reliability of the power grid. The Hurdles to Having Well Functioning Ancillary Markets If ancillary services are so important, then why doesn’t the market for these services evolve on its own? Ideally, if there is a need, there can be a market. However, this line of reasoning has a few major assumptions. It skips over taking into account three aspects with various components for the presence of thriving ancilary services (AS) markets: (1) Challenges of market development and take-off; and (2) Challenges of market design; and (3) Preventing market failure. Each has its own components. Infographic: Challenges for the Solar Ancillary Markets (Insights International) The market for ancillary services may not emerge naturally or automatically because it is closely tied to the development of renewable energy sources, power grid infrastructure, regulations and policies, and the complexity of the market and lack of understanding and awareness. Therefore, it requires a proactive approach from the government, regulators, and the industry to create the necessary conditions for the market to develop. In India, the development of ancillary services markets has been hindered by a number of challenges. One major challenge is the lack of clear regulations and policies for procuring ancillary services. This has made it difficult for market participants to understand the rules and requirements for participating in these markets. Additionally, a lack of transparency and standardization in the procurement process has made it difficult for market participants to understand the costs and benefits of different procurement methods. Another challenge in India is the lack of competition in the ancillary services market. This is due in part to the dominance of state-owned utilities, which have traditionally had a monopoly on the generation and supply of power. This has led to a lack of innovation and efficiency in the market, as well as higher costs for consumers. Furthermore, the spot markets in India are underdeveloped, with the majority of the transactions are done through bilateral contracts and tendering. This limits the opportunities for market participants to take advantage of short-term price fluctuations and can result in higher costs for consumers. Finally, the lack of infrastructure and technical capabilities to support ancillary services markets is also a major challenge. This includes a lack of metering and monitoring systems, as well as a lack of transmission and distribution infrastructure. This makes it difficult for market participants to accurately measure and report on the availability and use of ancillary services. Challenges of Market Development (Setting up the Market) Typically, the challenges or barriers to market for any market development are the following: 1. Information asymmetry: When buyers and sellers have different levels of information about a product or service, it can lead to market inefficiencies and prevent the development of a competitive market. 2. Market power: Large firms or monopolies can use their market power to control prices and limit competition, which can inhibit market development. 3. Transaction costs: High costs associated with buying and selling goods and services, such as search and negotiation costs, can make it difficult for markets to develop and function efficiently. 4. Government intervention: Government regulations and policies can sometimes limit market development by creating barriers to entry for new firms or by protecting existing firms from competition. 5. Infrastructure: Lack of physical or digital infrastructure can also limit market development by making it difficult for buyers and sellers to connect and conduct transactions. 6. Cultural and social norms: Societal attitudes and beliefs can also limit market development. For example, a culture that values self-sufficiency over market exchange can inhibit the development of markets. 7. Political instability: Unpredictable political and legal environment can make the market unpredictable, and may discourage the investment in the market, which can limit market development. Typically, these are conditions enough for a market to not develop in the first place despite having a need for it. The assumption that “if there is a need, there will be a market” falls flat on its face here. Even if some of these barriers are surmounted, in many countries, the ancillary markets develop but barely function efficiently because of issues around market design. To understand these issues, it is instructive to study how ancillary markets are typically structured. Challenges in Designing the Solar Ancillary Market Ancillary Services (AS) market is a platform where different stakeholders, such as power generators, storage facilities, and large consumers, can trade services to improve competition. Generally, “the Transmission System Operator (TSO) is the operator and sole purchaser of products in the AS market, while sellers include the prequalified generators and in some cases demand response (involving large consumers and aggregators) and storage facilities” (Oureilidis et al. 2020). In the AS market, services are typically offered for a long period of time, usually a year, while the available capacity is offered on a daily basis. In designing effecient markets, there are three primary challenges or choices that the policy makers face: (1) The choice of dispatch and balancing mechanism; (2) Designing the procurement mechanism; and (3) The choice of remuneration methods. The first set of challenges in designing the AS markets is the choice of dispatch and balancing mechanism. Three main balancing processes (methods to prevent outages to balance demand and supply) exist in the AS markets: 1. Central dispatch: In the central dispatch process, the Transmission System Operator (TSO) is responsible for ensuring that the balance between power generation and consumption is maintained. For example, if the TSO sees that demand is higher than supply, they may dispatch a power plant to generate more electricity. This is done by scheduling and dispatching the generation and consumption of power in real time. An example of this process would be the TSO in India, the Grid Control of India Limited’s National Load Dispatch Centre (NLDC), which schedules and dispatches power from various power-generating stations to the different regions of the country. 