Monday after the disastrous Japanese earthquake and tsunami saw the start of a deluge of predictions and speculation over the economic impact in our connected world. Trajectories of prices were variously configured, as a function of the time path of restoration of Japanese demand, and the duration of shut-downs of Japanese manufacturing facilities.
Oil prices fell in the immediate aftermath, on the expectation of a worldwide slowdown following lower Japanese imports of industrial inputs and consumer goods, but very soon started rising again. Fossil fuel demand will increase even in the short-run in Japan, with demand crossing over from electricity shortages. India of course is among the countries most vulnerable to higher oil prices. And coal prices are expected to go up sharply too, as Japan attempts to replace the 5 per cent of electricity generation capacity it has lost irretrievably. Both oil and coal have undergone supply shocks, with political turbulence in North Africa, and flooded coal mines in Northeast Australia.
Outward Japanese investment is expected to slow down in the short term. Infrastructure in India (the Delhi-Mumbai corridor) will certainly see some delays, if not outright cancellation. The medium term forecast is that Japanese companies might diversify into countries will lower seismic risk, but India does not feature in the list of the most attractive destinations even so.
India will not suffer a tourism loss. The ghastly experiences of some Japanese women tourists have curbed what was once a widespread desire to see the land of the Buddha. And Japan as a destination accounts for only around 2 per cent of Indian exports. At a more disaggregated level, like seafood exports from Kerala, and Darjeeling tea, the demand shock will clearly be very acute.
But much the biggest issue is the impact on the nuclear power generation industry, in the world, and in India. Defenders of nuclear power generation in India are tired of pointing out that the high-level nuclear disaster just seen is a low probability event, as against the kind of grinding low level but cumulative damage to public health ever present with thermal generation. They have pointed out repeatedly that what precipitated the nuclear disaster was not the earthquake, but the tsunami. The tsunami shut down both the alternative power source from which water to cool the nuclear reactors was sourced, and the back up in the event of failure of the primary source. All that is true of course.
But the nuclear incident has driven home three very sobering lessons. First, it turns out that Japan, a model of collective order for us here in chaotic India, where the trains ran to split second timing, was also a place where information flow to the regulator was obstructed. Stories are emerging of how employees of the Tokyo Electric Power Company, which ran the nuclear facilities, were instructed to alter inspection photographs required by the utility regulator, to conceal cracks in pipes. If this could happen in Japan, how much more possible it could be elsewhere.
Second, the world realised, for perhaps the first time, that a key ingredient for running nuclear facilities is abundant water. Clearly the water needed will be fresh water, because it was the emergency resort to use of sea water, with its corrosive salt content, which knocked out the Fukushima reactors for good. Fresh water is very scarce in India, even in coastal zones. Even with water recycling, it is not too far-fetched to visualise an eventuality where fresh water will have to be pumped out of ever deeper aquifers to keep those facilities going, while drinking water for the surrounding human population is trucked in from ever increasing distances.
Third, the world realised, also for the first time, that it is not known whether the plans for disposal of the nuclear waste from Fukushima and other such plants after orderly closure remain possible after a disastrous closure of this kind. There is fear, and we do not know whether it is misplaced, of the slow leaching of its residual poisons into the soil and into the water sources of Japan.
None of these problems is insurmountable going into the future. A robust regulatory system should in principle be possible even in India, where the conduct of elections has been rendered largely impervious to meddling. The water problem is harder to resolve. Water is not priced in India at scarcity value. It is not even priced so as to cover the cost of delivering it. More even than the pricing issue, there has to be an assessment of the quantum of water requirement of a nuclear facility, and whether this quantum can be sustainably supplied going into the future. For that matter, the water requirement of thermal generation is not insignificant either. We need a critical look at the efficiency of water use in electricity generation, bother thermal and nuclear. Finally, the plans for disposal of reactor fuels at the end of their useful life, under a variety of disaster scenarios, also have to be openly discussed.
Meanwhile, we don’t seem to have lent much of a helping hand to the Japanese people in their hour of need. We sent a few blankets, but could have done much more for a country that has made such major contributions to Indian infrastructure and industry. We don’t know if our National Disaster Management Authority had any engagement at all with the search and rescue teams from the UK and US who arrived at the scene within 48 hours, with their equipment and dogs. We would have honed our own disaster management skills had we sent a team from here to join in that effort.
The writer is Honorary Visiting Professor, ISI, Delhi
