Analysis of The Hindu Editorial – December 17, 2024

Analysis of The Hindu Editorial 1 : The hidden cost of greenwashing the Indian Railways

Context

Indian Railways, one of the largest rail networks in the world, has embarked on an ambitious mission to electrify its entire network as part of its green initiatives. This “Mission 100% Electrification” seeks to transform the railways into a sustainable and environment-friendly mode of transportation. The project promises to reduce dependency on diesel, curb crude oil imports, and align with global environmental standards.

However, the implementation of this vision has sparked significant debates. A recent report highlighted that Indian Railways, through its consultancy arm RITES Ltd., is now repurposing and exporting diesel-electric locomotives to African nations. While this is a technical achievement, the policy driving the rapid phase-out of diesel locomotives exposes critical flaws in planning and resource management.

Introduction

Indian Railways is on a mission to electrify its entire network, aiming to become a “green railway.” While this vision aligns with global sustainability goals, it has inadvertently raised critical questions about resource management, financial viability, and environmental impact. A report highlights how RITES Ltd., the consultancy arm of Indian Railways, has started repurposing diesel locomotives for export. While this re-engineering feat deserves applause, the broader implications of this electrification mission reveal deeper concerns about wastage, environmental trade-offs, and misplaced priorities.

Let’s unpack this “mission 100% electrification” and its hidden costs.

The Policy Shift: From Diesel to Electrification

Why Are Diesel Locomotives Being Phased Out?

The electrification policy of Indian Railways is driven by two primary objectives:

1. Reducing Crude Oil Dependency: Electrification reduces reliance on imported diesel, promising to save foreign exchange.
2. Environmental Sustainability: Electrification is marketed as a cleaner, greener alternative to diesel.

However, this shift has sidelined a significant fleet of diesel locomotives—machines with years of serviceable life left—rendering them redundant prematurely.

Current Status of Diesel Locomotives

• March 2023 Figures:
  • 585 diesel locomotives were idling due to network electrification.
  • Over 60% of these locomotives had more than 15 years of service life remaining.
• 2024 Update:
  • The number of idle locomotives has increased to approximately 760.
  • If lined up, these locomotives would stretch over 16 kilometers.

The rapid electrification mission seems more focused on optics than practicality, leading to colossal wastage of functional assets.

Railway Electrification in India: Beyond Practicality

The Rationale for Electrification

Electrification is often justified through its potential to:

1. Reduce dependency on fossil fuels.
2. Cut carbon emissions.
3. Integrate renewable energy sources like solar and wind.

The Ministry of Railways’ 2021 pamphlet Mission 100% Electrification: Moving Towards Net Zero Carbon Emission championed electrification as a leap towards an environment-friendly transportation system.

Misaligned Priorities

While the vision sounds noble, it disregards several practical concerns:

• Economic Viability: The shift ignores the significant financial investment required for electrification, including upgrading infrastructure and scrapping serviceable locomotives.
• Energy Source Paradox: A major chunk of India’s electricity (nearly 50%) comes from coal-fired thermal plants. Electrification thus shifts pollution from railway tracks to coal-fired power stations.

Examining the Environmental Argument

Coal Dependency in India’s Energy Mix

India’s energy landscape heavily relies on coal, a notoriously polluting fuel. Here’s the irony:

• Indian Railways is a key player in transporting coal, earning nearly 50% of its freight revenue from coal logistics.
• Electrified trains move coal to power plants, which in turn generate electricity—continuing the cycle of pollution.

Environmental Trade-offs

Replacing diesel locomotives with electric ones does not eliminate emissions; it merely displaces them. The electrification mission will:

• Increase coal consumption to generate electricity for trains.
• Concentrate pollution at power generation sites, worsening the environmental burden.

Unless renewable energy sources like solar and wind dominate India’s electricity generation (currently far from reality), the claim of a “green railway” is largely a myth.

The Economic Cost of Electrification

Saving Foreign Exchange: A Misplaced Justification

Proponents argue that electrification saves foreign exchange by reducing diesel imports. However, a closer look reveals:

• Railways’ Diesel Consumption Share:
  • In 2014, railways consumed only 3.24% of the country’s total diesel.
  • By 2021-22, this share fell to 2%, making railways one of the smallest diesel consumers in India.
• Larger Diesel Consumers:
  • Trucks account for 28% of diesel usage.
  • The agricultural sector consumes 13.2%.

Eliminating railways’ diesel consumption has a negligible impact on overall oil imports.