2. Self-dispatch portfolio-based: In the self-dispatch portfolio-based model, the schedules for generation and consumption are determined by the scheduling agents of the facilities. This means that the power generating and demand facilities are responsible for scheduling their own generation and consumption. The scheduling agents use their own forecasts of supply and demand to make these decisions. For example, a large industrial facility may choose to schedule their production during times when electricity is cheaper, in order to save on energy costs. Another example of this would be a group of wind farm operators who decide to coordinate their schedules to optimize their power output and reduce costs. 3. Self-dispatch unit-based: In the self-dispatch unit-based model, each power generating and demand facility follows their own schedules. This means that each facility operates independently and is responsible for ensuring that their own generation and consumption is balanced. Each individual power generator or consumer is responsible for determining their own schedule for generating or consuming electricity. This model is often used for small-scale power generators or consumers, such as residential rooftop solar panels. For example, a homeowner with a rooftop solar panel may choose to use the electricity generated by the panel during the day, when the sun is shining and the panel is producing the most electricity, and then use grid electricity at night. It is important to note that as we are moving from centralized models of energy generation to distributed models, the market needs would shift from central to a self-dispatch unit-based approach, or more realistically, a mix of the three approaches with a large component of the self-dispatch portfolio based and unit-based practices. The main challenge of moving from central dispatch to integrating self-dispatch portfolio-based and self-dispatch unit-based models is the coordination and communication required between the various scheduling agents and power generating and demand facilities. In a central dispatch model, the TSO is responsible for coordinating and scheduling all of the generation and consumption of power. However, in a self-dispatch model, the scheduling and dispatch is decentralized, with each facility determining their own schedules. This can lead to problems with coordination and communication, as the various facilities need to be able to communicate and coordinate their schedules effectively in order to ensure a stable and reliable power supply. Another challenge is the lack of visibility and predictability of the power supply and demand. In a central dispatch model, the TSO has a clear overview of the power supply and demand, and can make adjustments as needed to ensure a stable power supply. In a self-dispatch model, the visibility and predictability of the power supply and demand is reduced, as each facility is responsible for its own scheduling and dispatch. This can lead to issues with balancing supply and demand, and can make it more difficult to ensure a stable power supply. Additionally, self-dispatch models can also lead to increased costs for the operators and consumers, as they need to invest in new technologies and systems to enable self-dispatching and real-time monitoring. Therefore, the first challenge in setting up a solar ancillary market is to facilitate the shift to integrate self-dispatch models. The second challenge is regarding procurement. Procurement methods in the AS market can be divided into four main categories: (1) compulsory provision; (2) bilateral contracts, (3) tendering, and (4) spot markets. Tendering and spot markets are exchange processes with increased competition, with the former usually including long-duration services and the latter involving shorter and less standardized products. 1. Compulsory provision: In this method, the TSO is responsible for procuring the necessary balancing energy from power generators. The TSO must purchase the energy at a predetermined price, regardless of whether it is needed or not. This method is typically used in countries with a high degree of government intervention in the energy market. In compulsory provision, a class of generators is required to provide specific reserves of AS. The TSO in a country with a state-controlled energy market may use compulsory provision to ensure a stable power supply. This can help to promote the development of certain types of power generation, but it can also restrict the development of the market by limiting competition and the ability of new players to enter the market. 2. Tendering: In this method, the TSO invites power generators to submit bids for the supply of balancing energy. The TSO will then select the best bid based on price, reliability, and other factors. This method is typically used in countries with a high degree of government intervention in the energy market. 