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Punjab: Montek panel report gets thumbs down from agri experts

Several experts that The Indian Express spoke to said that only positive recommendations were ‘houses for migrant labourers’ and ‘rationalisation of power subsidy’.



Written by
Anju Agnihotri Chaba
Jalandhar
Published: August 18, 2020 11:30:50 pm
agri experts, Montek panel report, Jalandhar news, Punjab news, Indian express news



Prof Gian Singh, former Economics Professor at Punjabi University, Patiala, and an expert on farm issues, said that this committee was promoting Centre’s controversial farm ordinances. (Representational)
A report on Punjab’s economic revival by a Group of Experts headed by noted economist Montek Singh Ahluwalia has been criticised by experts on farm issues in the state for being far from ground realities and for seeing privatisation and corporatisation as the only cure for the ailing economy. Several experts that The Indian Express spoke to said that only positive recommendations were ‘houses for migrant labourers’ and ‘rationalisation of power subsidy’. “The purpose of this committee was to revive the economy of the state but this committee has not studied the losses suffered by farmers, poor labourers during lockdown. It was prepared on the basis of the inputs provided by the bureaucrats and the representatives of industry. This does not represent any ground reality. Rather several useless things have been included in it like recommending not to filling vacant posts,” said noted Economist Sucha Singh Gill. He added that the report does not suggest how to save small and marginal farmers from increasing debt, and how to tackle unemployment. This committee is pro-corporate and has no programme for micro and small units, he claimed.
Prof Gian Singh, former Economics Professor at Punjabi University, Patiala, and an expert on farm issues, said that this committee was promoting Centre’s controversial farm ordinances. In line with Farming Produce Trade and Commerce and Farmers (Empowerment and Protection) Ordinances, this committee too is recommending ‘open market’ and ‘contract farming’, he said.
“In history several economic disasters were the result of the open markets. Both open market and contract farming will promote privatisation, while there is a need of enhancing the scope of the public sector,” said Prof Gian Singh. He added: “This committee is promoting leasing out land for longer period and liberalising laws for conversion of agri-land for non-agri uses….the committee is saying that Punjab can be developed as seed capital of the country on the basis of contract farming but we have examples of tomato, floriculture etc. where farmers are being looted by the big companies in the name of growing seeds.”

“I could see that the only positive recommendations of this group are ‘houses to the migrant labourers’, and ‘rationalisation of power subsidy’ but I feel that poor and needy farmers must get subsidy,” he stressed.
Coming down heavily on the report, Prof Singh said: “When Punjab has 68 per cent small and marginal farmers with an average debt of Rs 2,30,700 and Rs 4,94,051 on marginal and small farmers, respectively, what solution does this report suggest? When farmers cannot afford to take their crop to a mandi 10 km away on their own, what is the point of open market for them?”
Another Expert on the farm issues, Prof Kesar Singh Bhangu termed this report as being based on imported policies from World Bank and International Monetary Fund (IMF). He said that the report was far from reality and Punjab’s problems can be solved if the experts who live in Punjab and know its rural hinterland are taken from here to do the study of Punjab’s actual problems and their solutions.
Farm outfits, meanwhile, called the report anti-farmer and asked CM Amarinder Singh to trash it.
“This committee considers power subsidy to stressed farming community a burden on the state exchequer, it is in favour of increasing professional tax from Rs 200 to Rs 1650, cutting DA of the government employees, and it is against filling the vacant posts. But the committee has no problem with huge telephone allowance, and multiple pensions to MLAs and MPs,” said Jagmohan Singh, general secretary, Bhartiya Kisan Union (BKU) Dakaunda, adding that for this committee sees the alleviation of all the miseries of the state lies in the privatisation.
He added: “Why it is silent over assured MSP for all crops, giving employment to the youth.”
He demanded that in the proposed Vidhan Sabha session government should pass a resolution against this report.


 

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120 million Indians will be unemployed!
By SHOBHA WARRIER
August 26, 2020 09:24 IST


'Just see what kind of political, social and economic impact it will have when the number of unemployed goes up four times in one year suddenly.'



