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17 Dec 2024 : The Hindu Editorial

Editorial 1: The hidden cost of greenwashing the Indian Railways

Context

The ‘mission 100% electrification’ project is about chasing a mirage of turning into a green railway; a large number of serviceable diesel locomotives will also become redundant

 

Introduction

According to a recent report published in this daily, RITES Ltd., the consultancy arm of the Indian Railways, has won two contracts for the repurposing of six broad gauge diesel electric locomotives for export to some African railways. These locomotives will be converted for use on railways that use the Cape Gauge of 1,067 mm as against the 1,676 mm used on the broad gauge of the Indian Railways.

  • While the Indian Railways, in collaboration with its consultancy public sector undertakings such as RITES and IRCON, has exported locomotives to countries in Asia and Africa in the past, this is probably for the first time that second-hand (used) locomotives are proposed to be exported after “gauge conversion’’.
  • While there is no doubt that this is a commendable effort in re-engineering that involves virtually rebuilding the locomotives on a narrower platform, the story that lies hidden is a sordid saga of the humongous wasting of costly assets and profligacy unmatched in the annals of railways anywhere in the world, in pursuit of a wholly fictitious goal.

 

RTI data and policy justification

  • Redundant diesel locomotives in Indian Railways: The report mentions “soon to be redundant diesel locomotives.”
    • As of March 31, 2023: Information obtained under RTI over a year ago:
      • 585 diesel locomotives stabled (kept idling/stored) due to electrification across the Indian Railways network.
      • Over 60% of these locomotives had a residual life of more than 15 years.
  • Current figure: About 760 locomotives.
  • Question: How and why did Indian Railways end up in a situation where hundreds of diesel-electric locomotivesin good working order, with years of service left, became redundant?
  • Answer: Policy of the government to electrify the entire broad gauge network in mission mode at a frenetic pace.

 

Railway Electrification in India

  • Railway electrification has transcended mundane considerations:
    • Economic and financial viability.
    • Joined the pantheon of universal desiderata like world peace and universal brotherhood (Vasudeiva Kutumbakam).
  • Justifications for electrification: Saving foreign exchange by reducing crude oil imports and reducing environmental pollution.
    • Adaptability to renewable energy sources (solar, wind).
  • Official pamphlet by Ministry of Railways (February 2021): ‘Mission 100% Electrification – Moving Towards Net Zero Carbon Emission’:
      • Objectives:
        • Provide an environment-friendly, green, and clean mode of transport to people.
        • Use renewable energy, especially solar, by utilizing the land available along railway tracks.

 

Examination of Justifications for Electrification

  • Saving foreign exchange is true in absolute terms: Context of total high-speed diesel (HSD) oil consumption in the country.
  • Railways’ consumption of HSD is minuscule: AC Nielsen study (January 2014):
      • When electrification was proceeding at a conventional pace, the transport sector consumed 70% of total diesel oil.
      • Railways' share:
        • 3.24%.
      • Other sectors:
        • Trucks: 28%.
        • Agricultural sector: 13.2%.
  • Share of Railways reduced further to 2% in 2021-22: 100% electrification will eliminate one of the smallest segments of diesel consumption.
    • Larger sectors consuming diesel (trucks, agriculture) remain unaffected.

 

Truth about environmental considerations

  • The claim of environmental benefits is even more untenable in the Indian context.
  • Electricity is a secondary source of energy: Needs to be generated by expending a primary source of energy:
      • Fossil fuels (coal, oil, natural gas),
      • Nuclear energy,
      • Kinetic energy of water (hydroelectric projects),
      • Solar or wind power.
  • Current Situation in India: Nearly 50% of electricity generated in India comes from coal-fired thermal plants.
    • Indian Railways plays a crucial role in transporting coal from pit heads to thermal power plants.
    • 50% of Railways' total freight earnings in 2023-24 (revised estimates) is generated by transporting coal for various purposes.
    • 80% of the coal transportation (i.e., 40% of total freight earnings) is dedicated to transporting coal to thermal generating plants.

 

Impact of Electrification on Pollution

  • Replacing diesel locomotives with electric locomotives: Electric locomotives will be powered by electricity, of which 50% is generated by burning coal.
    • Electric locomotives will move more coal to coal-fired thermal plants to generate more electricity, which will then be used to transport more coal.
  • Coal is considered the dirtiest fuel, environmentally, on the planet.
  • Electrification of Railways merely shifts pollution:
    • From diesel locomotives near railway tracks to the source of power generation in a more concentrated form.
    • Ultimately, this still contributes to polluting the atmosphere.

 

Challenges to 100% Electrification

  • Unless about 80% of the electricity in India comes from non-fossil fuels, the claim of a “Green Railway” is unrealistic.
  • The day when 80% of electricity is from non-fossil fuels seems far off.
  • Railways need to find alternative commodities to coal (currently the highest freight earner) to avoid a financial meltdown.
  • The article is not focused on the electric traction vs diesel traction debate.
  • The issue is about chasing a mirage of converting Indian Railways into a “green railway”.
  • In the process, large numbers of serviceable diesel locomotives are becoming redundant.
  • If all stabled locomotives were lined up today, they would stretch for 16 kilometres, with most heading prematurely to the scrapyard.

 

Chasing the Mirage of a “Green Railway”

  • Intention of the Article: The article is not focused on the debate of electric traction versus diesel traction.
    • The issue is about the pursuit of converting Indian Railways into a “green railway” at the cost of rendering serviceable diesel locomotives redundant.
  • Impact on Serviceable Diesel Locomotives: A large number of diesel locomotives, still in good working condition, are being prematurely decommissioned.
    • If all the locomotives currently stabled are lined up end to end, they would stretch almost 16 kilometres, with most heading to the scrapyard.