3. Bilateral contracts: This method involves power generators and consumers entering into contracts with each other to buy and sell balancing energy. In bilateral contracts, power generators and consumers enter into contracts directly with each other, bypassing the traditional utility company. This allows for greater flexibility in terms of price and quantity, and can potentially lead to more efficient and cost-effective AS procurement. However, it also shifts the responsibility for balancing supply and demand to the individual generators and consumers, which can lead to increased costs and coordination challenges. Sometimes, the TSO negotiates with each provider for the quantity and price of the offered AS, and the TSO acts as a intermediary between the providers and the consumers, negotiating the terms of the contracts on behalf of the consumers. This can help to ensure that the supply and demand are balanced and that the prices are fair, but it can also lead to increased bureaucracy and costs. These contracts can be long-term or short-term and can be based on a fixed price or a variable price. This method is typically used in deregulated energy markets where there is a high degree of competition. Also, a large industrial facility in a deregulated energy market may enter into bilateral contracts with power generators to ensure a steady supply of energy. This can increase competition and flexibility in the market, but it can also lead to market power imbalances and difficulties in balancing supply and demand. These may also turn out to be much less transparent and non-uniform than tendering processes. 4. Spot markets: A spot market is a market where electricity is bought and sold for immediate delivery. The spot market price is determined by the supply and demand. This method is typically used in deregulated energy markets where there is a high degree of competition. A power generator in a deregulated energy market may sell its excess energy on the spot market to meet unexpected changes in demand. For example, in the United States, the Federal Energy Regulatory Commission (FERC) has mandated that ancillary services be procured through competitive markets. This has led to the development of organized markets for ancillary services, such as the Independent System Operator (ISO) and Regional Transmission Organization (RTO) markets. In the European Union, tendering and bilateral contracts are the most common procurement methods for ancillary services, with some countries also using spot markets or centralized procurement through transmission system operators. However, market-based mechanisms are gaining greater currency across the world. The third challenge is with regard to remuneration. Remuneration for AS can be based on different approaches. AS can be non-remunerated at all, meaning that they are considered as mandatory support functions provided by the sources. If remuneration is used, it can be based on the following methods: 1. Regulated price: In this approach, the price for ancillary services (AS) is set by a regulator or transmission system operator (TSO) rather than being determined through a market-based mechanism. For example, in a regulated price approach, the regulator may set the price for frequency regulation at $50/MWh. This means that all providers of frequency regulation will be paid $50/MWh for their services, regardless of how much they actually sell their services for. This approach can ensure a stable and consistent revenue stream for providers, but it may not be as efficient as market-based mechanisms in terms of cost for consumers and revenue for providers. Note for policy considerations: This model can provide a stable and predictable revenue stream for providers, which can encourage them to invest in the necessary infrastructure to provide AS. However, if the regulated price is set too low, it may not provide enough incentive for providers to invest in new capacity, which could limit the growth of the market. 2. Pay-as-bid price: In this approach, providers of ancillary services submit offers for how much they are willing to sell their services for, and the TSO or other market operator will decide which offers to accept. The providers whose offers are accepted will then be paid the price of their accepted offer. For example, Provider A submits an offer to sell services for $60/MWh, Provider B submits an offer for $50/MWh, and Provider C submits an offer for $40/MWh. The TSO accepts Provider A's and Provider B's offers, and Provider A will be paid $60/MWh and Provider B will be paid $50/MWh for their services. This approach can lead to a more efficient market, as providers have an incentive to submit competitive offers in order to increase their chances of being accepted. Note for policy considerations: This can create a more competitive market as providers will have an incentive to submit low bids to increase their chances of being accepted. However, if the TSO does not set clear criteria for accepting offers, it could lead to providers submitting unrealistic bids which can be harmful to the market. 