The Hindu Editorial Analysis
22 March 2021

1) Junk inefficiency

Scrappage policy can work if incentives are confined to fuel-efficient vehicle replacements

GS 2: Government Policies & Interventions

GS 3: Environmental Pollution & Degradation

Infrastructure

Indigenization of Technology

 

CONTEXT:

  1. The much-awaited vehicle scrappage policy announced by the Transport Ministry, coming after the move for a green tax on ageing and polluting automobiles, promises economic benefits, a cleaner environment and thousands of jobs.
  2. Although it will take until April 1, 2022 for vehicles belonging to the government and the public sector to be scrapped, another year thereafter to identify junk heavy commercial vehicles through mandatory fitness checks, and finally other vehicles by 2024, it is a constructive road map.

 

What is the proposed Vehicle Scrappage Policy?

  1. The private vehicles older than 20 years and commercial vehicles older than 15 years, can be scrapped voluntarily. To run these vehicles on the road, a fitness certificate (FC) will be mandatory.
  2. Automated vehicle fitness centres belong to the government will issue certificates after conducting fitness tests.
  3. Each fitness certificate is valid for five years. After that vehicle will undergo another fitness test.
  4. If a vehicle fails the fitness test, the government will not provide renewed Registration Certificates (RC) for those vehicles. As per the Motor Vehicle Act, 1988, driving a vehicle without an RC is illegal in India.
  5. Each vehicle is permitted to have three failures in the fitness test. After that, the vehicle might be forwarded to vehicle scrapping.
  6. The government is expected to provide monetary incentives to the owners scrapping the vehicles.

 

 

WHY IT IS NEEDED?

  1. India’s automobile ecosystem is complex, with dominant, legacy motors spanning fossil-fuel driven vehicles and a nascent EV segment. The industry’s share pre-COVID-19 was about 7.5% of GDP with significant downstream employment, but it also imposes a fuel import burden.
  2. According to the Centre for Science and Environment (CSE), by 2025 India will have over two crore old vehicles nearing the end of their lives. Not only that, India adds 1,400 vehicles every day. The scrappage policy will reduce the congestion on the roads.
  3. IIT Bombay’s conducted a multi-city study in 2014. The study estimated that pre-2005 vehicles were responsible for 70 per cent of the total pollution load from vehicles. The scrappage policy will be a shot in the arm for these polluting vehicles.

 

ADVANTAGES:

  1. Stimulate the domestic automobile and automotive industry. The automobile industry is projected to grow at an annual rate of 22% if this policy is implemented properly.
  2. Provide a massive opportunity for players in the organised scrappage and recycling industry.
  3. The scrapping will provide recovery of steel, aluminium, plastic etc. and boost the industries associated with it.
  4. Reduce the pollution level by 25 percent as compared to old commuting vehicles.
  5. The Scrappage policy will reduce the pollution level and also fulfil India’s commitment to reduce CO2 levels to tackle Climate Change.
  6. According to an estimate, taxes from the automobile sector will amount at Rs 10,000 Crores, if scrappage policy is implemented properly.

 

CHALLENGES:

  1. Heavy commercial vehicles, which contribute disproportionately to pollution — 1.7 million lack fitness certificates — pose the biggest challenge. Many of these cannot be replaced quickly in the absence of financial arrangements for small operators, who have opposed the new measures.
  2. States are not entirely on board, and has the difficult task of ensuring that the scrappage plan gets their support, and the backing of manufacturers who stand to benefit from a spurt in demand.

 

WAY AHEAD:

  1. To put in place a credible system of automated fitness checking centres with help from States to assess whether commercial and private vehicles are roadworthy after 15 and 20 years, respectively, as the policy envisages.
  2. Equally important, enforcement will be key to get them scrapped once they are found unfit for use and to stop them from moving to smaller towns.
  3. States must also come on board to provide road tax and registration concessions, while the automobile industry is expected to sweeten the deal with genuine discounts on new vehicles.
  4. The Centre has to arrive at a balance and have incentives that reward manufacturers of vehicles that are the most fuel-efficient.
  5. Failure to prioritise fuel efficiency and mandate even higher standards and enhance taxes on fuel guzzlers will only repeat the mistakes of vehicle exchange programmes abroad, where full environmental benefits could not be realised, and taxpayers ended up subsidising inefficiency. 

