Editorial 1 : A Win-Win for Environment
Context: Need for Delhi to shift to EVs
Introduction: Delhi, which faces perennial pollution problems, can reap significant economic, social, and environmental benefits by converting all vehicles into electric vehicles (EVs).
Sources of Air Pollution in Delhi
- Transport sector accounts for 48.37 Gg of PM2.5 every year.
- Cars, comprising 32.44% of the fleet, have a 25.54% share of total emissions.
- Commercial vehicles make up just 2.56% of the total fleet but they are responsible for nearly 39 % of total transport emissions.
- Two-wheelers dominate the fleet at 61.84% but their emission share is relatively low.
- Crop burning in Punjab and Haryana, a seasonal phenomenon adds to Delhi’s air pollution.
- But it has decreased significantly in the last four years.
- Limitations of CNG Vehicles
- CNG vehicles emit NOx and add to ozone pollution.
- They are also secondary PM emitters under certain meteorological conditions.
Benefits of EV Transition
- Transitioning to EVs in Delhi can drastically reduce healthcare spending and improve air quality.
- Reduction in Air Pollution
- A complete transition to EVs in Delhi can reduce PM2.5 concentration by nearly 40%.
- Even partial transitions, such as converting cars older than 15 years to EVs, can achieve 9% reduction in PM2.5 concentration and 6% savings in per capita healthcare costs.
- Economic Gains
- Complete transition to EVs in Delhi can lead to savings of Rs 11,000 crore.
- Mortality-related costs could decrease by 25.7%.
- Healthcare Benefits
- Transitioning to EVs can significantly lower disability-adjusted life years (DALYs) by reducing pollution-related diseases.
- Per capita healthcare costs can drop by 25%.
Delhi's EV Policy and Support
- Delhi introduced an EV policy in 2020, which was extended to 2025 last year.
- Subsidies: Delhi government offers subsidies of up to Rs 30,000 for two-wheelers and Rs 1.5 lakh for electric cars, based on battery capacity.
- Charging Infrastructure: The policy also envisages installing 25 new charging stations across the city.
Challenges in EV Transition
- The costs of EV vehicles are high, charging stations are few, charging speeds low.
- Import Dependency: Lithium-ion and other chemicals have to be imported and there are concerns about the environmental impact of battery production.
- Low consumer awareness.
Conclusion: Making Shift in 2025
A shift to EVs can significantly reduce the disability-adjusted life years in terms of mortality and morbidity and lower per capita increase in healthcare spending. The shift will also address climate concerns. It’s, therefore, a win-win proposition for the environment.
Editorial 2 : Forex & Fertiliser
Context: Fertilizer subsidies: Let the market decide
Introduction: The rupee’s slide, from around 83.8 to 85.8-to-the-dollar between end-September and now, has introduced a new source of uncertainty for economic agents and policymakers.
Impact on Commodities and Costing
- Dollar-Rupee Exchange Dynamics
- For nearly two years, the rupee remained in the 82-84 range, making pricing calculations relatively predictable.
- The current exchange rate of 85.8 adds an additional layer of complexity, as prices now depend on both dollar-denominated costs and the rupee’s exchange rate.
- Rising Commodity Prices
- Brent crude has crossed $75/barrel, further straining fiscal calculations.
- Depreciation of the rupee increases the cost of imports, including critical goods like fertilisers.
Fertiliser Industry
- Impact on DAP (Di-Ammonium Phosphate)
- DAP is India’s second-most consumed fertiliser after urea.
- The current landed import price of DAP is over $630/tonne.
- A Rs 2-to-the-dollar depreciation raises the import cost by Rs 1,260/tonne.
- Government and Industry Challenges
- Fertiliser companies are hesitant to import due to increased import costs and uncertainty over the government’s stance on passing costs to farmers.
- The government wants to maintain the maximum retail price (MRP) at Rs 27,000/tonne, which creates a fiscal burden.
- Government Subsidy Measures
- The government has extended a special subsidy of Rs 3,500/tonne on DAP for another year.
- However, this subsidy does not fully cover the additional cost caused by rupee depreciation.
- The government faces two choices either allowing an MRP hike or incur a higher fertiliser subsidy bill.
Economic Implications
- Wake-Up Call for Key Stakeholders
- The rupee’s depreciation highlights vulnerabilities for both the government and firms with unhedged foreign currency exposures.
- An overvalued rupee made it easier for the government to keep prices of imported fertilisers and fuel artificially low for farmers/consumers and for firms to borrow cheap in dollars without protecting against exchange risk.
Way Forward: Recommendations
- Strengthen Domestic Supply Chains
- Companies need to invest in domestic production capacity to reduce reliance on imports.
- Building robust supply chains will mitigate the impact of currency fluctuations.
- Encourage Hedging Practices: Firms with foreign currency exposure should adopt hedging mechanisms to minimize risks.
- Gradual Market Liberalization
- Allow market forces to play a larger role in determining prices of goods like fertilisers.
- This will reduce fiscal burdens and ensure pricing reflects true costs.
- Subsidy Rationalization: The government should re-evaluate its subsidy policies to balance fiscal sustainability and consumer affordability.
Conclusion
The rupee’s depreciation serves as a critical reminder for policymakers and businesses to adapt to changing global and domestic dynamics. While the short-term impact includes higher import costs and fiscal pressures, it also presents an opportunity to strengthen domestic production capabilities, reduce over-reliance on subsidies, and embrace market-driven solutions.