IMAGE: Planting of saplings underway in the rains. When inequality goes up, vulnerability of the poorer section also will go up leading to more and more people becoming vulnerable, says Dr Surajit Das. Photograph: Uma Shankar Mishra/ ANI Photo

For the first time since 1979 the Indian economy has contracted, with the IMF predicting a contraction of up to 4.5% in the current financial year.
According to Dr Surajit Das, assistant professor at the Centre for Economic Studies and Planning at JNU, the economy will contract by MINUS 20% or so.
"Some of them (the unemployed) may even indulge in anti-social activities. Law and order situation will be out of control. Unless the government does something substantial..." Dr Das tells Shobha Warrier/Rediff.com. The first of a two-part interview:


You wrote soon after the lockdown was announced in March that it would lead to famine as more than half the population would not be able to stay at home for long. Five months have passed, and what does the survey you did on how the lockdown has affected the people, say?
Yes, I did write that the lockdown would lead to famine as 70% of our population is poor in this country, for all practical purposes.
We are conducting a telephonic survey in 13 states in India -- Telangana, Kerala, Rajasthan, Gujarat, Uttarakhand, UP, Ladakh, Sikkim, Tripura, North-Bengal, Odisha, among the migrant labourers of Bihar and that of Delhi.
After almost five months, what we have found out is, more than half the families we have spoken to have become directly or indirectly indebted because of the lockdown.
Most of those who have lost their income partially or fully, were working in the informal sector or unorganised sector. But their monthly expenditure has not come down.

Though it has come down slightly for some, it has gone up for many because of the increase in the prices of essential items.
In general, expenditure has not come down while income has fallen drastically.
We found that more than 50% of the families lost more than 50% of their income.
Some of them could manage with their past savings, but that also has exhausted as the lockdown has been going on for five months.
They have become indebted to the house owners, grocery stores, etc. And many people have taken loans from friends, family members and money lenders.


Compared to many other countries, the number of people whose livelihood was affected, is more in India. Is it because of the wide social disparity that exists here?
Yes, inequality in income distribution is very high in India. I would say, except a few developed countries, income disparity is very high in most of the developing countries.
Not only in the developing countries, in fact, even in the developed countries inequality has gone up significantly in the recent past.


Because of job losses and unemployment?
Not only because of job losses and unemployment, but because of the whole trajectory of neo-liberal economics in the current phase of capitalism, the inequality has increased.
The idea today is, if you give more money to the richest section of population, there will be more investment and more output which will result in more growth in the economy.
The assumption is that this will automatically lead to some trickle down to the poorer section in the society. But that trickle-down hypothesis has failed to happen.
Inequality has gone up all over the world, not just in India.
When inequality goes up, the vulnerability of the poorer section also will go up leading to more and more people becoming vulnerable.
On top of that, higher inequality reduces the aggregate demand relative to the potential output possible to produce with the existing productive capacity.


Is that the reason why we hear voices in support of protectionism these days? When the world is without borders, is it good for any economy to talk about protectionism?
I don't think there is a voice for protectionism. After the import liberalisation that had happened all over the world in the 1980s and early 1990s, it is impossible for any country to isolate itself and grow on its own in the current world order.
International trade is inevitable.
In this pandemic world, you can't rely on export-led growth alone because you can export only if there is demand elsewhere.
Now that the whole world is entering into a deep depression, import demand in all the countries will be lower.
Even if you restrict imports, it doesn't mean the export-import ratio of your current account balance will lead to higher growth.
If the lack of aggregate demand problem had happened in one country, you could export to another country, but this is a pandemic that has affected the entire world. Every country is suffering from demand depression due to this today.


Lack of demand was there in India even before the pandemic, and the situation has become worse now. Many economists were demanding direct cash transfer to increase demand, but nothing of that sort happened.
Now, growth is said to be the lowest since Independence...