3. Common clearing price: In this approach, prices for ancillary services are determined through an auction process, where different sellers submit offers for how much they are willing to sell their services for. The TSO or other market operator will then review all of the offers and decide which ones to accept. When determining the prices for the accepted offers, the TSO will use the "common clearing price" method. This means that they will take the price of the most expensive accepted offer, and use that as the price for all of the accepted offers. For example, Provider A submits an offer to sell regulation up services for $60/MWh, Provider B submits an offer for $50/MWh, and Provider C submits an offer for $40/MWh. The TSO accepts Provider A's and Provider B's offers. The common clearing price would be $60/MWh and Provider A and B will be paid $60/MWh for their services. Additionally, The TSO also considers the price of least expensive rejected offer. For example, if Provider C's offer $40/MWh is rejected, it would also be considered while determining the common clearing price. This approach can ensure that all sellers are paid a fair price for their services, and it also incentivizes them to submit competitive offers in order to increase their chances of being accepted. Note for policy considerations: This ensures that all sellers are paid a fair price for their services, and it also incentivizes them to submit competitive offers. However, if there is only a small number of providers in the market, this approach could lead to high prices for AS. This could also lead to several market manipulations and collusions. Remuneration for AS also includes different components that reflect the different costs of the provider. The fixed allowance and the availability price refer to the cost of making a specific amount of AS available. The utilization payment and the utilization frequency cost reflect the actual use of the product and the extra cost that may arise each time the provider is called upon. The opportunity cost reflects the possible profit/loss if the provider could have sold other products instead of the respective AS. Then there is marginal pricing which refers to the practice of determining the price for the services based on the marginal cost of providing the service. In other words, the price paid for the ancillary service is equal to the additional cost incurred by the provider to produce the service. This is in contrast to other pricing methods, such as cost-plus pricing, where the price is based on the total cost of producing the service, rather than the marginal cost. Marginal pricing is often used in competitive markets to ensure that prices reflect the true cost of producing the service and to prevent providers from earning excess profits. Additionally, marginal pricing is also used to ensure that the prices for ancillary services are competitive and that consumers are not paying more than they need to for these services. Choosing a suitable remuneration model is important to develop a market for AS because it determines how providers of AS will be compensated for their services. Different remuneration models can have different effects on the market, and the right model will depend on the specific characteristics of the market and the goals of the regulator or transmission system operator (TSO). Finding the right balance between dispatch models, procurement models, and remuneration models is a consideration at the heart of policy design for developing a market for AS. To balance between these models and develop a market for AS, it is important to consider the needs and characteristics of the specific market and the stakeholders involved. For example, if a market is characterized by a high penetration of renewable energy resources, a decentralized dispatch model with high flexibility would be more suitable. This is because decentralized dispatch allows for the integration of distributed resources such as wind and solar power, which can be unpredictable and have varying output levels. By having a high level of flexibility, the system can quickly respond to changes in the availability of these resources and maintain the stability of the grid. On the other hand, if a market is characterized by a high concentration of market players, procurement through tendering would be more suitable. Tendering allows for a fair and transparent selection of providers, which is particularly important in markets with a high concentration of players as it prevents any one player from having too much market power. Additionally, if a market is characterized by a high volatility, remuneration based on pay-as-bid pricing scheme would be more suitable. This remuneration model aligns the interests of the AS providers with the needs of the system, as they will have an incentive to offer services at a lower price in order to increase their chances of being dispatched. Market Failure Market failure can occur when the free market is not able to allocate resources efficiently. The economists’ explanation to why a market may fail, includes the following: 1. Externalities: This occurs when the actions of one market participant have an impact on a third party that is not reflected in the market price. For example, pollution from a factory may harm people living nearby, but the cost of that pollution is not included in the price of the factory's products. In solar ancillary markets, externalities can occur when the generation of electricity from solar power causes negative impacts on the environment or local communities that are not reflected in the market price. For example, the construction of a large solar power plant may cause habitat destruction or displacement of local residents, but the cost of those impacts is not included in the market price of the electricity generated. 2. Public goods: These are goods or services that are non-excludable and non-rivalrous. Because it is difficult to exclude non-payers, it is difficult to charge for the use of public goods, which can lead to underproduction. An example of a public good in solar ancillary markets could be the transmission and distribution infrastructure needed to transport electricity generated by solar power plants to consumers. Because this infrastructure is non-excludable and non-rivalrous, it may be underproduced due to the difficulty of charging for its use. This is a great challenge for developing countries such as India. 