 

‘Disaster management, strategic purposes’

  • Dichotomy in the near term: Indian Railways currently has more than 4,000 diesel locomotives.
    • With 100% electrification, all of them will not become redundant overnight.
  • According to a recent news report: 2,500 diesel locomotives are proposed to be retained by the Railways for “disaster management and strategic purposes”.
    • It is beyond comprehension what disaster would require such a large number of diesel locomotives unless it is a ruse to avoid sending locomotives with considerable residual service life prematurely to the scrapyard.
  • Additionally: Another 1,000 locomotives will continue in service for the next few years to meet traffic commitments.

 

Conclusion

A 100% electrified “green” railway will still continue to use about 3,500 “dirty diesels” in the foreseeable future.These diesel locomotives will be financially sustained by transporting a not-so-green commodity: King Coal. The Indian Railways’ Mission 100% electrification is a sterling example of what happens when headline-grabbing slogans promoting vanity projects substitute for well-thought out policies, finally resulting in colossal wastage of tax-payers’ money.

Editorial 2: Levy a higher GST rate on tobacco, sugared beverages

Context

In addition to the proposal by the Group of Ministers, further tax reforms are needed to tackle the public health and fiscal challenges associated with these products.

 

Introduction

Over the past seven years, since the introduction of the Goods and Services Tax (GST), there have been no significant increases in GST rates on harmful products such as tobacco and sugar-sweetened beverages, except for two minor hikes in National Calamity Contingent Duties (NCCD) on tobacco. This has made these products more affordable, undermining efforts to curb their consumption. In this context, the 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 welcome step. However, further tax reforms are essential to effectively tackle the public health and fiscal challenges associated with these products.

 

Impact of proposed GST rate hike

  • India is the second-largest consumer of tobacco globally, with 28.6% of adults above 15 years and 8.5% of students aged 13 to 15 years using tobacco in some form.
  • Tobacco is a leading risk factor for non-communicable diseases (NCDs) and causes over 3,500 daily deaths in India.
  • In 2017, the annual economic burden of tobacco use and second-hand smoke was estimated at ₹2,340 billion, or 1.4% of GDP — far exceeding the ₹538 billion collected annually in tobacco tax revenue.

 

Proposed GST Hike and Its Impact

  • The proposed GST hike to 35% is expected to reduce tobacco consumption and boost tax revenues.
  • Preliminary estimates suggest the 35% 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 decline by 1.3%, and revenue grow by 6.4%. Smokeless tobacco prices would rise by 3%, consumption drop by 2.7%, and revenue increase by 1.9%.
  • Overall, this could generate an additional ₹43 billion annually, provided the industry does not “over-shift” the tax burden, which can result in excess profits at the expense of government revenue and public health.

 

Limitations of the 35% GST Hike

  • The GoM’s recommendation to raise GST rates to 35% is a positive step but falls short of the 40% peak rateallowed under GST law.
  • A 40% rate would have a greater impact, leading to sharper price increases, larger consumption reductions, and an additional ₹72 billion in revenue. It would also lower the risk of the industry over-shifting the tax burden.
  • Currently, the tax burden on tobacco products is uneven, with taxes accounting for only 22% of the retail price of beedis, while it accounts for 49.5% for cigarettes and 64% for smokeless tobacco.
  • The 35% GST rate would narrow this gap slightly, raising their respective tax shares to 26%, 51%, and 65%, but a 40% rate could reduce this disparity further.
  • The World Health Organization Framework Convention on Tobacco Control (WHO FCTC), to which India is a signatory, recommends that all tobacco products be taxed comparably to prevent substitution between them.

 

Concerns on Illicit Trade

  • Concerns from the tobacco industry about increased illicit trade due to higher taxes are unfounded.
  • Evidence, including from India, shows that tax hikes have minimal impact on illicit trade.
  • Instead, factors such as tax administration quality, regulatory frameworks, government commitment, governance strength, social acceptance, and informal distribution networks play a far more significant role in determining the scale of illicit markets.

 

Balancing GST and excise taxes

  • Another key issue is the reliance on GST, a purely ad valorem tax, to regulate tobacco consumption.
  • Ad valorem taxes are less effective than specific excise taxes 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 tax system’s effectiveness in discouraging tobacco use.
  • Many countries with GST or value-added tax (VAT) supplement these with specific excise duties on harmful products such as tobacco.
  • India should consider raising excise taxes alongside the GST revision for a stronger and more comprehensive taxation framework.

 

GST Hike on Sugar-Sweetened Beverages

  • While much of the public discourse has focused on tobacco, the proposed GST hike on sugar-sweetened beverages is equally significant.
  • Excessive consumption of sugar-sweetened beverages is a major contributor to obesity, diabetes, and other NCDs.
  • Increasing the GST rate to 35% could discourage consumption and align with India’s broader public health goals.
  • However, the government should also consider introducing additional health-focused levies, such as a specific excise tax on sugar-sweetened beverages, to further strengthen the tax framework.

 

Way Forward:  Key considerations for GST Council

As the GST Council considers the GoM’s recommendations, it should use this opportunity to reform the taxation of harmful products. Raising GST rates to 40% for tobacco and sugar-sweetened beverages would enhance public health benefits while aligning with the peak rate under GST law. Pairing this with higher excise taxes would create a mixed tax structure, proven more effective at reducing consumption than relying predominantly on ad valorem taxes.

 

Conclusion

Reducing the discrepancy in tax burden between beedis, cigarettes, and smokeless tobacco is also crucial to discourage substitution and follow global best practices. These steps could significantly reduce the health and economic impacts of tobacco and sugar-sweetened beverages while generating vital revenue for development.