The government will formulate rules that will encourage research and development of electric vehicles in India
The government is contemplating a policy to promote electric vehicles in the country, for which an inter-ministerial group is currently conducting a feasibility study.
The policy, which is aimed at providing guidelines on how to promote electric and alternate fuel vehicles in the country, is likely to be finalised by this fiscal.
According to sources close to the development, a core group has been formed with representatives from different ministries, including road transport, petroleum, heavy industries and environment, and the National Manufacturing Competitiveness Council (NMCC).
While the feasibility study has been going on under the NMCC, the final draft as well as implementation of the policy will be carried out by the heavy industries ministry, sources added, reports PTI.
“The main task before the group is to find ways how to encourage research and development of such vehicles in the country. It is studying possible options to incentivise the electric vehicle industry,” a source said.
Promoting formation of joint ventures, especially in the electric vehicle (EV) battery manufacturing, making it easier for technology transfers are also some of the areas that the policy would emphasise, sources added.
The feasibility study is also looking into the infrastructural aspect to support such modes of transportation. It will evaluate how more charging points can be set up across the country.
The core group is also holding discussions with all the States for promoting alternate fuel technologies.
Currently, 4% excise duty is levied on production of EVs, while the components for EVs come under the 10% excise duty net, which the manufacturers are urging the government to waive.
The import of EVs attracts 14% duty and there is a 4% duty for import of parts.
On the sales front, while Delhi, Rajasthan, Uttarakhand and Lakshadweep do not levy any sales tax, other states charge 4%-15% sales tax or value-added tax (VAT).
"The state of affairs in the EV industry is very poor. The industry will not survive very long, unless there is government intervention. We need government support," said Society of Manufacturers of Electric Vehicles (SMEV) president Naveen Munjal.
The industry can create a niche for itself in three-five years, but with government help it can be done much faster, he added.
The size of the EV industry is pegged at about 85,000 units annually.
The main effect of a currency revaluation would be a shift of wealth from the Chinese government, the manufacturing sectors, infrastructure investment, and real-estate developers to Chinese households
According to US Treasury Secretary Timothy Geithner, China eventually will decide it needs to adopt a flexible currency exchange rate policy. Sorry, Mr Secretary, it won’t. It is not that adopting a flexible currency exchange rate is against China’s national interest. On the contrary, there are many benefits to China that would flow from revaluation.
China’s failure to adopt a flexible exchange rate is a political decision, not an economic one. While I agree that this is correct, I do not believe that it has much to do with Chinese leaders’ annoyance with international pressure or foreign relations. I believe that it represents something far more serious, the inability of a political system to change.
The revaluation of the renminbi is not something that should be looked at in isolation, but part of something much larger. China has pursued a policy that has been very successful helping the country achieve astounding rapid development. Although there are many elements, the basic concept has been growth based on investment over consumption and export over domestic consumption.
All government policies, all laws, all regulations distort economic behaviour. When the rules change, so does the game. Understanding exactly in what ways the distortions will affect economic behaviour is exceptionally difficult. In the United States in the early 1990s, the Congress passed a law to cap ever-rising executive salaries. This resulted in the creation of alternative forms of compensation like options. These were supposed to align management’s interests with those of shareholders. Often they had the reverse effect when management manipulated both earnings and options.
In emerging markets, the effect of policies, laws and regulations can have an even more disastrous effect. In Russia a rent-seeking bureaucracy utilises these mechanisms to invent new ways of extracting bribes and robbing businesses. Law and policy can function in two ways. It can limit the State or it can extend the power of the State. In Russia, the State bureaucracy is supreme. Since there is no mechanism to limit its power, there is no reason for rent-seeking bureaucrats to curb their plundering of wealth from natural resources or administrative interference in the market.
Market distortions create winners and losers. In the US, the rules regarding executive compensation became a spectacular windfall for the management in many companies. In Russia, the rules provide enormous benefits to the bureaucracy and government officials. The losers in the US have been shareholders. In Russia the losers are businesses, economic growth and most of the population. Obviously the winners have powerful economic incentives to maintain the present system.
China has a similar problem. A revaluation of the renminbi would hurt exporters—often State owned—and their employees. Their costs would go up and their revenues would go down. A Chinese exporter must pay for labour, utilities, rent, and any local inputs in renminbi. Most of Chinese exports are valued in dollars. So the value of anything that the exporter sells would go down relative to his costs. Another group that would lose from revaluation would be any company that has stockpiled goods or commodities priced in dollars. For example, Chinese State-owned companies at various times have stockpiled both copper and oil. If the renminbi were re-valued, the value of their stockpile would immediately decline.
In contrast, the winners in the Chinese economy would be just about anyone else. In a global economy, much of what we have or use comes from international trade. So although China is a huge exporter, it is also a huge importer. For example, all of the imported food, high-tech products, oil and many natural resources that China uses would immediately decrease in value.
The Chinese have stated that a cheap renminbi has allowed Western countries to have low inflation, low living cost, and a higher standard of living. But as Professor Michael Pettis of Peking University points out, a cheap renminbi “implicitly taxed Chinese household consumption to subsidise Chinese manufacturing and employment growth, it also implicitly taxed US manufacturers in order to subsidise US consumers. American consumers got cheaper (foreign) goods, American manufacturers had to compete against lower (foreign) prices.”
Professor Pettis goes on to state that the main effect of a revaluation would be a shift of wealth from the Chinese government, the manufacturing sectors, infrastructure investment, and real-estate developers to Chinese households. Exactly!!
The people with the power in China have done very well with the present set of rules and that is a large problem. They see no reason to change and so won’t. So don’t expect a major revaluation of the renminbi any time soon.
The recession has caused major disruptions in the economic fabric of world trade. The genius of market economies is that they can adapt to almost any change provided the rules can change too. The renminbi is a problem, but the policy and the inability to change it represents a greater problem for both China and the world.
(The writer, William Gamble, is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected]).
When it first hit the market, CNN was considered to be as innovative a company as Google is today. Last week, Nielsen reported that the news channel had lost roughly half its prime-time viewers in the first quarter of 2010 compared with a year earlier.