Content:
- The hidden cost of greenwashing the Indian Railways
- Levy a higher GST rate on tobacco, sugared beverages
- Green hydrogen and the financing challenge
The Hidden Cost of Greenwashing the Indian Railways
Context : RITES Ltd., consultancy arm of Indian Railways, won contracts to repurpose six broad gauge diesel-electric locomotives for export to African railways.
Relevance : GS 3(Environment )
Practice Question : Critically examine the impact of Mission 100% Electrification on the operational efficiency, environmental sustainability, and asset utilisation of Indian Railways. (250 words)
- Locomotives will be converted for Cape Gauge (1,067 mm) from Indian broad gauge (1,676 mm).
- Marks the first significant attempt at exporting second-hand locomotives post gauge conversion.
Policy and Asset Management
- As of March 2023, 585 diesel locomotives were idling due to railway electrification; the number has since risen to 760.
- Over 60% of these locomotives have a residual life exceeding 15 years.
- Government’s rapid electrification policy rendered these assets prematurely redundant.
Electrification Justifications
- Objectives outlined by the Ministry of Railways include:
- Reducing crude oil imports (foreign exchange savings).
- Reducing environmental pollution.
- Promoting renewable energy like solar and wind along railway tracks.
- However, railway diesel oil consumption accounts for only ~2% of the transport sector’s total diesel usage.
Environmental Concerns
- Nearly 50% of India’s electricity is coal-generated, making electrification less environmentally sustainable.
- Indian Railways relies heavily on coal freight, which constitutes 40% of its total freight earnings.
- Electrification shifts pollution from diesel locomotives to coal-fired power plants, negating “green” claims.
Economic Viability
- 100% electrification may not be cost-effective due to reliance on coal power and the continued use of diesel locomotives for freight and disaster management.
- Financial sustainability hinges on coal freight, potentially leading to a crisis if alternative commodities are not found.
Redundancy and Utilization of Diesel Locomotives
- Indian Railways retains 2,500 diesel locomotives for disaster management and strategic purposes, questioning their utility in a “green railway.”
- Another 1,000 locomotives remain operational to meet traffic demands.
- Majority of idle locomotives face premature scrapping, representing colossal asset wastage.
Flawed Policy Design
- Electrification should be driven by pragmatic policymaking, leading to efficient usage of taxpayers’ money.
- Unplanned electrification has created a dichotomy where diesel locomotives coexist with a supposed “green” railway.
Levy a Higher GST Rate On Tobacco, Sugared Beverages
Context : The proposed GST hike from 28% to 35% on tobacco and sugar-sweetened beverages aims to curb their consumption and address public health and fiscal challenges.
Relevance : GS 2(Governance )
Practice Question :Discuss the potential impacts of raising the GST rate from 28% to 35% on tobacco and sugar-sweetened beverages in India. What further tax reforms could be implemented to address public health and challenges.(250 Words)
GST on Harmful Products
- No significant GST rate increases on tobacco and sugar-sweetened beverages in the last seven years.
- Only two minor hikes in National Calamity Contingent Duties (NCCD) on tobacco.
- Products have become more affordable, undermining consumption control efforts.
Proposal by Group of Ministers (GoM)
- Recommendation: Raise highest GST tier on tobacco and sugar-sweetened beverages from 28% to 35%.
- Further Tax Reforms: Essential for tackling public health and fiscal challenges.
Impact of Proposed GST Rate Hike
- India’s Tobacco Consumption:
- Second-largest consumer globally.
- 28.6% of adults and 8.5% of students (aged 13-15) use tobacco.
- Leading risk factor for non-communicable diseases (NCDs).
- Causes over 3,500 daily deaths in India.
- Economic burden (2017): ₹2,340 billion (1.4% of GDP).
- Annual tobacco tax revenue: ₹538 billion.
- Expected Outcomes:
- 35% GST rate would reduce tobacco consumption and increase tax revenues.
- Additional ₹43 billion annually from beedis, cigarettes, and smokeless tobacco.
