More taxes to control a high deficit?
Battery-powered cars may not be an economical solution; petroleum remains the most versatile fuel
The highest wholesale price inflation in decades at 14.23 percent can lead to a high deficit leading to the collection of additional taxes. It is certain that government spending will increase even if it wants to keep the deficit low, at least on paper, around six percent. The next budget would be interesting to follow as consultations begin with agriculture, industry, kisans and financial institutions.
Everyone wants to control inflation, but the struggle for better prices is what contributes to an inflationary trend. The government has also initiated the domestic production process of semiconductors and batteries for the automotive industry. This is the solution invented to counter the international rise in prices. But it is not clear whether the steps taken to acquire lithium mines or increase semiconductor manufacturing or edible oil production is a solution.
The rise in prices is accentuated by the factories’ low output at 3.2 percent. This led the Asian Development Bank to lower India’s growth estimate to 9.7 percent, almost close to the RBI’s 9.5 percent.
This is the highest since 2005 and exceeds the recent October figure of 12.54 percent. This is accentuated by the high prices of oil and gas products. Manufacturing prices are also high at 11.92 percent causing a crisis situation in the textile sector.
Household edible oils have boosted at a rapid rate of over 50 percent over the past year. Even commonly used mustard oil reached Rs 214 per liter against around Rs 85-90 per liter.
The RBI is concerned about the impact of high tolls, excise duties and other charges on rising commodity prices. The loss of jobs or falling wages have also contributed. Food grain prices increased 4.88 percent, but were moderated by free allocations of food grains through the public distribution system. Maintaining the free allowance for a long time is hardly possible, but the withdrawal also has political implications.
Interestingly, high prices make GDP brighter. The high inflation-induced spending shows growth in a “positive” light, although in reality it depresses purchasing power and adds to many other problems, including the contraction in wages, which is normal for many. many industries. Inflation naturally adds to the problem. It becomes difficult to afford high prices for low wages.
High fuel prices are countered by encouraging battery cars and being self-sufficient in the production of lithium batteries. It aims to save around Rs 2.5 lakh crore in importing crude. But the new effort is capital intensive, expensive and has a high prospecting cost. He plans to buy 12 lithium and cobalt mines abroad. National Aluminum Co Ltd will own a 40 percent stake in the joint venture called Khanij Bidesh India Ltd, with Hindustan Copper Ltd and Mineral Exploration Corp Ltd controlling 30 percent each. Apparently this is a wise move, but lithium is not widely available. Its extraction and processing costs are very high.
Chinese companies control most of these mines in Australia, Chile and Argentina. Australian Prime Minister Scot Morrison had discussed India’s involvement in critical metal sectors. Progress is slow. The cost of producing lithium is also high, and with the increase in shipping costs, the overall cost becomes oppressive. It would not be easy to produce affordable lithium and lithium batteries or save on foreign currency. Second, battery-powered cars may not be an economical solution because petroleum, despite its complexity, remains the most versatile fuel.
We must learn from the semiconductor crisis. The problem is to obtain the chip essential to the manufacture of semiconductors. The production of scooters, mobikes and three-wheelers is affected due to the scarcity of chips.
(The writer is a seasoned journalist. The opinions expressed are personal.)