We would have been better placed to reopen the country had we been a car country.
From 4 May, Lockdown 3.0 will go into force. Unlike previous phases, the government has allowed significant relaxations in movement, economic activity and even allowing non-essential shops to open in green and orange zones. Thanks to these steps, some are calling it Reopening 1.0 rather than Lockdown 3.0.
However, restrictions on public transport continue to be in place. Railways, air travel, Metro services will remain shut.
Inter-state road movement is still prohibited and going out between 7 am to 7 pm is not allowed even in green zones.
Though, it’s a mystery how any economic activity can resume without people moving out of their homes. Maybe the government will issue its famed clarification.
The conclusion from the latest rules is that public transport will take a long time to open, especially in red zones, which also happen to be areas which are the biggest contributors to economic activity.
And bigger the mode of transport, longer it will take to resume operations. For instance, buses will start plying much earlier than trains or metros do.
And it would be months before we can reach pre-Covid-19 levels of passenger capacity in trains, metros or airplanes even after they start operations.
All this will continue to have a huge negative impact on economic activity in India. Reopening firms and factories will mean little if people can’t travel to them with a certain degree of security.
Since India‘s population, from the poorest of sections to the middle class, relies on public transport so heavily, the country will suffer longer than is needed.
The point is we would have been better placed to reopen the country had we been a car country.
India has 22 cars per 1,000 people compared to 164 in China.
For US and UK, the figure is more than 800. But comparison to China is more relevant given size, density and Gross Domestic Product per capita. While, China’s GDP per capita is only double that of India’s, the difference in cars per capita figure is more than seven times.
If we factor in China’s massive investment in high speed rail which ferry millions of people everyday, the difference becomes even more significant. Nonetheless, the merits for India becoming a car country stand out even without comparing it to other countries.
The reason is simple: public transport is highly vulnerable to tail risk. Pandemic is one extreme instance of that.
But terrorism is another and we often see in India the heightened security on important festivals or 15 August/26 January at airports and metro/rail stations.
If there is one thing this author hopes for in post Covid-19 India, it is car ownership. At the very least, the government should aim to multiply it by five times by 2030 while ramping up investment in road infrastructure simultaneously.
The latter will provide a fillip to the struggling economy especially as we rush to create jobs.
This could be a major part of India’s aim of Rs 100 lakh crore investment in public infrastructure.
If we are serious about becoming an economic superpower in 30-50 years, then we have to diversify from top 5-6 mega cities and incentivise building 100 big cities (at least) most of which fall in eastern India where population density is extremely high.
The car country project coupled with a ‘100 big cities model’ can diversify risks to a great extent and make the country more robust to shocks.
The latter is outside the scope of this piece and one would like to focus here only on how to make India a car country. One of the biggest roadblocks in achieving this goal is India’s taxation policy.
For even basic cars, the total taxes levied by the Centre as well as the states combined can be as high as 30 per cent.
For slightly better models, it could be as high as 50 to 60 per cent and for high-end ones, even higher.
Take the Kia Seltos model and its second-best variant. Its on-road price is Rs 16.74 lakh after adding all taxes and mandatory charges one has to pay to legally drive it on the road.
But the actual price of this model, right out of factory is Rs 9.5 lakh only.
That’s an additional 73 per cent of actual value one has to shell out for this car, which can’t even be called a luxury model by international standards.
Factory price for Maruti Swift is around Rs 4.5 lakh and not Rs 6.2 lakh that one has to pay for a base variant.
That’s a tax penalty of over 30 per cent. And so on.
Why shouldn’t the total tax on basic budget cars be 5 per cent rather than 30 per cent? If income tax below earnings of Rs 5 lakh can be effectively zero, then why tax on a car which costs less than Rs 5 lakh and which a person buys once in a decade should be 30 per cent?
This is absurd. Even mid-range cars whose factory price is less than Rs 10 lakh shouldn’t have more than a 10 per cent tax outgo to the government.
And one is not even adding the crazy levels of taxes people pay on fuel for their cars.
Rationalising the tax structure alone can boost India’s car ownership many times. It will also rescue the auto sector which has been slumping recently due to growth of cab sharing apps.
The government will be forced to invest in road infrastructure more rather than pumping money in metro projects which are concentrated in select cities and only help in concentrating jobs as well as population in a few centres.
Opposition to proliferation of car ownership is due to three reasons:
1) It’s bad for the environment as more cars will lead to higher carbon footprint and that’s terrible in the long run.
2. It’s a bad move strategically as India imports most of its fuel from outside and more import will add to more geostrategic vulnerabilities in addition to increasing import costs.
3. It will lead to more road jams and traffic woes which are already worse.
But all these criticisms assume that the fuel usage rises in proportion to car ownership. That needn’t be the case. Smart implementation of congestion pricing and road tax can discourage car usage by a great extent.
Additionally, regulations can limit one car per household or making it difficult for those who don’t have a parking space to buy a car.
The idea should be to increase car ownership but regulating car usage. This can be achieved by significant reduction in taxes on purchase of car but extracting a premium on its usage on roads.
This will give Indian households the capacity and option to travel by car when they don’t feel safe using public transport but do so at a price.
It will not increase fuel costs or carbon footprint by much (Remember: two-wheelers account for 61.42 per cent of total petrol sales while that by cars is 34.33 per cent).
And smart regulations on car usage will ensure that there are no traffic jams than usual.
A jump in car sales will not only rescue the auto sector but also give the government more taxes than it currently gets.
It’s a win-win for everyone.