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India is seeking a transition from conventional fuel vehicles to e-vehicles. Are EVs economically feasible for mass use?

The story so far: Shifting gears in the transition to electric vehicles (EVs), the NITI Aayog, in May this year, proposed to ban the sale of all internal combustion engine (ICE) powered three-wheelers post March 2023. It also suggested that all new two-wheelers below 150cc sold after March 2025 should be electric. In consonance with these proposals, the Union Budget presented on July 5 announced tax incentives for early adopters. Even as the automobile industry had objected to the think-tank’s proposal and called for a practical approach in framing electric vehicle-related policies, there has been the worry that EVs are still not financially viable because of various costs associated with their manufacture and use.

How are cost structures of conventional vehicles and electric vehicles different?

The portion of the costs of the drivetrain of EVs — the system in a motor vehicle which connects the transmission to the drive axles — in comparison to the cost of the entire vehicle is four percentage points lower when compared to ICE vehicles. This is primarily due to less parts in the electric drivetrain. However, the battery pack takes up nearly half the cost of an electric vehicle. For any meaningful reduction in the physical value of EVs, the cost of battery packs needs to reduce significantly. Chart 1 compares the cost breakdown of a conventional ICE vehicle with an electric vehicle. Chart 2 compares the drivetrain cost breakdown between the two kinds.

What are the components of a battery pack and how much do they cost?

The predominant battery chemistry used in EVs is lithium-ion batteries (Li-ion). No new technologies are on the horizon for immediate commercial usage.

The cost of the materials or key-components of the battery, namely the cathode, anode, electrolyte, separator, among others, contribute the most (60%) to the total cost. Labour charges, overheads and profit margins account for the rest.

Labour is a relatively minuscule component of the overall cost. Any reduction in the cost of the battery pack will have to come from a reduction in materials cost or the manufacturing overhead. The graph shows the cost split of a Li-ion battery pack.

How has the cost of the Li-ion battery pack cost evolved in the last decade?

The price of these battery packs has consistently fallen over the past few years. This decrease is in part due to technological improvements, economies of scale and increased demand for lithium-ion batteries. Fierce competition between major manufacturers has also been instrumental in bringing down prices.

The chart shows the change in the price of Li-ion batteries from 2010 to 2016. It is not clear if the battery cost can be reduced even further. Given that raw materials account for 60% of the cost of the battery pack, the room for further cost reduction is rather limted.

Where does India stand on EV adoption?

In India, EV adoption will be driven by two-wheelers rather than cars in high numbers on because India’s mobility market is driven more by two wheelers. According to the NITI Aayog, 79% of vehicles on Indian roads are two-wheelers.

Three-wheelers and cars that cost less than ₹10 lakh account for 4% and 12% of the vehicle population, respectively.

Two-wheelers will also need smaller batteries when compared to cars and hence the overall affordable cost.India needs to manufacture Li-ion cells in-house. Now, cells are imported and “assembled” into batteries. Setting up a Li-ion manufacturing unit requires high capital expenditure. But battery manufacturing in India is expected to grow as electric vehicles grow.

Are EV vehicles completely environment friendly?

In conventional ICEs, petrol or diesel fuels the engine. However, in EVs, batteries are not the fuel; electrons supplied by the battery fuel the vehicle. The battery is a device that stores electrons/energy which is sourced from electricity.

Presently, most of India’s electricity is generated using conventional sources. In 2018-19, over 90% of India’s electricity was generated from conventional sources, including coal, and around 10% was produced from renewable sources such as solar, wind and biomass. While the rate of electricity generated from renewable sources has increased over the years, more needs to be done for their adoption.

This is because the EV-charging infrastructure needs to be powered through renewable sources to make it truly sustainable.

Dr. S. Venkatraman is R&D Manager, Duracell

Does the payout damage the credibility of the Reserve Bank of India as an independent central bank? Where do the central bank’s earnings come from?

The story so far: On August 26, the Reserve Bank of India (RBI) central board decided to transfer ₹1.76 lakh crore to the government (including a sum of ₹52,637 crore from its contingency reserve), a move that is likely to address the Central government’s precarious fiscal situation. The transfer amount included the payment of dividend worth ₹1.23 lakh crore, and funds from its reserves, as identified under a new economic capital framework (ECF) adopted by the RBI board. The RBI had formed a committee chaired by former RBI Governor Bimal Jalan to review its ECF last year.

