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ECONOMICS GST Hike in Battery

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Added on  2019-11-08

ECONOMICS GST Hike in Battery

   Added on 2019-11-08

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ECONOMICSGST Hike in BatterySTUDENT ID:[Pick the date]
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ECONOMICSIntroduction The introduction of GST regime in India has created a stir amongst solar energy producersand related stakeholders who are banking on green renewable energy push which has beeninitiated by the Indian government. The major issue of contention is the high GST rate of28% which is applicable on batteries used in electric vehicles and solar energy storage(Mishra, 2017). The objective of the essay is to highlight the impact of this high GST and tocritically analyse the case for lowering the same.Impact of GST lowering on battery marketAs GST is an indirect tax, hence the reduction from 28% to 5% as demanded bymanufacturers would lead to a lowering of the price and the consequent increase in theequilibrium quantity. This is because on account of the lowering GST on the producers, thesupply of these batteries would increase (Mankiw, 2014). This can be represented through theshift in supply curve as indicated below (Arnold, 2008).Owing to the increase in the supply from the battery manufacturers, the equilibrium pricewould decrease as indicated from P1 to P2. Also, the equilibrium quantity would increase fromQ1 currently to Q2. Hence, it is apparent the reduction of the GST would enable thegovernment to realise their stated agenda of 100% electric vehicles by 2030 (Besanko &
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ECONOMICSBraeutigam, 2010). Besides, it will provide a spur to the solar energy production as well asbatteries are required for storage of power which can be used at a later time. Also, from theabove diagram it is apparent that there would be an increase in the producer surplus as well asconsumer surplus owing to the decrease of deadweight loss on account of levying of tax. Thisis on account of lower prices for the buyers and overall lower tax burden for the sellers(Krugman & Wells, 2008).Impact of GST lowering on Electric Vehicle MarketIt is known that one of the parts required for the manufacturing of the electric vehicles is thebattery. When the GST on the battery tends to reduce from 28% to 5%, essentially, it wouldlower the cost at which the battery can be procured from the suppliers. This would lower thecost of manufacturing for the electric vehicle manufacturers (Mankiw, 2014). As a result, thesupply curve would tend to right as highlighted in the diagram indicated below.On account of the increased supply due to lower costs, there is lowering of the equilibriumprice for the electric vehicles making it more affordable for the customers. Additionally, theequilibrium quantity would also increase as at lower price the demand is higher and therequisite supply would also be available. As a result, the lowering to GST clearly providesimpetus to the consumption of electrical vehicles. In the short run, the profits would increase
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