• Current Affairs, 20 May 2020

    ECONOMY/ GOVERNANCE/ ENVIRONMENT

    RELEVANT FOR: – POLITY / TOPICS: – INDIAN ECONOMY AND ISSUES RELATING TO PLANNING, MOBILIZATION, OF RESOURCES, GOVERNMENT POLICIES AND INTERVENTIONS FOR DEVELOPMENT IN VARIOUS SECTORS

    Reviving the automobile sector

    Context: In the post-Covid world, electric vehicles will be key not only to breathing new life into the automotive sector but also to decarbonising it

    Did You Know?

    • By 2050, every second car produced globally would be electrically powered.
    • Research by Deloitte Global Automotive shows that over 50% of the consumers are still unclear about the safety of the battery and the availability of adequate charging stations leading to slower adoption of E-vehicles

    Problems of Indian Automobile Sector 

    1. In pre-COVID times
      • Declining consumer demand
      • Difficulty in transitioning into BS-VI technology
      • Extinguishing inventories of left-over BS-IV vehicles
      • Credit crunch in the NBFC sector
    2. In Post-COVID times
      • Challenges of dealing with a completely new environment – rising protectionism and decline in international trade
      • Decreased purchasing power of consumers
      • Disruption in manufacturing capabilities
      • Issues with inventory management and labour shortages
      • Need for emergency response mechanisms in the backdrop of disrupted global supply chain

    India and E-Vehicles

    • Strong growth: The EV industry in India managed to post a decent 20% increase in sales in FY20 compared to FY19
    • Policy Push by government for e-vehicles:The GST council reduced the rates from 12% to 5% for vehicles, and from 18% to 5% for vehicle chargers.
    • Push by State governmentsto adopt e-vehicles For ex: Kerala government has instructed all its departments to purchase only e-vehicles from the next financial year.
    • Dedicated schemes like FAME(Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) have incentivised local manufacturing and the growth of domestic technology.

    Electric Vehicles – Prospects in Post-COVID times

    • Personal mobilityis going to pick up again post-Covid, as people would avoid mass transport thus giving boost to e-vehicles
    • Driver of growth:In Post-COVID times, fastest growth for automotive sector would come from the e-rickshaws segment that plugs last-mile connectivity.
    • India’s Demographic advantage:Surveys point that younger consumers, particularly females, are more willing to invest in EVs than older generation.
    • Environmental friendly:Increased environmental awareness among public, especially after COVID crisis, could lead to increased adoption for e-vehicles

    Way Ahead

    • There should be a further policy pushfor a visible shift towards increased EV adoption
    • Banks should devise innovative credit schemesto push for such a shift.
    • The government should focus on augmenting the charging infrastructure 
    • Governments should also have in place a scrappage policythat drives new-vehicle sale.
    • Existing automobile companies should make e-vehicles more affordable and maintenance easier, with quick availability of parts (no dependence on import)

    Conclusion

    • EVs are the only way to decarbonise the transport sector and achieve India’s ambitious target of complete green mobility by 2030.

    Connecting the dots:

    • EV Batteries – dependence on China for supply of Lithium
    • Challenges with regard to air transport in Post-COVID times

    ECONOMY/ GOVERNANCE

    Relevant for: – Economics, Topics :-Indian Economy and issues relating to planning, mobilization, of resources, Government policies and interventions for development in various sectors 

    Financing the Stimulus: Privatization

    Context: As the government announced COVID relief & stimuli package equivalent to nearly 10% of India’s GDP, there are questions regarding the means to finance it

    Overall Stimulus provided by Atmanirbhar Bharat Package is as follows:

    Sectors (Rs. Cr.)
    Part 1 Support for MSME, EPF, Liquidity scheme for NBFC/HFC/MFI, DISCOMs 5,94,550
    Part 2 Foodgrain for Migrants, Interest subvention for MUDRA loans, Support to Street Vendors, NABARD, KCC 3,10,000
    Part 3 Food Micro Enterprises, PM Matsya Sampada Yojana, Agri Infrastructure fund, Animal Husbandry etc. 1,50,000
    Part 4 and 5 Viability Gap funding, MGNREGA funding 48,100
    Sub-Total 11,02,650
    Earlier Measures incl PMGKY 1,92,800
    RBI Measures (Actual) 8,01,603
    GRAND TOTAL 20,97,053

    Can government find the money through increase in fuel tax?

    • Government has already increased the excise duty on petrol and diesel by Rs 3 per litre in March, hence the space for further increase is less
    • Also, such a move would contradict the very idea of a relief and stimulus package. This is because an increase in the fuel price would affect purchasing power especially that of poor

    Can government fund the package through borrowings?

    • The rupee is at its lowest level compared to the US dollar and any borrowings will make it harder for the government to pay back its debt
    • Since external borrowings must be paid back in borrowed currency, exports and foreign reserves are generally the only two reliable options to pay back debt.
    • However, with inevitable global slowdown there will be consequent drop in exports which impacts India’s debt repaying ability
    • More overseas borrowing, combined with the industry’s high debt status, could lead to rating agencies downgrading India’s investment ratings
    • On the positive side, India’s foreign reserves stand at an all-time high which could be strategically used to finance its needs

    Privatization as a route to finance the relief package

    • Governments across the world are resorting to privatisation to fill budgetary gaps
    • According to India’s new Public Sector Enterprises Policy (PSEP), a list of strategic sectors will be notified where there will be no more than four PSUs
    • Before the COVID-19 crisis, the government needed the privatisation money partly because its revenue (from GST among other things) was declining
    • Today, the government needs this money to fund the relief package without excessively crossing the fiscal limits
    • Government is planning the privatization of BPCL, Shipping Corporation of India, Container Corporation of India, THDC, NEEPCO and Air India among other PSUs

    Challenges with regard to Privatization

    • Revenue from privatisation is a one-off benefit
    • Generally, only profit-making PSUs are sold at a good price.
    • Successful privatisation requires a prospective buyer. In the present slowdown times, Industrialists are facing problems running their own business
    • Excessive political interference with the private sector makes owning an ex-government entity even riskier thus discouraging participation in privatization process
    • A handful of Indian capitalists who are capable of buying big PSUs leads to sectors of economy coming under the influence of quasi-monopolies
    • Buying of PSUs by few Capitalists could also foster crony capitalism and may even result in the making of oligarchs.

    Conclusion

    Funding has to come from privatisation, taxation, loans and international aid.

    Connecting the dots:

    • 1991 LPG reforms – Critical Analysis
    • Investment Models

     

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