G-7 leaders finally came around with the proposed Build Back Better World (B3W) to counter China’s rising influence across 100-plus countries through Belt Road Initiative (BRI) projects. The proposal, though at a nascent stage, aims to address the infrastructure investment deficit in developing and lower income countries — the space which has been increasingly captured by China through 2,600 BRI projects with trillions of dollars of investment.
BRI projects are perceived as corrosive tactics or debt traps laid by China for its strategic dominance in trade, foreign policy and geopolitics in the world. So B3W is a welcome step but late.
The counter-strategy is necessary to bring down Chinese leverage. A macro view of BRI projects across geography — quantum and pattern of investment — clearly reflects the motive of China-centric international economic integration, production networks, hegemony in the Asia-Pacific region and, eventually, the global economy.
Since the inception of the BRI in 2013, outward investment by Beijing has been aggressive as China’s FDI outflow to inflow ratio increased to 1 from around 0.34 during 2001-10.
In volume terms, the FDI outflow increased to an average of $140 billion in 2016-19 from an annual average $25 billion during 2001-10. China’s share of FDI outflows increased from 2.3 per cent during 2001-10 to 10.7 per cent during 2016-2019.
China had an overall exposure of around $750 billion — $293 billion investment and $461 billion construction contracts —between 2013 to mid-2020. After BRI, there is a sudden increase in investment — around $40 billion annually during 2013-19 — in BRI countries, though investment has slowed down due to the pandemic.
Since the onset of BRI, China has signed diverse projects worth $548.4 billion, including four-fifths in the BRI participating countries ($461 billion). Post 2013, there was a sudden rise in infrastructure investment in BRI projects compared to investment in non-BRI projects.
Since 2013 to mid-2020, China has an exposure of vast contracts worth around $123 billion in SSA, mainly with Nigeria, Zambia, Ethiopia, Angola, Tanzania and Kenya, mostly focusing on hydro and oil energy, shipping and rail transport. China has strategically made Kenya the African hub and plans to connect it with other land-locked countries in the region, including Uganda, South Sudan, Rwanda, etc.
Central, South and West Asia is China’s second preferred region under the BRI as construction contracts worth $110 billion are under way, and 80 per cent contracts are concentrated in Pakistan, Bangladesh, Russia, Iran and Kazakhstan.
The China-Pakistan Economic Corridor (CPEC), the Bangladesh-China, India, the Myanmar Economic Corridor (BCIM) and the Colombo Port City Project in Sri Lanka, amongst others, are important BRI projects. China has a plan to complete 4,000 km of railways and 10,000 km of highways within the Central Asian region as part of BRI, with an estimated cost of $16 billion. Some of the major projects include freight trains between China, Turkey and Kazakhstan, and gas pipelines (Siberia and Altai) for production and transportation of oil and natural gas.
China has signed construction contracts worth around $96 billion under BRI, largely focusing on Saudi Arabia, UAE and Egypt, with 70 per cent allocation of total regional contract agreements. China is investing in Africa to lay a comprehensive transportation network.
Since the launch of BRI, China has signed various contacts worth $90 billion with the East Asian region. The biggest contracts have been with Indonesia, Malaysia and Laos worth $18.5 billion, $17.1 billion and $11.2 billion respectively, mostly focusing on transportation, railways, roadways and waterways, for better integration between China and ASEAN countries.
Since the onset of the BRI, the total exposure of China with Europe stood at around $23 billion by mid-2020. Major projects include a freight train project from Ukraine to Kazakhstan through Georgia, Azerbaijan, Kazakhstan and, eventually, China, covering a distance of 5,475 km. The Greek port Pireaus, the China-Belarus Industrial Park, and the Green Ecological Silk Road Investment Fund are other major projects. These initiatives would help trade facilitation for China and better delivery of goods and services.
The BRI projects broadly aim to facilitate cross-border transportation of goods, access to energy, creating demand for existing excess capacity in Chinese industries. Though the objectives of the projects undertaken in different countries vary, the overall focus is on developing transportation, logistics and communications, which would reduce trade and transaction cost for China’s trade, give more market access to Chinese markets and ensure stable supply of energy and other resources. Many countries, including India, would see an adverse trade impact on their products’ competitiveness, market access, resource extraction etc. due to Chinese competition.
China is focused on its agenda and far ahead. It has also tried to rope in more countries and raised the acceptance level of BRI over time through the BRI summit, Boao Forum for Asia, China-Central and Eastern Europe (CEE), Belt and Road Forum, etc.
The counter proposal of B3W is certainly a welcome step to contain the adverse implications of a Chinese mega plan. However, B3W lacks coherent thoughts and proper planning at this stage. Nevertheless, it is better late than never. Moreover, it remains to be seen what role India will play in B3W since it has been a strong opponent of China’s BRI.
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Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.