Economic Highlights

New Delhi, 1 November 2021

 COP26 Concern

INDIA MUST BE CAUTIOUS

     By Shivaji Sarkar

Even as the UN Climate Change Conference of the Parties (COP26) proceeds, craze for electric vehicles go up, the world faces a new crisis as the lithium-ion battery supply chain hits a number of obstacles, high environmental concerns and shortage affecting the nascent industry. Highest rise in lithium prices may put the search for alternative fuel or even solar energy in jeopardy.

Not-so-rich countries, such as India need to apply caution on automobile policy, including scrapping of ten-year-old operational, mostly low pollution Euro IV and VI vehicles. The auto industry is not only facing crisis for the electric vehicle industry but also the traditional fuel vehicle industry. The semi-conductor shortage has put a number of industries on their toes. Now battery shortages are emerging as blocking growth.

The developing and not so developed countries have to take steps to avoid taking a hit on their economy by junking vehicles. This is not required. The pace that countries like India are trying to junk should be a concern. It can put an aspiring, high moving economy to an unprecedented thaw. The concern is becoming global, though the industry is trying to sweep the problem under the carpet.

Is India a special target of the large economies? That is a potential question emerging at the latest COP26. The concern for India and targeting it needs to be seen by setting a zero emission procedure. The west is worst polluter but they envy the growth of India, as it would make many of the western producers redundant as a rising India would have potential to grow and produce independently.

The climate talks are being couched in goody words to keep India dependent on the developed economy by putting up economic barriers, including so-called concern for the environment and economy. This hits India hard. India has good record on pollution control but the National Green Tribunal (NGT) like organisations have to relook it from a pure swadeshi angle. All that the West says and pontificates are not suitable for India. It cannot take the burden of global large sinners on itself. Traditionally, India has an impeccable record of concern for the ecology.

Industry cannot be allowed to pollute, but that also means that norms in India have to come in practice gradually and not all of a sudden.

The production of new vehicles is hit the world-over. With the economy just picking up with some rises being seen in GST collections and some other activities, giving up the existing strength of the nation and moving on needs to be sustained. Pollution may be a concern, but it should not be used to stop the nation’s movement because of a policy that may cause more problems and stop the nation’s movement. Wealth is generated gradually. People themselves with better economic health change to new technologies, but forcing them to do without allowing them consolidate their economic positions, may cause severe damage to the nation.

The auto industry problems are mounting. Tesla CEO Elon Musk says that his company does not have enough batteries to put new products such as  semi-heavy duty truck production. It shows that dependence on unproven new technologies can wreck the economies and most of the benefits imagined are far from reality.

Globally now it is realised that scrappage policy has been followed by a temporary boost in demand in the auto manufacturing sector, in the US and Europe. It is also being observed that this has also led to economic slowdown in the manufacturing sector and consumption due to recession. There is much to learn from this failure and rethink on a scrapping policy. More the world sustains such wealth, more it could have a holistic growth. Presently the view is that the world is working for the profits of giants.

It is gradually donning on the world that supposed targets to cut carbon emission from China to the US cannot be met without the rechargeable batteries, with an average life decided on the number of charging or at best about 2.5 to three years. Each battery replacement adds to the problems of pollution as the scrapped battery adds to disposal hazards. It leaves toxic traces in large tracts and adds to the same problem of tackling pollution in a more difficult and widespread manner.

The latest is the emerging concept of circular economy. In such an economy, products, materials, equipment and infrastructure are kept in use for longer, thus improving productivity. The old vehicles add to the strength of the economy by keeping a significant low-end or marginally growing population highly mobile.

India has over an estimated 10.2 million vehicles that are older than 15 years, including 17 lakh commercial vehicles. Actual numbers would be far more. As a drive is on to scrap all these vehicles, it may hit the just rising post-corona pandemic economy hard.

Despite high hopes of recovery, the Reserve Bank of India’s monetary policy committee (MPC) says that uncertainty prevails over growth outlook due to global factor. The RBI has not changed policy rates but has called for reviewing tax rates and also pointed out that deposit interest earnings are low and unsustainable. It is concerned about high inflation and wants the country to have more pragmatic policies.

Yes, let India do away with its scrappage obsession. It has to look for a sustainable economy and empower and strengthen the economy of the people, who are trying to come out of poverty.

Demand for lithium is expected to jump 26.1 per cent or 100,000 tonnes to a total of 450,000 tonnes flipping the market into a deficit of 10,000 tonnes, according to Benchmark Mineral Intelligence. Spot price of lithium carbonate have risen by 170 per cent to $ 22000 a tonnes, highest since 2018. Spodumene, a source of lithium, price in Australia has climbed 144 per cent.

At such prices, growth becomes difficult. The world needs to have a sustainable fuel – petrol or electric - and environmental policy. Prime Minister Narendra Modi is doing a fine job of talking to global leaders at UN COP26 on reducing global temperature, but India has to be cautious on falling into a western trap and must set its own independent course.

Days ahead are difficult. Let countries like India completely review all new climate policies and go slow on it rather than rush to a difficult situation.---INFA

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