3. Market power: A market failure can occur when one or a few firms have a significant degree of market power, which allows them to set prices above the competitive level. In solar ancillary markets, market power can occur when one or a few large solar power generators have significant control over the supply of electricity, which allows them to set prices above the competitive level. This can lead to higher prices for consumers and reduced competition in the market. 4. Information asymmetry: This occurs when one party in a transaction has more information than the other, which can lead to market inefficiency. In solar ancillary markets, information asymmetry can occur when one party, such as a solar power generator, has more information about the availability and cost of their electricity than another party, such as a transmission system operator or a retail electricity provider. This can lead to inefficiency in the market, as the parties with less information may not be able to make informed decisions about buying or selling electricity. To prevent negative externalities in solar ancillary markets, governments can implement policies such as carbon pricing or emissions regulations, which internalize the cost of pollution and make it part of the market price. Additionally, governments can provide incentives for solar projects that have lower environmental impact, such as those that use fewer materials or have a smaller land footprint. To prevent market power in solar ancillary markets, governments can implement regulations that limit the concentration of market players, such as net metering, feed-in tariffs, and other policies that promote distributed generation. Additionally, governments can also implement price caps to prevent prices from being set above the competitive level. Indeed, when it comes to dealing with public goods, the government has to lead the way in providing them or creating the correct incentives or covering the risks for private players with models such as public-private partnerships and/or blended finance to spur the development of infrastructure. Finally, to prevent market failure due to information asymmetry, governments can provide education and awareness programs for consumers to help them better understand the benefits and drawbacks of solar energy and also provide them with the necessary information to make informed decisions. Additionally, governments can also implement regulations that require transparency in pricing and contracts in order to ensure that consumers have access to all the necessary information to make informed decisions. Conclusion The growth of India's solar power industry is contingent upon the development and implementation of solar ancillary markets. However, the creation and development of these markets is not without challenges. These challenges include barriers to market creation and development, the design of the market, and dealing with market failure. Effective policy design must take into account these three sets of challenges and balance them in order to successfully develop and implement solar ancillary markets in India. 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Carbon border adjustment mechanisms (CBAMs) are policy tools that aim to address the problem of carbon leakage, which occurs when emissions-intensive industries relocate to countries with weaker climate policies in order to avoid carbon costs. CBAMs are intended to level the playing field for domestic industries by placing a carbon border tax on imported goods from countries without equivalent carbon pricing. There are several different designs for CBAMs, but they generally involve assessing a carbon price on imported goods based on the emissions associated with their production. The carbon price would be equivalent to the domestic carbon price or emissions trading system (ETS) price. For example, if a country has a carbon price of $50 per tonne of CO2, an imported product with emissions of 100 tonnes of CO2 would be subject to a carbon border tax of $5,000. Some of the common CBAM designs are as follows: 1. Specific border adjustment: This design involves applying a specific carbon tax on imported goods based on the emissions associated with their production. The tax would be equivalent to the domestic carbon price or ETS price. Example: A country with a domestic carbon price of $50 per tonne of CO2 applies a specific border tax on imported goods equal to $50 per tonne of CO2 emissions associated with their production. For example, if an imported product has emissions of 100 tonnes of CO2, it would be subject to a border tax of $5,000. 2. Ad valorem border adjustment: This design involves applying a border tax as a percentage of the value of imported goods. The tax would be equivalent to the domestic carbon price or ETS price. Example: A country with a domestic carbon price of $50 per tonne of CO2 applies a border tax of 2% on the value of imported goods. For example, if an imported product has a value of $10,000, it would be subject to a border tax of $200. 3. Sectoral approach: This design involves applying a border tax on specific sectors or products that are particularly emissions-intensive. The tax would be equivalent to the domestic carbon price or ETS price. Example: A country applies a border tax on imported goods from sectors that are particularly emissions-intensive, such as cement, steel, and aluminum. The tax would be equivalent to the domestic carbon price or ETS price. 