Government paying lip service to solar and EV players

Last week, possibly in order to soften the pain for anelectorate in the months preceding general elections, the government (throughits finance ministry) reduced GST on several items.  Among them was the reduction of GST onbatteries from a crippling 28% to a still painful 18%.

At the same time, another arm of the government – the powerministry – announced (https://powermin.nic.in/sites/default/files/webform/notices/scan0016%20%281%29.pdf) that it would bepromoting electric vehicles (EVs) by slapping a cess of Rs 25,000 on each newconventional vehicle fuelled by hydrocarbons. The ministry conveniently forgotthat there are better ways of promoting EVs than by charging customers.

Government paying lip service to solar and EV players

In an earlier, but critically important move, the governmentalso slapped a 25% import duty (safeguard duty) on solar panels. Take the threetogether, and you get an idea of how the government thinks. Its policies runcounter to its stated mission of introducing environmentally friendlier cars,encouraging solar power, and of making both affordable.

All the three moves listed suggest that the government ismerely paying lip service to the solar and EV sectors. It actually wants toprotect its oil and gas businesses and is not serious about either solar orEVs, Let’s look at the three sectors listed above one by one.

Take batteries first. India’s battery demand currently stands at around 2.6 billion batteriesfor gadgets – going purely by what Eveready Industries has stated in its2017-18 annual report.  It states that itcurrently sells around 1.3 billion battery units which account for 50% ofdomestic market share. The market for bigger batteries – made by the likes ofExide Industries and Amara Raja — is even bigger. 

But demand from India pales into insignificance whencompared to global demand for batteries. Bloomberg estimates the current demandat 132 GWH (see chart) and believes that this could soar by at least 14 timesby 2030. The biggest users are bound to be EVs, consumer gadgets and solarpower installations for homes and offices.

In fact, the figures seem to tie in with the majordisruption that is expected in the power and automobile sectors. To understandhow tremendously disruptive these forces could be, it is worth watching aone-hour lecture by Tony Seba on Youtube (https:// www. youtube.com/watch?v=2b3ttqYDwF0).

Batteries are critically important for both EVs and solarpower units. So why keep the GST at 18%. They are a necessity. The GST should not have been over 5%.  As an MNRE (Ministry of Renewable Energy)document (https://mnre.gov.in/file-manager/UserFiles/Implications-of-GST-on-delivered-cost-of-Renewable-Energy.pdf)itself points out, the effect of this high GST will result in higher endtariffs by 12-20% depending on whether the unit is on-grid or off-grid. 

Thus the higher GST on batteries will make EVs, mobilephones and rural solar power more expensive by as much as 20%. That is no wayto be customer friendly. The only saving grace is that there are no importduties for batteries. What a relief!

Take solar panels next. The government wants to promotesolar power.  But it has slapped animport duty of 25% on solar panels, ostensibly to protect solar panelmanufacture in India.  Check with solarplayers, and they find that suggestion laughable. Domestic production of solarpanel is still too fragmented and too small to be of any major relevance to thesolar industry.  Most players stillimport such panels in spite of high import duties. Result: the customer willpay more for solar power as well.

Take the third issue – EVs. Why is the government so keen oncharging customers of conventional vehicles Rs 25,000 more? The transitiontowards EVs is now unstoppable as Tony Seba points out. The government shouldinstead be dusting off the old proposal made by the automobile association inApril 2016 (http://asiaconverge.com/2016/04/new-vehicles-for-old/).  It had proposed a scheme which wouldencourage customers to surrender their old (and fuel guzzling) vehicles atdesignated centres and instead get a 50% excise duty rebate from the governmenton the purchase of new vehicles. The government has merely to modify thatproposal and state that the discount in excise would be for EVs only.

Overnight, there is an incentive for customers to discard(fuel guzzling, environmentally unfriendly) old vehicles.  The price of EVs falls further for suchcustomers. The government collects more taxes because of an increased salevolume. The steel industry gets vehicle scrap which reduces steel scrapimports. And the switchover to EVs will reduce oil import bills.

One expects the government to think big, and in ways thatbenefit consumers. Is that too much to expect from the Indian government?

RN Bhaskar is consulting editor with FPJ.

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