Mr Chidambaram, show some courage to win votes

I frankly had no interest in the interim budget this time. Finance Minister P Chidambaram is not setting the terms for change in this country any more. His musings today are a requiem for the past and a feeble defence against the popular criticism of “policy paralysis” of the outgoing United Progressive Alliance II (UPA II) government. If I had expected anything at all it was to see some guts to stand up for a few mildly bold decisions taken in the past. One of them is excise hike on SUVs in last years’ Union Budget. But Chidambaram has completely lost courage to stand by this decision needed to address energy crisis, toxic pollution and congestion.

The across-the-board cut in excise for all types of vehicles includes the highest ever cut for fuel-guzzling and polluting SUVs at 6 per cent. Last year Chidambaram had hiked the excise on SUVs from 27 per cent to 30 per cent and justified it on the ground that “SUVs occupy greater road and parking space and ought to bear a higher tax”. This reality has been completely overlooked this time to stimulate sales of the automobile industry. Excise duty on small cars, motor cycles, scooters and commercial vehicles have been reduced from 12 per cent to 8 per cent; on SUVs from 30 per cent to 24 per cent; and large and mid-segment cars from 27/24 per cent to 24/20 per cent.

This volte face is very disturbing before the elections. The government has failed to remain consistent and bold about its earlier decisions in the interest of the larger welfare—to address energy security, congestion and public health. UPA II has lost the confidence of people to deliver on good governance.

Perverse incentive

How can Mr Chidambaram justify highest tax cut for SUVs when their sales have remained most robust compared to other vehicle segments? The press release from the Society of Indian Automobile Manufacturers late last year has shown that between the financial year of 2012 and 2013 while passenger cars sales had declined by 6.69 per cent, the sale of utility vehicles registered a stunning increase of 52.20 per cent! SUVs have remained highest selling segment all through. Even during the height of recession during 2009-11 cars and SUVs with 2000cc and above engines have increased by 41 per cent as opposed to 4 per cent growth in small car segment.

With cheap diesel and tax sops, SUVs have become the fastest growing product of the auto industry, fouling lungs and air. During the tenure of UPA II, petrol-diesel consumption together has increased by 35 per cent. Both SUVs and cars are pushing up demand for transport fuel, especially diesel. The Union Ministry of Petroleum and Natural Gas has already reported that of the total diesel use (both bulk and retail), the share of car use (private cars and SUV taxi) is up to 22.09 per cent. Private cars alone use 13.15 per cent which is higher than buses at 9.55 per cent, agriculture at 13 per cent, railways at 3.24 per cent and mobile towers at 1.54 per cent. Cars and personal SUVs are the second highest user after diesel trucks at 28.25 per cent.

This fiscal move will push the market towards heavier cars and SUVs that guzzle more fuel and pollute more. Already with the growing share of big cars and SUVs, the average weight of the car fleet has increased from 1,037 kg in 2009-10 to 1,101 kg in 2012-13—a 5-6 per cent weight increase, leading to 3 per cent fuel economy penalty. Is that the price India should pay for luxury use of fuel? 

Public health ignored

Even after completing two terms, the UPA government has not learnt to balance welfare and growth. In his budget speech, Chidambaran has alluded to Indian economy taking the third rank after the US and China and China and India to have a significant impact on the rest of the world. Mr Finance Minister should have also checked how Chinese cities are checking motorisation. Even after scaling up public transport, improving emissions standards and staying much ahead of Indian cities Chinese cities, including Beijing, Shanghai, Guangzou, have gone to the extent of capping the number of cars that can be sold in a year. China does not maintain price difference between diesel and petrol and cities like Beijing have banned diesel cars as a pollution control measure.

The UPA II has decided to give this sop to diesel SUVs and all cars when air pollution and motorization in our cities have emerged as a serious public health problem. Only last year, Global Burden of Disease estimates have listed air pollution as the fifth largest killer   and the WHO has classified diesel emissions as class I carcinogen  for its strong link with lung cancer, putting it in the same bracket as tobacco.

But UPA II government is going out only by offering sops for more car and SUV production based on outdated and polluting technologies. It has failed to fix a stringent emissions standards roadmap to bring in clean fuels and vehicles. India has lost five crucial years to get its second generation Auto Fuel Policy to set the next targets for the automobile industry to meet the tighter standards of Euro V and Euro VI.

This has happened because the government has refused to respond to science and public health evidences. Only last year, the new estimates from the World Bank have shown that cost burden of air pollution is among the highest on India’s economy. The cost of particle pollution-related health damage amounts to 1 per cent of India’s GDP. The Bank has also advised that the mitigation costs must not deter policy as benefits from mitigation far outweigh the costs. About 30 per cent reduction in particulate pollution by 2030 could result in a benefit of US $47-105 billion.

But clearly, the UPA still lacks the maturity in its fiscal governance, and has yet to learn to balance growth, well being and equity like other responsible governments do. This political tokenism today offers no electoral hope for clean, safe, healthy future.


 

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