4. Product-specific approach: This design involves applying a border tax on specific products that are particularly emissions-intensive. The tax would be equivalent to the domestic carbon price or ETS price. Example: A country applies a border tax on specific products that are particularly emissions-intensive, such as coal, oil, and gas. The tax would be equivalent to the domestic carbon price or ETS price. 5. Input-output based approach: This design involves assessing the emissions associated with the entire production process of a product, including the emissions associated with the inputs used in production. The tax would be equivalent to the domestic carbon price or ETS price. Example: A country applies a border tax on imported goods based on the emissions associated with the entire production process, including the emissions associated with the inputs used in production. For example, a product that has a large embodied carbon in its inputs will be subject to a higher border tax. 6. Hybrid approach: This design involves combining elements of different designs, such as a specific border adjustment and a sectoral approach, to create a more targeted and nuanced policy. Example: A country applies a combination of different designs, such as a specific border adjustment and a sectoral approach. For example, a country applies a specific border tax of $50 per tonne of CO2 on imported goods from sectors that are particularly emissions-intensive, such as cement, steel, and aluminum. One of the main advantages of CBAMs is that they help to prevent carbon leakage by ensuring that domestic industries are not at a competitive disadvantage to foreign competitors. This can help to maintain jobs and economic activity within a country, while also encouraging other countries to implement stronger climate policies. CBAMs can also help to raise revenue for government, which can be used to support climate mitigation and adaptation efforts. Additionally, CBAMs can be designed to be revenue neutral, which means that the revenue generated from the carbon border tax can be used to offset other taxes or to support domestic industries that are affected by the carbon border tax. However, CBAMs also have some potential drawbacks. One concern is that they could lead to trade disputes and retaliation from other countries. Additionally, CBAMs may disproportionately affect developing countries, as they often have weaker climate policies and may not have the same capacity to implement carbon pricing. CBAM in European Union The European Union (EU) has not yet implemented a Carbon Border Adjustment Mechanism (CBAM), but it has proposed a design for a CBAM as part of its Green Deal and efforts to achieve climate neutrality by 2050. The EU's proposed design is a hybrid approach that combines elements of different designs, such as a specific border adjustment and a sectoral approach. The EU's proposed CBAM would apply a border carbon adjustment (BCA) on imported products from sectors that are particularly emissions-intensive and have a high risk of carbon leakage. The BCA would be applied on products that are covered by the EU Emissions Trading System (EU ETS) and that are not subject to an equivalent carbon pricing in their country of origin. The BCA would be calculated based on the carbon footprint of the product, taking into account the emissions associated with the entire production process, including the emissions associated with the inputs used in production. The EU's proposed CBAM also includes a "carbon leakage list" that identifies sectors that are particularly exposed to carbon leakage and a "competitiveness safeguard" mechanism that would ensure that the BCA does not lead to significant negative impacts on the competitiveness of EU industry. CBAM: A Game Theory Perspective EU's proposed CBAM can be seen as a "strategy" or "move" in a game between the EU and other countries, particularly those that do not have a similar carbon pricing system in place. From the EU's perspective, the CBAM is a way to level the playing field for domestic producers by placing a carbon price on imports from countries without a similar carbon pricing system. This could be seen as a "punishment" or "penalty" for countries that do not have a comparable carbon pricing system, in order to discourage them from free-riding on the EU's efforts to reduce carbon emissions. From the perspective of countries that do not have a carbon pricing system, the CBAM represents a "threat" to their exports to the EU. They may respond to this threat by implementing their own carbon pricing system, or by taking countermeasures such as tariffs or other trade barriers to protect their own domestic producers. The outcome of this game will depend on the specific details of the CBAM and how it is implemented, as well as the responses of other countries. It could lead to a "race to the top" in which countries implement their own carbon pricing systems in order to avoid the penalties of the CBAM, or it could lead to trade tensions and a "prisoner's dilemma" in which both sides end up worse off. In this scenario, other countries may respond to the threat of CBAM penalties by taking countermeasures such as tariffs or other trade barriers to protect their own domestic producers. This could lead to a trade war, in which both sides end up worse off as trade is restricted and costs of goods increase. Additionally, since the CBAM is still under development, it's not clear yet how it will be implemented and what