BU1003 Economics For Sustainable Business

Question:

Based on the news about “Solar storage manufacturers want lower GST levies on

“Batteries”, give a critical answer to the following questions.

Analyze the impact of lowering India’s Goods and Services Tax, or GST (Goods and Services Tax) on the battery market.

Tips: Please analyze the impact of market outcome in terms price, quantity and surplus producer.

Examine the impact of lowering GST for batteries from 28% up to 5% on India’s Electric Vehicle (EV) Market.

Tips: Rechargeable batteries are an input for an EV.

You should consider the impact of the changes on the market in the short, medium, and long term.

Analyze critically the impact of lowering GST for batteries from 28% up to 5% on India’s petrol vehicle market.

Do you think the government’s proposal to reduce GST on solar energy storage batteries will help it reach 100 per cent Electric Vehicle Nation (EVN) by 2030?

Are you a believer that such a proposal should have been considered by Minister of States (Independent Charge), for Power, Coal, New & Renewable Energy.

Answer:

Introduction

Study on India’s implementation of the Goods and Services Tax, (GST) identifies the effects of lowering the GST levy for batteries from 28 to 5 percent on India’s battery market in terms od price, quantity demanded and producer surplus (Mishra 2017).

The study also examines the impact of this on the Indian petrol vehicle market and the Electric Vehicle market.

In the essay paper, we also discuss the effect of the proposal of lowering GST on batteries on the Indian government’s goal to become a 100 percent EV nation in 2030.

The GST levy on battery purchases will be decreased by lowering it from 28% – 5% to 5%.

It can have an impact on the selling price of batteries because consumers will pay less tax. Creedy (2016)

If the supply side remains constant, then a price decrease due to tax reduction could increase the demand in the free marketplace.

As illustrated in the above diagram, the GST levy for batteries will be decreased from P1 to Q2. This will reduce their price.

Accordingly, Q1 will see an increase in the demand for batteries. Q2 will see an increase in battery consumption.

Due to the fall in GST levy, both the producer surplus and the consumer surplus of the battery market will be affected.

Evidently, a lower price for batteries due to tax deduction should lead to a greater consumer surplus.

In the meantime, because of price falls in batteries, the demand for the product will increase.

The result is a greater consumer surplus (Cowan 2012).

However, the producer surplus will be reduced if batteries are sold at a lower cost.

If the GST levy is cut, the price will decrease, which in turn contributes to lower potential producer surplus (Ma, 2015).

Thus, the triangle of producer surplus (or producer surplus) will be smaller which indicates a lower producer surplus.

However, the GST reduction will lower the cost of manufacturing EVs. This will allow EV producers to lower the prices of the vehicles on the market.

The drop in price of EVs as a complement product will lead to an increase in demand for them in the short term (Balkyte & Tvaronavi??iene, 2010).

For further understanding, a diagram has been provided below:

As you can see, lowering the tax on EV will decrease its price in the short term.

But, the demand curve for EV will stay at D and there won’t be any changes in the amount of EVs supplied.

Therefore, Q1 and Q2 can show an increase in EV demand.

Therefore, EV will see a rise in profitability as there is no change to the profit margin of the EV producers.

In the long term, however, the increase of demand will result in a shift in the demand curve to D from D1, while supply will increase to S1 from S2 due better utilisation. (Please see the diagram below).

The price of Electric Vehicles will not change.

But, an increase in consumption over time will be a benefit to EV producers (Balkyte & Tvaronavijiene 2010, 2010).

For a better understanding, a diagram is provided below:

For substitute goods like petrol vehicles, a reduction in GST from 28 percent – 5 percent on batteries will lower the price of electric cars more than petrol vehicles.

A reduction in the cost of EVs will directly affect the demand for petrol cars in India (Bochet.?lk.l.c., Moulin. & Sethuraman. 2012).

A diagram based on the theory and demand has been created below.

Based on the diagram above, a decline in the price of an EV from P1 to 1 will cause a decrease in the demand for petrol cars from Q1 to Q1.

This will result in a substantial drop in petrol vehicle sales.

Although it’s almost impossible to reach the 100 percent mark, the Indian government will be able to help reduce GST by solar energy storage manufacturer by proposing to lower the GST on batteries.

The GST deduction on batteries will cause a rise in demand as the prices fall.

The price of Electric Vehicles will drop due to lower prices because the battery is an accessory good for the EV.

In India, the GST will be lowered on the complementary goods for EV. This will help to lower the price of EV.

On the contrary, EVs can be identified as a substitute for petrol-powered vehicles.

The market for petrol-powered cars can be affected by an increase in EV demand.

In the current economic climate, EVs will be preferred by the target audience.

This will give a boost to the government’s efforts to make all countries EV-friendly by 2030.

The availability of charging stations for electric vehicles in rural areas may make it less popular.

The Minister of Power, Coal, and New & Renewable Energie should, however, take into account the economic and environmental benefits and propose lowering the GST levy for batteries.

Conclusion

As you can see, the decrease in GST on batteries will increase Indian market demand for electric vehicles.

On the other side, it’s difficult to achieve the 100 percent EV nation goal by 2030 due to a lack infrastructure and innovations in petrol vehicle manufacturing.

Noting that battery prices have fallen, will result in a lower cost petrol vehicle.

But, India’s 5 percent GST policy will allow it to achieve a higher goal than the 28 percent rate.

Refer to

Perceptions of competitiveness in the contexts of sustainable development: Facets.

Journal Of Business Economics And Management, 11(2). 341-365.

The balance of supply and demande under bilateral constraints.

Theoretical Economics 7, 395-423.

Third-Degree price Discrimination and Consumer Surplus.

The Journal Of Industrial Economics 60(2), 3333-345.

4th edition. Measurement of welfare burdens and changes in tax.

Economics (6th Ed.).

Long-Run Industry Supply Curve, Producer Surplus.

Journal Of Economics And Development Studies. 3(2).

Manufacturers of solar energy storage demand a lower GST levied on batteries.

The Hindu Business Line.

Economics (5th Ed.).

Chantilly, VA – Teaching Co.

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