Why is the RBI payout different this year?

Each year, the RBI transfers to the government any money in its balance sheet that it deems to be beyond its operational and contingency needs. The RBI’s transfer of funds to the government per se is nothing new. But what has raised eyebrows this time is that the amount of funds being transferred by the central bank to the government this year is much higher than earlier — 146.8% more than what it had paid out last year, when it transferred ₹50,000 crore as dividend. Previously, the highest amount of surplus funds that the RBI had transferred to the government was ₹65,896 crore in 2014-15. The net surplus figures are: ₹52,683 (2013-14); ₹65,896 (2014-15); ₹65,880 (2015-16); ₹30,659 (2016-17) and ₹50,000 (2017-18)

What is the controversy around the transfer?

The massive payout has raised concerns that the government may be confiscating money from the RBI to meet its urgent spending needs, thus effectively turning the central bank into a banker for the government. Central banks such as the RBI, however, are supposed to be independent from all forms of government influence. In reality, governments across the world try to influence decision-making by their respective central banks in various ways. When appointing members to the central bank, such as to the post of Governor for instance, governments tend to pick bureaucrats who have been loyal to them over time. Many also view the move to get the RBI to let go of a portion of its accumulated reserve as part of a wider campaign by the government to strip the powers of various independent regulatory bodies. In July, the government amended the Finance Bill to ensure that the Securities and Exchange Board of India (SEBI) transferred surplus funds in its custody over to the government. Some economists argue that the government has the right to make use of funds in the custody of public institutions such as the RBI to meet its fiscal needs. Critics, however, argue that stripping the financial assets of regulatory institutions such as the RBI and SEBI can compromise their independence.

How does the RBI earn money?

The RBI earns money in a variety of ways. Open market operations, wherein a central bank purchases or sells bonds in the open market in order to regulate money supply in the economy, are a major source of income for the RBI. Apart from the interest received from these bonds, the RBI may also profit from favourable changes in bond prices. Dealings in the foreign exchange market that the RBI engages in may also contribute to the bank’s profits. The RBI, for instance, may buy dollars cheaply and sell them dear in the future to pocket profits. It should be noted, however, that unlike commercial banks, the primary mandate of the RBI is not to earn profits but to preserve the value of the rupee. Profit and loss are thus merely a side effect of its regular operations to shape monetary policy.

Are the RBI’s powers being diluted?

The primary issue with the transfer of surplus funds is the damage that it does to the credibility of the RBI as an independent central bank. The government has been criticised for taking steps since last year to progressively dilute the powers of the RBI. The government had tried to convince the central bank to part with more than ₹3 lakh crore from its reserves last year. It appointed a committee headed by Mr. Jalan to overhaul the economic capital framework. The government argued that the quantum of reserves accumulated by the RBI over the years was well beyond the needs of the central bank. This, it is believed, caused friction between the government and the then Governor of the RBI, Urjit Patel, who resigned from his post last December. Some believe the government will still manage to get hold of the initial corpus of funds that it wanted from the RBI, but over the next few years. Some have raised concerns about the RBI’s ability to meet emergencies with its now depleted reserves. These concerns, however, may be unwarranted since, as the sole and sovereign issuer of the rupee, there is effectively no limit to the amount of rupees that the RBI can create to deal with an emergency. The real impact that the forced transfer of funds will have is on the RBI’s independence in setting monetary policy. The transfer of surplus reserves to the government is in effect a forced injection of extra liquidity into the economy. The increased demand to meet the government’s fiscal needs will thus compromise the RBI’s ability to fulfil its primary mandate — to preserve the value of the rupee by reining in inflation, by retaining full and final control over the supply of rupees in the wider economy.

What lies ahead?

The government is expected to achieve its 3% fiscal deficit target this year with the help of the funds it has received from the RBI. The fresh funds will also help the government to spend more on any fiscal stimulus plan that it may decide to implement in order to tackle the slowdown in the economy. The transfer of money from the vaults of the RBI to fund government spending will increase the amount of money supply in the economy, thus exerting an upward pressure on prices. The RBI’s transfer of surplus funds to the government could thus effectively turn into a monetary stimulus for the economy which has been slowing down for several consecutive quarters now.