Before the lockdown, India's growth rate came down to 4% of the GDP as per the government data.
We suspect the growth rate was even lower as the actual government data comes almost two years later.
These calculations of quarterly GDP are based on a lot of assumptions which are not very reliable and they were influenced by the earlier higher growth rates.

You mean, it must have been less than 4%?


Yes. That's what many economists feel.
In the last 5-6 years, the wage rates, not just in rural India but urban India also, were not rising at all in real terms.
And this was happening when the per capita real growth rate was said to be 4% to 5%.
Obviously, inequality will go up as most people are wage earners.
This was the main reason for the lack of demand in the whole of the country.
The growth in aggregate purchasing power of the people came down because there was no change in the real wage rates at all.
When people do not have purchasing power, there will not be any demand.
When there is no demand, inventories will pile up.
When inventories pile up, investment rates will come down.
Then, growth rate will suffer and unemployment will go up, which, in turn, will affect the purchasing power of the people.


It is a vicious circle...
Exactly. It is a vicious circle.
Now, after the lockdown was imposed, in the first quarter of the financial year, that is, in the months of April, May and June, my sense is that the GDP has come down at least by half compared to the same period last year.
GDP coming down by half means -50% growth rate in one quarter which also means approximately -12.5% growth rate annually.
In the second quarter of this financial year (July, August and September) also, there will be negative growth, and most likely in the third quarter also.
One can hope that probably it will match with last year's quarterly GDP in the fourth quarter, -- 0% growth rate.
So, I would say the growth rate of the Indian economy in this financial year will be around -20%.


Last time we experienced negative growth rate was in 1978-1979...
At that time, it was just -5% only for one year and now, it is going to be -20%.
It is really huge; you are talking about 1/5th of the economy.
And if this happens, employment will come down by 20%.
Our total employed force is around 45 crores (450 million) and if it comes down by 20% means, the total employed will come down roughly by 9 crores (90 million).
This 9 crore unemployed will be added to the already unemployed 3 crore (30 million).
So, from 3 crore unemployed, it will go up to around 12 crores (120 million) or so!
Some would not get jobs for some months, some would not get jobs at all.
The small businesses of most of the self-employed people would suffer badly.


It is the highest since Independence...
Not just the highest. Just see what kind of political, social and economic impact it will have when the number of unemployed goes up four times in one year suddenly.
Some of them may even indulge in anti-social activities.
Law and order situation will be out of control. Unless the government does something substantial...


120 million Indians will be unemployed!
 

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'Government is going back on its commitment to the states'
By PRASANNA D ZORE
August 28, 2020 08:39 IST

'Because of the COVID-19 pandemic situation today, the revenues of the states have gone down, the GST money is not coming and all the states combined have lost more than Rs 365,000 crore in revenue.'
'To make it worse, the Government of India is not compensating us for the shortfall, which it must as per its Constitutional obligations.'




Illustration: Dominic Xavier/Rediff.com

Puducherry Chief Minister V Narayanasamy speaks exclusively with Prasanna D Zore/Rediff.com about the Union government's refusal to make the repayment of GST compensation to the states.
"The Government of India is not compensating us for the shortfall, which it must as per its Constitutional obligations," says Narayanasamy, who is also the Union territory's finance minister and represented Puducherry at the 41st GST Council meeting held on Thursday, August 27.

What was the outcome of the GST Council meeting?
The finance minister gave two options to the states.
One is that the states have to borrow directly and the other one is the Government of India will facilitate the borrowing from the Reserve Bank of India.
Most of the finance ministers have said they will come back to her after a week (with their views on the finance minister's proposal).

Most of the finance ministers were of the opinion that the Government of India must borrow on behalf of the states and give it to us.
It (the GST compensation structure to the states) is the Government of India's baby and it is a commitment given by the Government of India, therefore they should now fulfill it and make for the shortfall in revenues to the states.
The state governments are not obliged to do it (borrow to make up for the revenue shortfall).

Isn't the Government of India under no obligation to borrow the money on behalf of the states?
It is not an obligation, but the Government of India has to pay the compensation if the compensation the states get is not sufficient and if there is any revenue shortfall.
Therefore, the Government of India should borrow and then give it to us.