Impact on Infrastructure and Resource Management

Wastage of Serviceable Locomotives

Prematurely sidelining hundreds of diesel locomotives highlights poor resource management. These machines, with residual service lives, could serve for years, either domestically or in other roles.

Exporting Used Locomotives

• The recent initiative to repurpose and export diesel locomotives is commendable.
• However, exporting only a fraction of the redundant fleet hardly addresses the larger issue of asset wastage.

Dependence on Coal for Freight Revenue

With coal as its primary freight commodity, Indian Railways faces a challenging paradox:

• Transitioning to electrification will not reduce coal reliance.
• Finding alternative freight commodities remains a pressing need to ensure financial sustainability.

Challenges to 100% Electrification

Renewable Energy Goals: A Distant Dream

For electrification to truly align with green goals, India must generate 80% of its electricity from non-fossil fuels. Achieving this remains a long-term goal, given current coal dependency.

Strategic Retention of Diesel Locomotives

Indian Railways plans to retain:

• 2,500 Diesel Locomotives: For disaster management and strategic purposes.
• 1,000 Diesel Locomotives: To meet ongoing traffic commitments.

These figures question the logic behind the rapid scrapping of other serviceable locomotives.

Chasing the Mirage of a Green Railway

The narrative of a “green railway” is built on optics rather than substance. Despite electrification efforts, diesel locomotives will continue to play a critical role in the foreseeable future. Moreover, the environmental and economic trade-offs make it clear that this mission needs a more balanced approach.

Conclusion

Indian Railways’ 100% electrification mission, while visionary, has significant hidden costs. The project highlights what happens when ambitious slogans overshadow thoughtful policymaking. Prematurely sidelining diesel locomotives, coupled with coal dependency, undermines the environmental and financial promises of electrification.

Instead of chasing a mirage, Indian Railways must strike a balance—leveraging diesel locomotives while incrementally moving towards renewable-powered electrification. A more nuanced approach can ensure sustainability without wasting valuable assets or burdening taxpayers.

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Analysis of The Hindu Editorial 2 : Levy a higher GST rate on tobacco, sugared beverages

Context

The article addresses India’s proposal to raise GST on tobacco and sugary beverages from 28% to 35% to combat public health and fiscal challenges. Highlighting the health risks, economic burden, and potential revenue benefits, it emphasizes comprehensive tax reforms, including higher excise taxes, to reduce consumption and strengthen public health initiatives.

Introduction

For over seven years since the implementation of the Goods and Services Tax (GST) in India, harmful products like tobacco and sugar-sweetened beverages have largely escaped significant tax hikes. While the GST on these products has remained at 28%, only minor increases in National Calamity Contingent Duties (NCCD) have been applied to tobacco. This lack of action has inadvertently made these harmful goods more affordable, undermining public health goals.

Recently, a Group of Ministers (GoM) proposed raising the highest GST rate on these products to 35%. While this is a step in the right direction, it doesn’t go far enough. To effectively combat the public health crisis posed by tobacco and sugary drinks, further tax reforms are necessary. Let’s explore why these changes are so critical and what measures are needed to ensure their success.

The Impact of GST Hike on Tobacco Consumption

India’s Tobacco Problem in Numbers

• India ranks as the second-largest consumer of tobacco globally, with 28.6% of adults (15 years and older) and 8.5% of students (13–15 years) using some form of tobacco.
• Tobacco is one of the leading causes of non-communicable diseases (NCDs) in India, contributing to over 3,500 deaths daily.
• The economic cost of tobacco use, including second-hand smoke exposure, was estimated at ₹2,340 billion (1.4% of GDP) in 2017.

Meanwhile, the annual tax revenue collected from tobacco remains significantly lower—₹538 billion—a glaring mismatch.

The Expected Benefits of a 35% GST Rate

Raising the GST rate to 35% on tobacco products could bring measurable benefits:

• Cigarettes: A 3.9% price increase could lead to a 1.3% consumption drop and a 6.4% rise in revenue.
• Beedis: Prices could rise by 5.5%, reducing consumption by 5% and increasing revenue by 18.6%.
• Smokeless Tobacco: A 3% price hike may cause a 2.7% drop in consumption, with revenue growing by 1.9%.

This change has the potential to generate an additional ₹43 billion in annual revenue while discouraging harmful consumption patterns.

Limitations of the Proposed 35% GST Rate

Why Stop at 35%?