Former RBI Deputy Governor, Viral Acharya (whose resignation earlier this year was linked to his conflicts with the government), warned in a speech last year that governments that do not respect the independence of the central bank will eventually be punished by financial markets. His warning might turn out to be prescient in the coming years if the RBI is turned into a piggy bank to fund the government’s increasing spending needs. It can cause investors to lose confidence in the RBI’s ability to preserve the value of the rupee and force them to ditch the currency.

What is the protocol that needs to be in place before a ban on single-use plastic items comes into force?

The story so far: On August 15, in his Independence Day address, Prime Minister Narendra Modi called for a movement to eliminate single-use plastic in India, beginning on Gandhi Jayanti (October 2). Individuals and organisations should now actively remove plastic waste from their surroundings and municipal bodies must arrange to collect these articles. Start-ups and industries should think of newer ways of recycling. The government is reported to be working on a ban on certain plastic items of common use such as carry bags, cutlery and plates under the Environment (Protection) Act, and this may be announced on October 2, well ahead of the earlier deadline of 2022.

Where does India stand on plastic waste?

In spite of the notification of the Plastic Waste Management (PWM) Rules, 2016, and amendments made two years later, most cities and towns are not prepared to implement its provisions. Even the biggest Municipal Corporations shouldering a staggering waste burden have failed to implement segregation of waste: collecting recyclable plastic, non-recyclable plastic and other waste separately for processing by material recovery facilities. This is a growing crisis amid criticism of under-reporting of the true extent of plastic waste. Per capita consumption of plastic is projected to go up from 11 kg in 2014-15 to 20 kg by 2022 (Federation of Indian Chambers of Commerce and Industry data); about 43% is single-use packaging with poor rates of recovery.

An amendment to the PWM Rules in 2018, by which a six-month deadline was fixed for producers to arrange for recovery of waste in partnership with State Urban Development departments, has made little progress. Neither is plastic marked with numerical symbols (such as 1 for PET, 4 for Low Density Polyethylene, 5 for Polypropylene and so on) to facilitate recycling using the correct industrial process.

Recycling reduces the volume of non-recyclables that must be disposed of using methods such as co-processing in cement kilns, plasma pyrolysis or land-filling. In April this year, the Central Pollution Control Board (CPCB) issued notice to 52 companies asking them to file their plan to fulfil their EPR (extended producer responsibility) obligation.

Are alternatives such as compostable or biodegradable plastics viable?

Although compostable, biodegradable or even edible plastics made from various materials such as bagasse (the residue after extracting juice from sugarcane), corn starch, and grain flour are promoted as alternatives, these currently have limitations of scale and cost.

Some biodegradable packaging materials require specific microorganisms to be broken down, while compostable cups and plates made of polylactic acid, a popular resource derived from biomass such as corn starch, require industrial composters. On the other hand, articles made through a different process involving potato and corn starch have done better in normal conditions, going by the experience in Britain. Seaweed is also emerging as a choice to make edible containers.

In India, though, in the absence of robust testing and certification to verify claims made by producers, spurious biodegradable and compostable plastics are entering the marketplace. In January this year, the CPCB said that 12 companies were marketing carry bags and products marked ‘compostable’ without any certification, and asked the respective State Pollution Control Boards to take action on these units.

A ban on single-use plastic items would have to therefore lay down a comprehensive mechanism to certify the materials marketed as alternatives, and the specific process required to biodegrade or compost them. A movement against plastic waste would have to prioritise the reduction of single-use plastic such as multi-layer packaging, bread bags, food wrap, and protective packaging. Consumers often have no choice in the matter. Other parts of the campaign must focus on tested biodegradable and compostable alternatives for plates, cutlery and cups, rigorous segregation of waste and scaled up recycling. City municipal authorities play a key role here.

What can the packaging industry do?

Environment Minister Prakash Javadekar sent a message to the industry at the global flexible packaging conference in Mumbai recently that it must take its extended producer responsibility requirement under the law seriously. The Secretaries of the Environment and Petroleum Ministries said at the event that plastic waste was a key concern, and industry should look at innovation and new materials in the days ahead, besides facilitating collection and recycling with the help of city administrations.

Packaging is projected to grow into a $72.6 billion industry in India by 2020 from about $31 billion in 2015, with a proportionate rise in waste volumes. The pressure on producers to streamline the collection, recycling and processing of all forms of plastic is bound to grow.

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