will be the exact penalties, thus the decision of other countries to implement their own carbon pricing system or not is still uncertain, but it will depend on the specifics of the CBAM and the cost of implementing a carbon pricing system for these countries. In a prisoner's dilemma, both sides may believe that the best outcome would be for the other side to make the first move, but if both sides hold out, neither side gets the best outcome. In this case, both sides may be worse off if neither implements a carbon pricing system and both face penalties from the CBAM. Given the fact thet EU is likely to make the first move, the more likely scenario is other countries coming up with their own versions of CBAM. CBAM: A Systems Thinking Perspective From a systems thinking perspective, the European Union's (EU) implementation of a carbon border adjustment mechanism (CBAM) can be understood as a change in one part of the global trade and carbon systems that can have ripple effects throughout the entire system. The EU's decision to implement a CBAM can be seen as an attempt to address the issue of carbon leakage, where companies move their production to countries without a similar carbon pricing system in order to avoid the costs of carbon pricing. By placing a carbon price on imports from these countries, the EU hopes to level the playing field for domestic producers and encourage other countries to implement their own carbon pricing systems. However, this decision could also have unintended consequences on the global trade and carbon systems. For example, other countries may respond to the CBAM by implementing trade barriers or other countermeasures, which could lead to a trade war and decrease in trade. Additionally, if other countries do not implement their own carbon pricing systems, the CBAM may simply shift carbon-intensive production to other countries rather than reducing it overall. Furthermore, since the EU is a big market and trade partner for other countries, the CBAM could also have a significant impact on the industries in those countries, particularly in developing countries, which could lead to economic hardship and job losses. Additionally, the CBAM, as a single policy, may not be enough to address the global carbon problem, but it is a piece of a bigger puzzle. The EU's CBAM should be seen as part of a larger, integrated approach that includes not only carbon pricing but also investment in low-carbon technologies and infrastructure, as well as policies to support the transition to a low-carbon economy. CBAM: Behavioral Economics Perspective The EU's CBAM can be seen as an attempt to use the power of price signals and social norms to influence the behavior of companies and countries in order to reduce carbon emissions. The CBAM creates a financial incentive for companies to reduce their carbon emissions by increasing the cost of imports from countries without a similar carbon pricing system. This can be seen as a "nudge" that encourages companies to adopt low-carbon production methods in order to avoid the penalties of the CBAM. Additionally, the CBAM also aligns with the growing public consciousness and consumer preferences towards products that align with their values, particularly in regards to climate responsibility, rather than just the cheapest option. However, the CBAM alone may not be enough to change behavior, as there are other factors that can influence decision-making, such as lack of information, lack of awareness and lack of trust on the policy. Impact on Trade with India The imposition of a CBAM on imports from countries without a similar carbon pricing system, such as India, could lead to higher costs for those products, making them less competitive in the EU market. This could result in reduced exports of such products from India to the EU. India has not yet implemented a carbon pricing system, so Indian producers would be at a disadvantage as compared to their EU counterparts. Indian producers may have to bear the additional costs of carbon pricing, which could make their products less competitive in the international market, resulting in decreased exports and potential job losses. It could also lead to increased energy costs for Indian industry and consumers, which could affect the economic growth. However, it is likely that India could implement its own carbon pricing system in response to the EU's CBAM, which would help level the playing field for Indian producers. In a joint statement, Brazil, South Africa, India, and China criticized the EU's proposal as "discriminatory" and contrary to equity and "Common but Differentiated Responsibilities and Respective Capabilities" (CBDR-RC). The EU has been a significant market for Indian exports, receiving nearly 17% of total Indian exports from 2012 to 2021. The proposed Carbon Border Adjustment Mechanism (CBAM) by the EU, if implemented, could potentially impact around 6% of these exports. The iron and steel sector, followed by the aluminium sector, will be the most affected by the CBAM among Indian exports. If the CBAM is expanded, it could potentially cover other sectors such as organic chemicals, plastics, polymers and hydrogen, eventually targeting almost all carbon intensive sectors. By proactively embracing low carbon methods, businesses can drive sustainable and robust growth. Increasing awareness among consumers is shifting their preferences towards products that align with their values, particularly in regards to climate responsibility, rather than just the cheapest option. This is leading to a competition to meet these values, creating an incentive to adopt low carbon pathways.