It’s a colossal dole that will impact production and push up prices without improving the condition of the hungry The Indian electorate has given an overwhelming mandate to the Narendra Modi-led National Democratic Alliance (NDA) hoping it will deliver development and good governance. The Congress-led UPA has been routed. This shows the people have rejected its hollow promises of access to the essentials of life as a matter of right. All through his election campaign, Congress vice-president Rahul Gandhi made a song and dance about a list of fundamental rights granted to people under the UPA dispensation. Among these, he talked loudest of the right to food to demonstrate that his party was sensitive to the livelihood concerns of the...
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Category: The Hindu – Business Line
One step forward, two steps back
If raising the cap on subsidised LPG cylinders was bad enough, withdrawing Aadhaar linked payouts was disastrous The UPA Government is prone to talking loud on economic reforms. Yet, it is reluctant to take hard decisions. The government committed two blunders recently: it backtracked on the LPG subsidy reduction and — what’s worse — withdrew the direct benefit transfer (DBT) scheme. By doing so, the government has let go an opportunity to prune massive leakages in food, fertiliser and LPG subsidies and bring about a much-needed fiscal correction. Let us first look LPG subsidies. Flip-flops all along Prior to 2002-03, sale of LPG (besides diesel and kerosene) was subsidised under an administered pricing regime. This was paid for by higher...
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Enough of this urea populism
A urea price hike is in order to curb subsidy outgo and redress nutrient imbalance A Group of Ministers (GoM) was set up last year to suggest a suitable hike in urea price to neutralise increase in energy cost, so that subsidy can be reined in. The Government, however, has categorically ruled out any increase until general elections. The maximum selling price (or MRP) of urea has been under control since 1957. Until the late 70s — a period of low inflation and low feedstock price — the MRP was higher than the cost of production and distribution. Hence, there was no subsidy. Since 1977, equation was reversed, with cost exceeding selling price. The Government had to give subsidy to...
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Gas pricing rewards the defaulter
The Government has given Reliance a pretty long rope, despite its inability to meet its production sharing contract (PSC). This has led to fertiliser and power companies being badly hit for no fault of theirs. Will these companies be compensated for losses? First, for some background on how the PSC came unstuck. In June, 2013, Cabinet had decided to double price of domestic gas from $ 4.2 per mBtu to $ 8.4 per mBtu from April 2014, based on recommendations of a Committee under C. Rangarajan, Chairman, Prime Minister’s Economic Advisory Council (PMEAC). However, a notification was held back in view of a dispute with RIL-BP-Nikko, operating the D 1, 3 fields in KG basin. The bone of contention was...
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No reason to fear WTO on farm subsidy
Commerce Minister Anand Sharma managed to wrest some elbow room for India’s food subsidy programme, bringing around the US and other developed countries to accept his point of view. The agreement finalised at the Ninth WTO Ministerial in Bali is expected to let the ‘peace clause’ — a euphemism for not taking any action for supposedly violating commitments under the Agreement on Agriculture (AoA) — continue till a permanent solution comes into being. Developed countries (DCs) wanted this window to be only for four years, without even drawing a time line for a lasting solution. They were merely willing to discuss it at the next Ministerial in 2017. Sharma exudes confidence that subsidy under Food Security Act (FSA) is now...
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Why genuflect before WTO?
India is making a big mistake. It is asking the WTO to be flexible about farm subsidy thresholds in view of its commitments under the Food Security Act (FSA), when, in fact, it has no reason to be on the defensive. The commitments under the FSA, humongous as they are, cannot be included under ‘trade-distorting food subsidy’ as defined by the WTO. The government should do its homework, before seeking favours it does not need. To be sure, the FSA — enacted in the monsoon session of Parliament — will entail a subsidy outgo of Rs 6,80,000 crore over a period of three years, as per the Commission for Agricultural Costs and Prices (CACP) or Rs 2,27,000 crore per annum....
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Don’t give into this power game
The ultra-mega power project (UMPP) producers have managed to convince the government and power regulator that they need an increase in power tariff to offset the hike in price of Indonesian coal. In being allowed to do so, we are effectively back to the times of input prices being passed through to power distribution companies and consumers. The promise of a fixed tariff from UMPPs, contained in their power purchase agreements, has been effectively put aside. With Discoms unable to recover the higher costs from farmers, industry and business will have to bear the brunt. That apart, the finances of Discoms will sink further into a mess, requiring a further injection of relief from the Centre and states, in turn...
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Oil PSUs squeezed mercilessly
Despite all-out efforts to build indigenous capabilities in the energy sector for decades, India remains dependent on imports to the extent of 80 per cent for its oil needs. The Oil & Natural Gas Corporation — a central public sector maharatna company — currently produces about 30 million tonnes of crude oil or 80 per cent of domestic output. It has plans to invest Rs 11,00,000 crore ($177 billion) in oil exploration till 2030. That is expected to yield additional production of 60 million tonnes and should help in lowering import. Financing this gargantuan investment poses a huge challenge. All along, the Government had been goading profit-making central PSUs to fund their capital expenditure from ‘internal’ resources. Essentially, ‘internal’ resources...
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Gas policy – from one mess to another
Immediately after the Cabinet decision on a new structure of gas pricing – that would double gas price from April 2014 — the Ministry of Finance asked the Ministry of Petroleum and Natural Gas to consider “making up for quantity by which RIL had missed target of supplies from its KG-D6 block at old price”. Now, Parliament’s Standing Committee on Finance has endorsed the MoF’s stance. The context here is supplies from Dhirubhai 1 and 3 fields (D 1& 3). These fields commenced gas production in 2009. After reaching a peak of 60 mmscmd in 2010, production declined to 26 mmscmd in 2012-13 and further down to 14 mmscmd in 2013-14, against a commitment of 80 mmscmd. The concept of...
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Fertilisers: Back to the licence raj
Elections can wreck even the best policy reform. A vivid demonstration of this is available in the Office Memorandum dated June 26, 2013 issued by the Department of Fertilisers (DoF). It says that under the nutrient-based scheme (NBS) for de-controlled di-ammonium phosphate (DAP)/complex fertilisers, potash and Single Super Phosphate (SSP), the Government will fix ‘reasonable’ MRPs and manufacturers charging higher will be deemed to be ‘profiteering’ from the scheme. The Memorandum specifies action in cases of violation. This would take the form of denial of subsidy equal to the extent of the‘un-reasonable’ amount for the product/grade concerned or its ‘exclusion’ from the purview of NBS. Companies have been directed to submit detailed annual cost data from 2010-11 onwards, duly certified...
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