- Higher Impact with 40% GST Rate:
- Greater price increase, larger consumption reduction.
- Additional ₹72 billion in revenue.
- Reduces tax burden discrepancy among tobacco products.
- WHO FCTC Recommendation: Comparable taxation for all tobacco products.
Concerns About Illicit Trade
- Tobacco Industry Claims: Increased illicit trade due to higher taxes.
- Evidence: Tax hikes have minimal impact on illicit trade.
- Key Factors: Quality of tax administration, regulatory frameworks, government commitment, governance, social acceptance, and informal distribution networks.
Balancing GST and Excise Taxes
- Current Issue: Reliance on ad valorem GST to regulate tobacco consumption.
- Effectiveness: Specific excise taxes more effective than ad valorem taxes.
- Decline in Excise Taxes: Since GST introduction, reducing effectiveness.
- Recommendation: Raise excise taxes alongside GST for a stronger tax framework.
Proposed GST Hike on Sugar-Sweetened Beverages
- Significance: Major contributor to obesity, diabetes, and other NCDs.
- 35% GST Rate: Could discourage consumption and align with public health goals.
- Additional Health-Focused Levies: Consider specific excise tax on sugar-sweetened beverages.
Key Considerations for GST Council
- Raise GST Rates to 40%: For tobacco and sugar-sweetened beverages.
- Mixed Tax Structure: Pair with higher excise taxes.
- Reduce Discrepancy in Tax Burden: Among beedis, cigarettes, and smokeless tobacco.
- Public Health and Economic Impact: Reduce health and economic impacts while generating vital revenue.
Green Hydrogen and The Financing Challenge
Context : India’s Green Hydrogen Ambition
- Goal: Produce 5 million metric tonnes (MMT) of green hydrogen annually by 2030.
- Challenge: Economics of financing these projects.
Relevance : GS 3(Environment )
Practice Question: Analyse the challenges and opportunities of achieving India’s goal of producing 5 million metric tonnes of green hydrogen annually by 2030. Discuss the challenges and opportunities .(250 Words )
Current Progress:
- Analysis by BloombergNEF: India on track to meet only 10% of its stated goal.
- Cost Disparity: Green hydrogen production ($5.30-$6.70 per kg) vs. grey/blue production ($1.9-$2.4 per kg).
- Market Deadlock: High costs hinder domestic off-take and private investment; scaling needed to reduce costs.
Barriers:
- Key Factors: Levelised cost of electricity (LCOE) and electrolysed costs.
- Cost of Capital: Higher borrowing costs in emerging markets like India increase WACC, impacting overall costs.
- Impact of WACC: Increase from 10% to 20% can raise hydrogen costs by up to 73%.
- Electrolyzer Costs: $500-1,400/kW (alkaline) and $1,100-1,800/kW (proton exchange membrane).
Global Perspective:
- Investment Status: By May 2024, only 27.6% of large-scale clean hydrogen projects had reached final investment decisions.
- Structural Barriers: Extend beyond technological readiness.
Policy Approaches:
- UK: Low Carbon Hydrogen Standard Certification.
- Strategic Hydrogen Hubs: US, Japan, and Australia focus on integrated ecosystems.
De-risking Investments:
Comprehensive Policy Framework:
- Long-term hydrogen purchase agreements.
- Partial loan guarantees to reduce investor uncertainty.
- Regulatory sandboxes for rapid experimentation.
Innovative Financial Products:
- Move beyond traditional project finance paradigms.
- Develop products for hydrogen’s unique challenges.
- Modular project financing for scalable phases.
- Anchor-plus financing models.
- Equipment-leasing structures for manageable operational expenses.
International Collaboration:
- Standardised carbonintensity and hydrogenorigincertification.
- Cross-border partnerships for demand certainty.
Strategic Focus for India:
- Industrial Hubs: Early projects in Odisha, Maharashtra, and Gujarat to demonstrate viable models.
- Financial Structuring: Integration from the outset.
- Price Suitability: Delivering hydrogen at competitive prices.