Why aren't the states in a position to borrow? How is the fiscal situation in Puducherry?
Because of the dire fiscal situation during the pandemic, all the states have reached their maximum borrowing limits (of 3 per cent of their gross state domestic product; the finance minister has offered to relax the FRBM borrowing limit to 4 per cent).
All of us have mostly reached our borrowing limits mandated under the Fiscal Responsibility and Budget Management Act, 2005 (under the provisions of this Act, states are permitted to borrow maximum of 3 per cent of their gross state domestic product).
In this situation, states have to seek the Government of India's permission for increasing this limit so that they can borrow more directly from the market. But not many states are happy about the two options given by the Union finance minister.

Is Puducherry going to seek this permission to enhance its borrowing limit to 4 per cent of its fiscal deficit?
That is the second option in which the Government of India will stand guarantee for the states' market borrowings and the compensation shortfall to states when it is paid by the Union government will be repaid (by the states) in the sixth or seventh year. But there is rethinking on it (this option) now.
Let all the states apply their minds on this issue and then we will see. We will be meeting again after a week and let the finance minister know our opinion about the two options given by her.

What is the revenue shortfall for Puducherry?
We are entitled to about Rs 700 crore (Rs 7 billion<?em>).
From April 1, 2020 till this day we have not got any GST share from the Union government.

What was Puducherry's suggestion to the finance minister about resolving the issue of shortfall in GST compensation to the states?
That the Government of India should borrow and give money to the states. They have to give the sovereign guarantee without which the states won't be in any position to borrow money from the markets.

What was the reaction of other finance ministers from different states to the FM's proposal?
Even Karnataka was not too keen about the two options and the state's representative (Home Minister Basavaraj Bommai represented Karnataka at the GST Council meeting held virtually) suggested that the state's share of GST compensation should be immediately paid to Karnataka (Karnataka is seeking a compensation of Rs 13,764 crore/Rs 137.64 billion for the four months beginning April to August 2020).
Majority of the states have come around this view. Even Gujarat (that has the BJP government in power, along with Karnataka, said the same).

What happens in the next seven days before the next GST Council meeting is scheduled?
We will think over the two options and put forth our views about how best this can be worked out.

What are the problems in the GST compensation as it is as it exists today?
Because of the COVID-19 pandemic situation today, the revenues of the states have gone down, the GST money is not coming and all the states combined have lost more than Rs 365,000 crore in revenue.
To make it worse, the Government of India is not compensating us for the shortfall, which it must as per its Constitutional obligations.
Same is the situation with 14 per cent compensation of GST moneys due to the states.

It is the commitment that the Government of India must fulfill, but it is not doing so unfortunately.
The Union government is going back on its commitment.
The current GST structure puts the consuming states at an advantage and producing states at a disadvantage. That is why we have demanded that the GST regime should be revisited.



'Government is going back on its commitment to the states'
 

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Invoking 'act of God', Centre gives states 2 options on meeting GST shortfall
Source: PTI
Last updated on: August 27, 2020 19:34 IST


Amid a chorus by non-NDA ruled states for compensation of GST revenue shortfall, the Centre on Thursday presented two options to states under which they can borrow from the market to make up for the estimated deficit of Rs 2.35 lakh crore this fiscal.



IMAGE: Finance Minister Nirmala Sitharaman chairing the 41st GST Council meeting via video conferencing in New Delhi on Thursday. MoS (Finance) Anurag Thakur, finance ministers of states and UTs and senior officers from the Union government and states are also present in the meeting.Photograph: ANI Photo.


At the end of a five-hour long meeting of the GST Council, Finance Minister Nirmala Sitharaman said there was no proposal to raise tax rates to make up for the shortfall that has been compounded by the Covid-19 pandemic.
Citing a legal opinion from the attorney general, she ruled out the Centre making good the shortfall from either its coffers or borrowing against its balance sheet.