 

CONCLUSION:

  1. Vehicle scrappage and replacement is seen internationally as a route to rejuvenate COVID-19-affected economies by privileging green technologies, notably electric vehicles (EVs), and also as an initiative to achieve net zero emissions by mid-century under Paris Agreement commitments.
  2. Ecological scrapping, as a concept, must lead to high rates of materials recovery, reduce air pollution, mining and pressure on the environment.

 

2) Rising poverty

With the spurt in COVID-19 cases, the nascent economic recovery is under threat

GS 2: Important International Institutions

GS 3: Inclusive Growth

 

CONTEXT:

  1. A new research conducted by Pew Research Center has found that the coronavirus pandemic has pushed about 32 million Indians out of the middle class and increased poverty in the country.
  2. COVID-19 pandemic has had a disproportionately deleterious impact on living standards in India and China in 2020, with the sharp economic contraction in the former pushing as many as 7.5 crore people into the ranks of the poor (those who earn $2 or less a day).

 

 

FINDINGS:

  1. The poverty rate in India likely rose to 9.7% in 2020, up sharply from the January 2020 forecast of 4.3%.
  2. In absolute terms, the number of poor in India is posited to have swelled to 13.4 crore, reversing the gains made in the preceding nine years when the country cut the number of poor by more than three-fourths to an estimated 7.8 crore in 2019.
  3. The middle class in India is estimated to have shrunk by 3.2 crore in 2020.
  4. The vast majority of India’s population fall into the low income group.
  5. This group shrank from 119.7 crore to 116.2 crore per day, with about 3.5 crore dropping below the poverty line.

 

COMPARISON WITH CHINA:

  1. In China, the population of the poor likely inched up to 40 lakh, matching the 2019 level. Similarly, the numbers of India’s middle class — those with a daily income of $10.01–$20 — are projected to have shrunk by 3.2 crore to about 6.6 crore, compared with the number this income cohort would have reached absent the pandemic.
  2. Here again, China likely experienced just one-third the level of contraction, with the population of those deemed as middle income set to have narrowed to 49.3 crore compared with the pre-pandemic projection of 50.4 crore.

 

ABOUT ASSESSMENT:

  1. The Pew assessment, which is based on an analysis of the World Bank’s PovcalNet database, does, however, acknowledge the multiple assumptions that inform the study.
  2. These include varying base years for income/consumption figures — with India’s from 2011 and 2016 for China. Still, the study serves as a stark reminder of the economic disparities, both within India and at a comparative level with its northern neighbour. 
  3. The latest report once again spotlights the widening inequality in India, exacerbated by the pandemic, as the lower income populations have disproportionately borne the brunt of job and income losses in the wake of the multiple lockdowns.

 

MEASURES TAKEN:

  1. The fiscal policy response to redress this massive increase in precarity has also been underwhelming, especially when viewed from the perspective of the pre-pandemic tax cuts that the government handed to corporates in an attempt to revive private investment and rekindle growth.
  2. That the National Rural Employment Guarantee scheme has been seeing record levels of demand is testimony to the struggles those in the rural hinterland have been facing in finding gainful employment since the onset of the pandemic. 

 

CONCLUSION:

  1. With the number of COVID-19 cases once again rising disconcertingly across the country, there is a clear and present danger that not only could any nascent economic recovery be stymied even before it gains traction but that the number of those sliding into poverty could jump dramatically.
  2. The policy responses to the rising wave of infections could well test the government’s ‘lives versus livelihoods’ playbook to the hilt.

 

3) Doubling down on a resilient India

GS 3- Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment

 

CONTEXT:

  1. Asia watchers observing China are, above all, missing the real economic shift at play — that this is India’s economic decade.
  2. Despite CEOs and investors alike having faced years, if not decades, of false starts in the subcontinent, it is undeniable that almost every major global company is either contemplating or operating on the assumption that India is a key part of their growth story.

 

FDI INFLOWS:

  1. Google, Facebook, Walmart, Samsung, Foxconn, and Silver Lake have been just a handful of the firms that made big ticket bets on India in 2020.
  2. As a result, even as India experienced one of the world’s sharpest economic contractions, it also saw the fastest growth in Foreign Direct Investment (FDI) inflows among all the major economies last year.
  3. India’s $60 billion-plus tally for new annual FDI equity inflows was its largest-ever haul and a milestone.
  4. That India should emerge as a leading destination for FDI might strike some observers as an unexpected outcome. It is certainly one that deserves parsing.
  5. Indeed, a significant share of India’s FDI inflows arose from foreign investments directed solely at Reliance Jio.
  6. Meanwhile, India’s latest FDI totals still lags behind the highest tallies in other markets such as China and Brazil.