While a 35% GST rate is a positive move, it is far below the 40% peak rate allowed under GST law. A 40% rate would yield greater benefits:

• Increased Revenue: Could generate an additional ₹72 billion annually.
• Sharper Price Hikes: Higher prices are directly linked to reduced consumption.
• Lower Substitution Risk: Tobacco users may switch between cheaper options if price differences remain significant.

Uneven Tax Burden Across Tobacco Products

The tax burden on tobacco varies widely:

Product	Current Tax Share (Retail Price)	Projected Tax Share at 35%	Projected Tax Share at 40%
Beedis	22%	26%	30%
Cigarettes	49.5%	51%	54%
Smokeless Tobacco	64%	65%	68%

Such disparities make cheaper tobacco options (like beedis) more accessible, perpetuating consumption patterns. Aligning taxation across all tobacco forms is essential for achieving equitable health outcomes.

Global Standards and Recommendations

The World Health Organization’s Framework Convention on Tobacco Control (WHO FCTC), to which India is a signatory, advises taxing all tobacco products comparably to prevent users from substituting one for another.

The GST Hike on Sugary Beverages: Tackling Obesity and NCDs

Why Focus on Sugar-Sweetened Beverages?

Excessive consumption of sugar-sweetened beverages is a growing concern in India. These drinks significantly contribute to obesity, diabetes, and cardiovascular diseases. A 35% GST rate would:

• Discourage overconsumption.
• Encourage healthier lifestyle choices.
• Align with India’s broader public health objectives.

The Case for Specific Health Levies

In addition to the GST hike, introducing specific health-focused excise duties on sugary drinks could further strengthen the taxation framework. For instance:

• Countries like Mexico and Thailand have successfully used health taxes to reduce sugary beverage consumption.
• Such taxes could directly target calorie-dense, nutrient-poor products, amplifying health benefits.

Addressing Industry Concerns: The Myth of Illicit Trade

One of the tobacco industry’s favorite arguments against higher taxes is the potential rise in illicit trade. However, research and evidence tell a different story:

• Illicit Trade Factors: Tax administration quality, governance strength, and regulatory frameworks play a far more significant role in fueling illicit markets than tax hikes.
• Case Studies: Experiences from countries like the UK and Australia show that tax increases on tobacco products have minimal impact on illegal trade volumes.

India, too, has the capacity to curb illicit trade through stronger regulatory measures, ensuring that tax hikes serve their intended purpose.

Why Excise Taxes Are Key

Limitations of Ad Valorem Taxes

GST, being an ad valorem tax (calculated as a percentage of the product price), is inherently less effective in curbing consumption. Here’s why:

• Tobacco companies can manipulate prices, minimizing the tax impact.
• Lower-priced products bear a disproportionately lower tax burden, making them more accessible.

The Case for Specific Excise Taxes

Specific excise taxes (levied per unit of quantity, like per cigarette or per liter of sugary beverage) offer several advantages:

• Directly linked to consumption reduction.
• Harder for industries to bypass through price adjustments.
• Proven effective in countries like the Philippines and Brazil.

To maximize the impact, India should complement the GST hike with increased excise duties on both tobacco and sugary drinks.

Way Forward: Recommendations for Comprehensive Tax Reform

As the GST Council deliberates on the GoM’s recommendations, here’s what policymakers should prioritize:

1. Raise GST to 40%: Utilize the peak rate allowed under GST law to maximize public health and fiscal benefits.
2. Implement Excise Taxes: Introduce or increase specific excise taxes on tobacco and sugary beverages for a more comprehensive approach.
3. Tax Uniformity: Reduce the tax burden gap across different tobacco products to discourage substitution.
4. Strengthen Regulatory Measures: Enhance governance and tax administration to prevent illicit trade and ensure compliance.
5. Invest Revenue in Health Initiatives: Use the additional tax revenue to fund public health campaigns, healthcare infrastructure, and NCD prevention programs.

Conclusion

Raising the GST on tobacco and sugary beverages is not just a fiscal reform—it’s a public health imperative. While the proposed hike to 35% is a good start, going further to the 40% peak rate, paired with specific excise taxes, could significantly amplify its impact. These measures will not only discourage harmful consumption but also generate critical revenue for development and health initiatives.

By aligning with global best practices and prioritizing health over industry concerns, India has the opportunity to tackle two of its most pressing challenges—tobacco addiction and lifestyle-related diseases—while strengthening its fiscal base.

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