The deficit can be made good by states borrowing using a special window, she said, adding gthat this loan can be repaid after five years from the collection of GST cess.
If states agree to either of the options, it would effectively mean that cess would continue beyond five years of the GST rollout.
In 2017, all states agreed to subsume their local taxes such as VAT into the new, nationwide Goods and Services Tax in return for the Centre promising to make good any loss of revenue in the first five years.
But with the economy slowing down, Rs 70,000 crore shortfall was seen in the last fiscal and this year it is estimated to widen to Rs 2.35 lakh crore.

Revenue Secretary Ajay Bhushan Pandey said out of this amount, only about Rs 97,000 crore is attributable to the implementation of GST, while the rest in on account of the coronavirus pandemic hitting the economy.
Pandey, who is also the finance secretary, said while GST collections have been impacted by the pandemic this year, there was a shortfall of Rs 70,000 crore in 2019-20 (April 2019 to March 2020) which was made good from the surplus of previous two years.
When GST was implemented in 2017, the Centre had promised to compensate states for any revenue loss for five years from a pool created by levying cess over and above the GST on luxury and sin goods.
This cess pool generated a surplus in the first two years but witnessed a deficit in FY20 as well as the current fiscal.
Detailing the options presented to the states, Sitharaman said the Centre, in consultation with the RBI, will provide a special window to states to borrow Rs 97,000 crore at a reasonable rate of interest. This money can be repaid after five years from the collection of cess.
The other option is that the states borrow the entire GST compensation gap of Rs 2,35,000 crore through the special window.
The states have seven working days to decide which option they want, she added.
Sitharaman said, "The interest from borrowing would be repaid from the cess collected in the years beyond the first five years of GST implementation."
"There will be no additional burden on the states," she said, adding that the states have been asked to borrow through the RBI to ensure they do not rush for the borrowing and there is no hardening of bond yields.
The minister said the GST Council decided that the borrowing arrangement would be for the current fiscal and a review would be done at the beginning of the next financial year.
"We very clearly said in both the options... that we shall facilitate talking to the Reserve Bank and getting it at a G-Sec proportionate number of years linked rate for all the states so that each state does not have to go running for the loan and face different situations and in the process the bond yields (turn) higher.
"So we said we will facilitate it, but the borrowing can be done in the name of the states and all states roughly can get the same rate of interest," Sitharaman said.
A detailed note on the two options would be shared with the states and they would give their views on it in seven working days.
The minister said as soon as an arrangement was agreed upon by the GST Council, the Centre will clear the pending bi-monthly compensation. The compensation amount due for April-July period stands at Rs 1.50 lakh crore.
"This year we are facing an extraordinary situation... We are facing an act of God which might even result in a contraction of the economy, to what percent I am not getting into.
"Therefore, we said that a portion (of compensation) which strictly is hardwired in the (GST) Act, we will arrange, give it to you...," Sitharaman said.
She said both the options hinge upon the fact that borrowing will be done by the states.
"We explained why it would be preferable for the states to borrow and not the Centre and also we said if states are going to borrow, instead of crowding out people, we will facilitate the process through the central bank," she said.

The Centre had released over Rs 1.65 lakh crore in 2019-20 as GST compensation. However, the amount of cess collected during 2019-20 was Rs 95,444 crore. The balance of about Rs 70,000 crore was paid from the excess cess collected in 2017-18 and 2018-19.
The compensation payout amount was Rs 69,275 crore in 2018-19 and Rs 41,146 crore in 2017-18.




