In his maiden budget for 2014-15 presented on July 10, 2014, finance minister, Arun Jaitely had announced setting up of an expenditure management commission (EMC) to recommend a road- map up for rationalizing and phasing out major subsidies. As a follow up, on September 4, the government constituted the EMC under chairmanship of Dr Bimal Jalan. The commission’s mandate puts under scanner government’s spending on all its programmes and schemes, procurement from defence to office items besides the methodology for counting receipts and expenditure. It is expected to recommend measures for utilization of allocated funds in the most cost effective manner. While addressing the just concluded ET Global Business Summit, Jaitely informed that the recommendations of the commission made in...
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Ceiling on gas price – a retrograde move
The government is contemplating to put a cap on the price of domestic gas. In this regard, ministry of petroleum and natural gas (MPNG) has drafted a note for consideration by cabinet committee on economic affairs (CCEA).This is a bad idea! In October 2014, based on the recommendations of committee of secretaries (CoS), NDA – government had introduced new pricing guidelines for domestic gas whereby its price would be determined based on ‘modified’ Rangarajan (R)-formula effective from November 1, 2014. The R-formula used average prices of global benchmark at Henry Hub (USA) and NBP (national balancing point), UK on one hand and producers net-back from supplies of liquefied natural gas (LNG) to India and Japan in preceding 6 months on...
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Urea ‘black-marketing’ – tackle the root cause
During April–November, 2014, urea imports were 900,000 tons (16 percent) less when compared to corresponding period in 2013. The shortfall was aggravated by drop in supplies from OMIFCO (Oman-India Fertilizer Company) – a joint venture between IFFCO, KRIBHCO and Oman Oil Company (OOC) – with whom India has a long-term off-take agreement. This together with shortfall in domestic production (3 naphtha-based plants viz., Madras Fertilizers; Mangalore Chemicals & Fertilizers and Southern Petrochemicals Industries had stopped producing due to government’s decision to suspend subsidy payments) led to aggravation of imbalance in the demand–supply in the run up to Rabi season (October, 14 to March, 15). The result was proliferation of black-marketing especially in northern and eastern parts with urea selling at over...
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Unclogging land acquisition – Modi way
The erstwhile UPA regime had piloted much trumpeted amendment to Land Acquisition Act – Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act (RFCTLARRA) which came in to vogue from January 1, 2014. Bandied as a revolutionary reform, the Act promised handsome reward to landowners/farmers and speed up the process of acquiring land for building infrastructure and spurring development. However, on a close scrutiny of its provisions, one notices that the outcome would have been just the opposite. A key provision stipulates that the landowner will be compensated @ of 4 times prevailing market price in rural areas and 2 times prevailing market price in urban areas. This sounds attractive and seeks to put an end...
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Self-sufficiency in fertilizers – a pipedream
For nearly 4 decades, successive governments have vowed to achieve self-sufficiency in production of fertilizers yet, this much trumpeted goal has eluded them barring a brief stint in early 90s. Will things be different under Modi – dispensation? Immediately after the present government took charge in May, 2014, fertilizer minister, Ananth Kumar reiterated the dire need for achieving self-sufficiency in fertilizers by re-invigorating sick plants of Fertilizer Corporation of India (FCIL) and Brahmaputra Valley Fertilizer Corporation of India (BVFCL) (earlier known as HFCL) both undertakings of central government. Both these undertakings have been incurring losses for several years in fact decades. Indeed, some plants under them viz., Ramagundum and Talcher (FCIL) and Haldia (BVFCL) were babies born sick. It would...
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Ordinance route to reforms
Opposition parties are lambasting government for enacting legislation through promulgation of ordinances. Some of them like CPI (M) have even urged the President not to give his assent to recommendations of the Union Cabinet in this regard. What has prompted them to get in to get in to a belligerence mode? Are they justified in leveling such allegations? Does government’s action violate the constitutional provisions? Could it not wait for the bills to be passed by the parliament? The immediate trigger for these provocations is government’s decision to re-promulgate Coal Mines (Special Provisions) Ordinance and promulgate an Ordinance to give effect to provisions of Insurance Act (Amendment) bill to raise FDI (foreign direct investment) limit from extant 26% to 49%....
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Fiscal deficit target (2014-15) – within reach
While presenting his maiden budget (on July 10, 2014) for 2014-15, finance minister, Arun Jaitely had accepted a daunting challenge of achieving fiscal deficit (excess of central government’s expenditure over receipts) of 4.1% GDP – a number set by his predecessor P Chidambaram in the interim budget. Fiscal deficit at 4.1% of GDP translates to Rs 531,000 crores. During April – October, 2014 or just 7 months of current year, about 90% of this or Rs 478,000 crores has been exhausted. This has led many experts to doubt the capability of present government to stick to the target for the whole year. The doubt is reinforced when one looks at increase in tax revenue which was only around 5% during...
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RBI must shed its ‘stubbornness’
For the sixth time in succession, RBI Governor, Raghuram Rajan has refused to budge. In its monetary policy stance released early this month, RBI has retained the repo rate (rate at which banks borrow from RBI) at 8%. This is despite retail inflation during November, 2014 at 4.3% (whole sale inflation has plunged to ‘zero’) already hovering at just half the 8% benchmark set by RBI for January, 2015, below which cut in repo rate can be triggered. This is also despite fragile recovery in GDP growth viz., 5.7% during April-June, 2014; 5.3% during July-September, 2014 and decline in industrial growth by 4.2% in October, 2014, all of which underscores dire need for a booster dose. And, this is despite...
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Compulsory License – use it under ‘rarest’ circumstance
A major area of concern flagged by US Trade Representative (USTR) in regard to ‘alleged’ non-observance of trade related intellectual property rights (TRIPs) by India relates to grant of compulsory licenses (CLs) by latter to generic Indian drug firms for the much-in-demand new drugs for which an innovator company holds a patent. The grant of a patent confers ‘exclusive rights’ on patent holder for manufacturing and marketing of a product. Thus, during the term of patent (20 years from the date filing patent application), any person keen to make and/or sell cannot do so without seeking prior consent of patent holder. A CL authorizes the concerned entity to manufacture and market a patented product even without prior consent from the...
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Non-adversarial tax regime – Modi-government on track
During the last leg of UPA-II dispensation, there was a substantial deterioration in business environment leading to erosion of confidence in India. This not only dis-comforted foreign investors but also, prompted Indian companies to pursue their investment plans in foreign destinations. Apart from a virtual policy paralysis and various approvals and clearances – especially environment and land acquisition – getting jammed, the investment sentiment received a big blow due to retrospective amendment in tax laws initiated by then finance minister, Pranab Mukherjee in 2012. The amendment was made to negate a judgement of Supreme Court (SC) in Vodafone case which declared untenable tax demand on a transaction in 2007 involving sale of Hutchison shares to Vodafone. SC held that being...
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