What’s missing from a budget gung-ho on growth?
Updated: Apr 6, 2022
Finance Minister Nirmala Sitaram scored a massive victory today with her budget getting a sound thumbs up from all quarters of the economy. The budget pacified the working class by firing all engines in the agriculture sector, created an opportunity for greater investment in the economy by thinking big on infrastructural development, and, most importantly, restated the government’s confidence in the economy’s growth potential by proposing the largest ever cap-ex in Indian history. I wouldn’t waste your time or mine by commenting on this historic capital outlay budget because of two simple reasons: the economy’s unprecedented recovery last year and the record-high GST collections. Quite frankly speaking anything smaller than the proposed budget would have made me question the intentions and goals of the BJP-led government.
Since everything in the budget has already been talked about, analysed, and dissected by people far more experienced than I am I shall just get on with my two bits about what I feel should have been there but wasn’t and what was there but could have been better in the budget.
Firstly, semiconductors. I was disappointed to not hear about this key sector in the budget speech especially because of its prime political and economic importance. After digging through some news coverage and red tape I did find out that the government has earmarked some production-linked incentive schemes for the sector with a respectable if not an earth-shattering initial capital outlay of Rs. 76000 crore. To put it in perspective that much money is about $10.81 billion, per the forex rate at the time of writing, which is not even the minimum capital expenditure proposed by the companies in the sector. Anyways, coming back to the point, what surprised me was that the government despite having made some commitment to the industry couldn’t find time to mention this in the budget despite the fact that a globally dominant electronics and informatics industry cannot be set up without a sizeable semiconductor sector in the nation. We are currently importing about $24 billion worth of semi-conductors mostly from China and that number is only expected to rise to $100 billion shortly, which alone should be reason enough to lay special emphasis on establishing a domestic industry that can not only meet the demand of 1.4 billion people but rather can of the more than 7 billion people in the world. The government received praise for this scheme but quite frankly there is nothing praiseworthy in the scheme. It’s just a touch and go from the government as this money can only go as far as to service a small fraction of the demand in the country (the $24 billion> $10.8 PLI schemes). The sector has plenty of potentials, as is noted in the 24% growth rate between Oct 2020- 2021, not only in its ability to drive record FDI but also to generate high tax revenue for the government. It is, moreover, future proof as no matter how many cycles of new technology we undergo this is going to remain a critical component pertinent to the functioning of the new tech. That alone warrants a steady and heady growth rate for many years to come. Having a domestic industry that rivals that of China is a pipe dream I want to dream about and hope for because the scale and growth possible in the industry is truly unfathomable. If PM Modi wants to hit base at $5 trillion in the next few years then this is definitely the ride he needs to hitch before it gets too late.
Secondly, electric vehicles. God, aren’t I darn tired of the government’s lethargic and tired approach to this sector. I am running out of patience with the government for not doing anything grandiose on this front for the last 5 years or so. For a leader to be a leader they need to lead from the front. Modi dreams to be this global leader of stature akin to POTUS if not Angela Merkel but honestly speaking I don’t see that happening because of this relaxed approach to considerably everything futuristic. Back to point though, the FM did mention the creation of a framework for battery swap technology and when I researched about it what I found was not pretty. Tesla ditched this technology despite having developed it way back in 2013 after finding dismal interest from the 200 customers it had invited for a pilot test of the technology, which is saying something. It has deemed the technology a logistical nightmare, expensive to set up, and difficult to maintain and build. Instead, the superchargers developed by the company allow for charging times as fast as that of gasoline with their V3 overcharge facility allowing 250km worth of recharging in as less as 15 minutes. On the other hand, Chinese automotive giant Nio successfully rolled out a battery swap infrastructure for its EV models with initial customer participation reaching as high as 4 million battery swaps as of September 2021. This while a positive for the government’s policy doesn’t take into account the considerable literacy, skill, and infrastructural gap between India’s and China presently. Where one is a developed economy accustomed or rather educated about the workings of this infrastructure the other is a relatively illiterate country with poor know-how of new-age tech amongst the larger populace. Also, consider for a moment the state of security in our nation which could and shall put this entire plan in jeopardy. The batteries that would be stored at the battery swap stations won’t be just worth tens of thousands of rupees but rather tens of lakhs of rupees, and in that multiple many people would see an easy way out of their poverty or dire situation, which I wouldn’t be surprised to see happen often. Understaffed police stations furthermore compound this safety conundrum that China wouldn’t be facing, at least of this magnitude, because of the strict laws and quite able police forces.
Moreover, the logistics and financial implications aren’t going to be as simple as that of charging as well because you cannot have a price index or a set price per/km in this system. I mean the government could set up a subscription service in partnership with the private sector to fund, grow, and maintain this network, but that alone would make the whole point of this technology’s affordability moot. What surprises me the most is that the budget speech did not dive deep into any of these implications or if that’s asking too much then it could have at the very least mentioned what this framework would like and by when they hope to see it ready and functional. This just makes me question the government’s intentions towards setting up a world-class EV ecosystem that would make this demographically attractive market financially attractive in this sector as well. The government’s silence is not helping things either.
What I just don’t understand is why the government is unwilling to invest in the R&D of supercharger technology like Tesla or much simply an agreement to outsource this from Tesla itself, a more than enthusiastic and stable potential partner for the GoI. Tesla’s tech is unrivalled in the industry and couple that with their consistent updates to the technology ensures that not only would we have the most reliable technology in the nation but also very the latest and meanest. The company had clarified in response to Nio’s battery swap technology that most of their customers charge their cars overnight at home for their daily commute and in case of the occasional road trips, the company’s Supercharger network is a convenient affordable solution in comparison to the battery-swap’s subscription cost. Honestly, that is a very very comfortable arrangement because just like my phone my car could be charged overnight and when I do need a refill midway on that occasional road trip I could schedule my customary break along with my car’s charging schedule. That’s doesn’t sound half bad to me. Plus, this way I wouldn’t always find the need to visit a store to get my batteries recharged as would be required for the battery swap technology, which is extremely cumbersome for me.
What do you think? Let me know in the comments below.
The government’s willingness to launch a digital rupee on such a rapid timeline, faster than peers at the Fed and BoE at least, makes me wonder why this kind of a cutting-edge mentality was amiss from the rest of the budget. Sitharaman talked big, made a whole bunch of promises but forgot the most important thing: focus. The budget was all over the place and, while, one cannot expect a simpleton budget for a country as large and diverse as ours I would have loved to see a clear trajectory, strategy, and focus present. We do not have the best record when it comes to executing our budget so clarifications on the strategy front would have been welcome. Yes, the budget tick marks the areas requisite for sustained growth over the next decade or so but it doesn’t prepare us for global dominance. For global dominance, we need to think like our Chinese and Western peers i.e. we need to think ahead, be innovative, and futuristic.