Invoking 'act of God', Centre gives states 2 options on meeting GST shortfall
 

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Prime Time With Ravish Kumar: क्या आप आर्थिक तबाही के लिए तैयार हैं?
657,277 views
•Aug 28, 2020



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Prime Time With Ravish Kumar - August 28, 2020: देश में कोरोना वायरस महामारी थमने का नाम नहीं ले रही है. आर्थिक तबाही का भी वही हाल है. पिछले 24 घंटे में 77,000 से ज्यादा नए मामले आए हैं. इस महामारी से मरने वालों की संख्या 61,500 से अधिक हो गई है. भारतीय रिजर्व बैंक ने अपनी सालाना रिपोर्ट में कहा कि इस वित्तीय वर्ष में पौने दो लाख करोड़ से अधिक की बैंक धोखाधड़ी हुई है. बैंक संकट में हैं. उन्हें तीन लाख करोड़ की मदद देनी होगी सरकार को. इस रिपोर्ट के चंद घंटों के भीतर केंद्र सरकार राज्यों से कह देती है कि वो जीएसटी का उनका हिस्सा देने की स्थिति में नहीं है और आप रिजर्व बैंक से लोन ले लीजिए.
 

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India's GDP Crash: Act of God? Or Act of Fraud? | The Deshbhakt with Akash Banerjee


1,267,166 views•Aug 31, 2020
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India's gross domestic product or GDP contracted by a massive MINUS 23.9% in the April-June period, that is what the official NSO data said. The data revealed that majority of the sectors are hit by a negative growth after the lockdown - making this the worst economic stump in India and also the in the world amongst big economies.

However in this edition of the deshbhakt we are going to take a look at how India's GDP was anyways on a downward spiral BEFORE the virus struck - making the cut deeper for India than any other country. Even before the lockdown, GDP growth was declining since the last eight quarters.

The Finance Minister has already said that this time, the decline in growth is an ‘act of God’ - however data shows that an act of Fraud has been committed and this depression is not going away any time soon.

ARTWORK - cartoonistsatish.com

Chapterheads -
00:00 - Zor ka Jhatka
1:30 - Act of God? Really?
4:17 - Taxes hit - clear indication
5:09 - Unemployment secret out!
6:01 - Rural Economy Down
6:41 - Cold wave over the economy
8:00 - No investment / No money to pay back loans
8:38 - Shrewd politics is NOT Shrewd Economics
9:18 - Ease of doing business? A jumla
9:51 - Tax terrorism - an unspoken reality
10:17 - Social unrest - India's Shame.
11:12 - Sab changa si - the solution to all problems
 

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जब भारत था सबसे बडे आर्थिक संकट में | India In 1990s - HD
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•Apr 22, 2017



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The crisis was caused by currency devaluation; the current account deficit, and investor confidence played significant role in the sharp exchange rate depreciation.

The economic crisis was primarily due to the large and growing fiscal imbalances over the 1980s. During the mid-eighties, India started having balance of payments problems. Precipitated by the Gulf War, India’s oil import bill swelled, exports slumped, credit dried up, and investors took their money out.[6] Large fiscal deficits, over time, had a spillover effect on the trade deficit culminating in an external payments crisis. By the end of 1990, India was in serious economic trouble.

The gross fiscal deficit of the government (centre and states) rose from 9.0 percent of GDP in 1980-81 to 10.4 percent in 1985-86 and to 12.7 percent in 1990-91. For the centre alone, the gross fiscal deficit rose from 6.1 percent of GDP in 1980-81 to 8.3 percent in 1985-86 and to 8.4 percent in 1990-91. Since these deficits had to be met by borrowings, the internal debt of the government accumulated rapidly, rising from 35 percent of GDP at the end of 1980-81 to 53 percent of GDP at the end of 1990-91. The foreign exchange reserves had dried up to the point that India could barely finance three weeks worth of imports.

In mid-1991, India's exchange rate was subjected to a severe adjustment. This event began with a slide in the value of the Indian rupee leading up to mid-1991. The authorities at the Reserve Bank of India took partial action, defending the currency by expending international reserves and slowing the decline in value. However, in mid-1991, with foreign reserves nearly depleted, the Indian government permitted a sharp depreciation that took place in two steps within three days (1 July and 3 July 1991) against major currencies.
 

