Editorial #1 The hidden cost of greenwashing the Indian Railways
The Hidden Costs of Greenwashing in Indian Railways’ Electrification Drive
Indian Railways has embarked on an ambitious mission to achieve 100% electrification of its broad gauge network, positioning itself as a global leader in green transportation. By the end of 2023, the network was over 96% electrified, with plans to complete the remaining segments shortly thereafter. citeturn0search0
Policy Justifications and Environmental Claims
The primary justifications for this rapid electrification include:
- Foreign Exchange Savings: Reducing dependence on imported crude oil by transitioning to electric traction.
- Environmental Benefits: Lowering carbon emissions and air pollution by replacing diesel locomotives with electric ones.
- Renewable Energy Integration: Facilitating the use of renewable energy sources, such as solar and wind, by leveraging the extensive land along railway tracks.
However, a closer examination reveals complexities that challenge these assertions.
Economic Considerations
While electrification does reduce diesel consumption, the savings in foreign exchange are relatively modest. Studies indicate that the transport sector accounts for 70% of total diesel consumption, with railways contributing just 3.24%. Therefore, eliminating diesel use in railways addresses only a small fraction of the overall diesel consumption.
Environmental Impact
The environmental benefits of electrification are contingent upon the energy mix used for electricity generation. In India, approximately 50% of electricity is generated from coal-fired thermal plants. Consequently, replacing diesel locomotives with electric ones may merely shift pollution from railway tracks to power plants, without a net reduction in emissions. Achieving significant environmental gains would require a substantial increase in renewable energy capacity, which remains a long-term goal.
Asset Management and Financial Implications
The rapid pace of electrification has led to a surplus of diesel locomotives, many of which are still serviceable. As of March 2023, approximately 585 diesel locomotives were idle due to electrification, with over 60% having a residual life of more than 15 years. This situation raises concerns about the efficient use of public resources and the financial implications of prematurely decommissioning functional assets.
Strategic and Operational Challenges
Despite the push for electrification, a significant number of diesel locomotives are retained for “disaster management and strategic purposes.” Reports suggest that around 2,500 diesel locomotives are set aside for these roles, indicating a continued reliance on diesel traction. This dual approach—pursuing 100% electrification while maintaining a substantial diesel fleet—highlights the complexities and potential contradictions in the current strategy.
Conclusion
While the goal of a green railway network is commendable, the current approach to 100% electrification may not fully align with environmental objectives or optimal resource utilization. A more nuanced strategy is needed, one that balances environmental benefits with economic realities and ensures the efficient use of existing assets. This would involve a comprehensive assessment of the energy mix, a phased approach to electrification, and a clear plan for the management of surplus diesel locomotives to avoid unnecessary financial and environmental costs.
In summary, the pursuit of a “green” Indian Railways through rapid electrification must be critically evaluated to ensure that it delivers genuine environmental benefits without incurring hidden costs.
Editorial #2 Levy a higher GST rate on tobacco, sugared beverages
Levy a Higher GST Rate on Tobacco and Sugar-Sweetened Beverages
The Goods and Services Tax (GST) system in India has faced criticism for its approach toward taxing harmful products such as tobacco and sugar-sweetened beverages. Over the past seven years, despite minor increases in National Calamity Contingent Duties (NCCD) on tobacco, there has been no significant revision in GST rates for these products. As a result, they remain affordable, contributing to the rise in consumption and exacerbating public health challenges. In this context, the recent proposal by the Group of Ministers (GoM) to raise the highest GST tier on tobacco and sugar-sweetened beverages from 28% to 35% is a welcomed step. However, to effectively address the public health and fiscal concerns associated with these products, more comprehensive tax reforms are essential.
Impact of Proposed GST Rate Hike
India is the second-largest consumer of tobacco globally, with alarming figures—28.6% of adults over 15 years and 8.5% of students aged 13 to 15 years using tobacco in some form. Tobacco use is a leading risk factor for non-communicable diseases (NCDs), causing over 3,500 deaths daily in the country. The economic burden of tobacco use is staggering, with an estimated annual cost of ₹2,340 billion, or 1.4% of GDP, while the government collects only ₹538 billion in tobacco tax revenue annually. The proposed GST hike to 35% is expected to reduce tobacco consumption and bolster tax revenues. Preliminary estimates suggest that a 35% GST rate would lead to a 5.5% price increase, a 5% drop in consumption, and an 18.6% revenue rise for beedis. For cigarettes, prices would increase by 3.9%, consumption would decline by 1.3%, and revenue would grow by 6.4%. Smokeless tobacco would see a 3% price rise, a 2.7% reduction in consumption, and a 1.9% increase in revenue. This could generate an additional ₹43 billion annually, if the industry does not over-shift the tax burden and inflate prices excessively.
Despite this, the 35% GST rate falls short of the 40% peak rate permitted under GST law. A 40% rate would yield a greater impact by increasing prices more sharply, reducing consumption further, and generating an additional ₹72 billion in revenue. This would also minimize the risk of industry over-shifting the tax burden and securing a more balanced tax structure. Currently, the tax burden on tobacco products is uneven, with taxes accounting for only 22% of the retail price of beedis, while cigarettes have a tax share of 49.5% and smokeless tobacco at 64%. A 35% GST rate would improve this disparity marginally, raising their respective tax shares to 26%, 51%, and 65%. However, a 40% rate would narrow this gap even further.
Additionally, India’s commitment to the World Health Organization Framework Convention on Tobacco Control (WHO FCTC) underscores the importance of taxing all tobacco products comparably to prevent substitution between them. Concerns about increased illicit trade due to higher taxes are largely unfounded, as evidence from India and other countries shows that tax hikes have minimal impact on illegal markets. More significant factors, such as quality of tax administration and regulatory frameworks, play a greater role in determining the scale of illicit trade.
Balancing GST and Excise Taxes
Another issue is the reliance on GST, a purely ad valorem tax, for regulating tobacco consumption. Ad valorem taxes are less effective than specific excise duties in curbing tobacco use, as they are tied to product prices, which the industry can manipulate. Since the introduction of GST, the share of excise taxes in total tobacco taxation has declined, reducing the overall effectiveness of the tax system in discouraging tobacco consumption. Countries that combine GST with specific excise duties on harmful products such as tobacco have demonstrated greater success in reducing usage. India must consider increasing excise taxes alongside the GST revision for a more robust and comprehensive taxation framework.
Sugar-Sweetened Beverages: A Parallel Approach
While much attention has been paid to tobacco, the proposed GST hike on sugar-sweetened beverages is equally important. Excessive consumption of sugary beverages contributes significantly to obesity, diabetes, and other non-communicable diseases. Increasing the GST rate to 35% could act as a deterrent and align with India’s broader public health goals. Moreover, the introduction of additional health-focused levies, such as specific excise taxes on sugar-sweetened beverages, could further strengthen the tax framework.
Key Considerations for the GST Council
As the GST Council deliberates on the GoM’s recommendations, this presents an opportunity for holistic tax reform aimed at curbing the consumption of harmful products. Raising GST rates to 40% for tobacco and sugar-sweetened beverages would not only enhance public health outcomes but also ensure alignment with the peak rate allowed under GST law. Pairing this with increased excise taxes would create a more effective mixed tax structure, which has proven to be more successful in reducing consumption. Additionally, reducing the tax burden disparity between beedis, cigarettes, and smokeless tobacco is essential to discourage substitution, following global best practices.
These steps would significantly mitigate the health and economic impacts associated with tobacco and sugary beverages while generating vital revenue for sustainable development.