 

 

ADAPTING TO THE INDIAN MARKET:

  1. Three decades after its economy was liberalised, India remains a complex and challenging place to do business.
  2. Frequent shifts in the policy landscape and persistent market access barriers are standard complaints levied against India by the business community.
  3. Meanwhile, the Modi government’s push to build a “self-reliant” India has also rattled restive investors and smaller companies that lack the resources to navigate on-the-ground hurdles.
  4. Still, leading corporate investors see the Indian market differently. They recognise that doing business in India — or any emerging market for that matter — comes with inherent risks but that adaptation in approach is critical to success.
  5. Most importantly, they have the vision to understand that these are risks worth taking given the scale of the India Opportunity.

 

DYNAMICS:

  1. Four core dynamics drive this calculus and explain why multinational companies are making India an essential part of their growth story.
  2. FIRST, sheer demographics. What India offers through its nearly 1.4 billion people and their growing purchasing power is uniquely valuable for multinationals with global ambitions.
  3. No other country outside of China has a market that houses nearly one in six people on the planet and a rising middle class of 600 million.
  4. Failure to compete for a share of Indians’ wallets is not just a missed strategic opportunity; it’s borderline malpractice at the boardroom level.
  5. SECOND, shifting geopolitics. Rising U.S.-China competition is redefining the global landscape for investment and manufacturing, forcing multinationals to rethink their footprints and production hubs.
  6. Savvy countries such as Vietnam have capitalised on this opportunity to great effect, but India is finally getting serious about attracting large-scale production and exports.
  7. Major multinational companies such as Samsung have invested billions in the Indian market, and manufacturers such as Cisco, Nokia, Ericsson, and Flex are reportedly weighing new investments that take advantage of fresh incentive programs.
  8. THIRD, rising digital connectivity. Cheap mobile data have powered a revolution across India’s digital economy and connected an estimated 700 million Indians to the Internet.
  9. As Mr. Modi has said, more than 500 million Indians still remain offline, and the rise of these ‘next gen netizens’ is a key reason why leading global tech companies are investing in India and weathering acute policy pressure.
  10. Domestic Indian companies have also demonstrated their ability to innovate and deliver high quality services at scale.
  11. The partnerships and FDI flows linking multinationals and Indian tech firms will continue to unlock shared market opportunities for years to come.
  12. FOURTH, national resilience. Despite facing the scourge of the novel coronavirus head on, India has managed the pandemic better than many of its western peers and restored economic activity even before implementing a mass vaccination programme.
  13. These are remarkable developments, and yet they speak to India’s underlying resilience even in the face of historic challenges.
  14. This ethos will serve India well as it navigates the complex challenges of the 21st century, and global investors are clearly taking note.

 

VALUE CREATION:

  1. Success should not be measured by valuations but value creation. Valuations are merely a function of the value a startup is able to generate for its customers, shareholders, business partners, the society and economy as a whole.
  2. Many such extremely valuable companies are acquired by corporates and other strategic partners even before they reach the ‘Unicorn’ status.
  3. The World and India, in particular, is on the cusp of another information revolution.
  4. India is witnessing a tremendous opportunity to create new value, as we can bypass the industrial economy to leap-frog into the information age.
  5. The last decade has seen many companies leveraging the power of the internet and digital technology.
  6. This trend will continue and accelerate as we witness re-invention of entire industries which are driven by the young population of India, a growing digitally-native economy – who are reaching out to use more efficient digital-first products and services to fulfil their dreams.
  7. Of course, unlocking opportunities in the Indian market cannot take the form of a one-way wealth transfer, and companies should not expect a warm welcome without continuously demonstrating their commitment to India.
  8. Successful companies do this by placing shared value creation at the heart of their business strategy.
  9. They tie corporate success to India’s growth and development. They forge enduring partnerships and lasting relationships, elevate and invest in Indian talent, align products with Indian tastes, and ultimately tackle the hardest problems facing India today.

 

CONCLUSION:

  1. Charting a path forward in this dynamic growing market will require corporate executives to make new commitments and navigate choppy waters.
  2. But for leading companies with global ambitions and a willingness to make big bets, the rewards of investing in the Indian market are substantial and well worth pursuing.