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Toyota halts India expansion, blaming ‘we don’t want you’ taxes

4 min read . Updated: 15 Sep 2020, 05:37 AM ISTBloomberg

In India, motor vehicles including cars, two-wheelers and sports utility vehicles, attract taxes as high as 28%

Toyota, one of the world’s biggest carmakers, began operating in India in 1997

Toyota

Toyota Motor Corp. won’t expand further in India due to the country’s high tax regime, a blow for Prime Minister Narendra Modi, who’s trying to lure global companies to offset the deep economic malaise brought on by the coronavirus pandemic.

India is planning to offer incentives worth $23 billion to attract firms to set up manufacturing, people familiar with the matter said last week, including production-linked breaks for automakers. The South Asian country is the fourth-biggest car market in the world but international players have struggled to find a niche in a sector that’s dominated by cheap, fossil-fueled vehicles.

The government keeps taxes on cars and motorbikes so high that companies find it hard to build scale, said Shekar Viswanathan, vice chairman of Toyota’s local unit, Toyota Kirloskar Motor. The high levies also put owning a car out of reach of many consumers, meaning factories are idled and jobs aren’t created, he said.

“The message we are getting, after we have come here and invested money, is that we don’t want you," Viswanathan said in an interview. In the absence of any reforms, “we won’t exit India, but we won’t scale up."

Toyota, one of the world’s biggest carmakers, began operating in India in 1997. Its local unit is owned 89% by the Japanese company and has a small market share -- just 2.6% in August versus almost 5% a year earlier, Federation of Automobile Dealers Associations data show.

In India, motor vehicles including cars, two-wheelers and sports utility vehicles (although not electric vehicles), attract taxes as high as 28%. On top of that there can be additional levies, ranging from 1% to as much as 22%, based on a car’s type, length or engine size. The tax on a four-meter long SUV with an engine capacity of more than 1500 cc works out to be as high as 50%.

Ford, GM Out

The additional levies are typically imposed on what are considered to be “luxury" goods. As well as cars, in India that can include cigarettes and sparkling water.

General Motors Co. quit the market in 2017 while Ford Motor Co. agreed last year to move most of its assets in India into a joint venture with Mahindra & Mahindra Ltd. after struggling for more than two decades to win over buyers. That effectively ended independent operations in a country Ford had once said it wanted to be one of its top three markets by 2020.

Such punitive taxes discourage foreign investment, erode automakers’ margins and make the cost of launching new products “prohibitive," Viswanathan said.

“You’d think the auto sector is making drugs or liquor," he said. Toyota, which also has an alliance with Suzuki Motor Corp. to sell some of Suzuki’s compact cars under its own brand, is currently utilizing just about 20% of its capacity in a second plant in India.

Taxes on electric vehicles, currently 5%, will probably also go up once sales increase, Viswanathan said, referring to what he says has become a pattern with successive governments in India.

While discussions are ongoing between ministries for a reduction in taxes, there may not any immediate agreement on an actual cut, India’s Heavy Industries Minister Prakash Javadekar said earlier this month.

A finance ministry spokesman didn’t immediately respond to messages seeking comment.

EV Challenge

Automobile sales in India were weathering a slump before the coronavirus pandemic, with at least half a million jobs lost. A lobby group has predicted it may take as many as four years for sales to return to levels seen before the slowdown.

The biggest players are the local units of Suzuki and Hyundai Motor Co., which have cornered the market for compact, affordable cars. Maruti Suzuki India Ltd. and Hyundai Motor India Ltd. have a combined share of almost 70%.

Toyota in India has largely pivoted toward hybrid vehicles, which attract taxes of as much as 43% because they aren’t purely electric.

But in a nation where few can even afford a car, let alone a more environmentally friendly one, EVs or their hybrid cousins have yet to gain much acceptance. Elon Musk, the billionaire founder of Tesla Inc., has said import duties would make his vehicles unaffordable in India.

“Market India always has to precede Factory India, and this is something the politicians and bureaucrats don’t understand," Viswanathan said. Modi’s much-touted Make in India is another program aimed at attracting foreign companies.

India needs to have demand for a product before asking firms to set up shop, yet “at the slightest sign of a product doing well, they slap it with a higher and higher tax rate," he said.




 
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