Food, fertiliser and fuel subsidies will overshoot the Budget provision by over Rs 1 lakh crore. There has been much ado about fiscal consolidation ever since P. Chidambaram took over the reins of the Finance Ministry. During 2012-13, he achieved a fiscal deficit of 5.2 per cent against a target of 5.3 per cent and is aiming at 4.8 per cent during the current year. Last year, one major factor at work was compression in investment, that was fortuitous as key ministries simply could not spend the allocated funds. Another factor was substantial under-provision for subsidies, even under revised estimates. Against a Budget allocation of Rs 5,21,025 crore for planned expenditure (PE), the revised estimate was Rs 4,29,187 crore. The...
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Category: The Hindu – Business Line
No basis to gas price hike
A unit price of $8 for gas allows for recovery of capital costs at levels of output – in other words, monopoly pricing. The Cabinet Committee on Economic Affairs has approved doubling the gas price from the existing $4.2 per mBtu to $8.4 per mBtu for all domestically produced gas. Applicable from April 2014, the revised price is based on a slight modification of the Rangarajan panel’s formula. The Cabinet took the decision despite strong opposition from two key Ministries viz., fertiliser and power. While the Power Ministry wanted price to be maintained at the existing $4.2 per mBtu, the Fertiliser Ministry was reconciled to $6.7 per mBtu mooted by the Ministry of Petroleum and Natural Gas (MPNG). Subsidy burden...
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Why bail out private power producers?
In his address at the CII AGM, Rahul Gandhi exhorted the powers-that-be to listen to the voice of a billion people. Clearly, he meant that that the ruling dispensation had thus far not listened seriously enough. Even before his exhortation could die down, the establishment has come out with a decision that ignores people’s concerns and can have the effect of further impoverishing them. FLOODGATES OPENED The Central Electricity Regulatory Commission (CERC) has allowed a ‘compensatory tariff’ for Adani Power Ltd’s (APL) imported-coal-based power project in Mundra, Gujarat. This has been done to neutralise the increase in price of imported coal following the decision of the Indonesian Government in September 2010 to impose a minimum ‘benchmark’ price below which coal...
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Don’t play around with gas allocation
The woes of the fertiliser industry do not appear to be showing any signs of easing. Already battered by the financial squeeze, due to grossly inadequate Budget allocation, it may now face a huge shortage of gas. Gas is a ‘clean’ and ‘environment-friendly’ fuel. It is the most preferred feedstock for production of fertilisers. About 80 per cent of production capacity for urea in India is based on gas (balance 20 per cent on naphtha and fuel oil). Gas being a resource of national importance, the Central government allocates available gas to various sectors — fertilisers, power, petrochemicals, sponge iron, and household consumption. Historically, this job was performed by the Gas Linkage Committee (GLC) — an inter-ministerial platform chaired by...
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No effort to rein in subsidies
In the Budget for 2012-13, then Finance Minister Pranab Mukherjee had targeted fiscal deficit at 5.1 per cent of GDP, which was subsequently revised to 5.3 per cent. P. Chidambaram has delivered; the revised estimate is 5.2 per cent. For 2013-14, he is aiming at 4.8 per cent. However, the Government has failed to deliver on its commitment to rein in subsidies. Subsidies on fuel, fertilisers and food were budgeted at 1.9 per cent of GDP. The revised estimate is 2.26 per cent. Budget estimate for 2013-14 is even higher at 2.3 per cent. Juxtapose this with Pranab Mukherjee’s exhortation that subsidies will be reduced progressively to 1.75 per cent within three years. Far from that, subsidies are rising. This...
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Urea pricing – Government must walk the talk
About six months back, the Committee of Secretaries (CoS) had recommended that the MRP of urea be raised by 10 per cent. However, this was stoutly opposed by the Fertiliser Minister. Even the Agriculture Minister, who is Chairman of the Group of Ministers on urea pricing and other related issues, is not favourably disposed towards this proposal. However, Prime Minister Dr Manmohan Singh is keen to accept the CoS recommendation. Having taken some baby steps (diesel price, etc), he would like to do more to bolster the reform credentials of the UPA Government. POLICY STEPS For close to five decades, the Government has kept urea under pricing and distribution control. In the 1950s and 60s, it operated a Central Fertiliser...
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Crippling effects of oil subsidies
A lesser known aspect of the much talked about oil subsidies is the unprecedented ‘liquidity crunch’ that oil PSUs viz., IOC, HPCL and BPCL, face perennially. