Question

As per a news dated April 11, 2023:
“Electric Vehicle sales crossed one million mark in FY 2023.”
Analyse its impact on Gross Domestic Product (GDP) and economic welfare.

Hint:

The transition to electric vehicles not only boosts GDP by stimulating economic activity in multiple sectors but also improves welfare by contributing to environmental sustainability and energy security.

Answer 1

The sale of Electric Vehicles (EVs) crossing the one million mark in FY 2023 is likely to have significant impacts on both Gross Domestic Product (GDP) and economic welfare: 1. Impact on GDP:
- Increase in Production:
The production and sale of electric vehicles directly contribute to GDP as it is considered part of the manufacturing sector. This surge in sales indicates higher production and demand for electric vehicles, thereby contributing to increased economic output.
- Expansion of Related Sectors:
The growing EV market stimulates other related industries such as battery manufacturing, infrastructure development (e.g., charging stations), and research and development in clean energy technologies. These activities further contribute to GDP, creating a ripple effect throughout the economy.
- Investment in Technology and Infrastructure:
The expansion of EV sales will likely lead to increased investments in green technologies and infrastructure, further boosting GDP. Government spending on incentives for EVs or the development of EV-related infrastructure (charging stations, renewable energy sources, etc.) also boosts GDP.
2. Impact on Economic Welfare:
- Environmental Benefits:
EVs contribute to environmental sustainability by reducing carbon emissions, which is crucial for addressing climate change. As EVs become more widely adopted, the reduction in pollution improves overall public health and welfare, leading to long-term economic benefits from reduced healthcare costs and improved quality of life.
- Energy Independence:
Increased adoption of electric vehicles reduces reliance on fossil fuels, which can help countries become more energy independent. This leads to a more stable and sustainable energy economy, contributing to long-term economic welfare.
- Social Welfare and Employment:
The EV industry is likely to create new jobs, not only in vehicle manufacturing but also in the sectors related to renewable energy, battery production, and EV maintenance. These job opportunities can enhance social welfare by reducing unemployment and increasing income levels.
- Affordability and Accessibility:
Over time, as the production of electric vehicles scales up, their prices are likely to decrease, making them more accessible to a larger segment of the population. This increased affordability could lead to greater adoption, further improving welfare.
In conclusion, the rise in electric vehicle sales contributes positively to both GDP and economic welfare by promoting sustainable growth, creating jobs, and enhancing environmental and social outcomes.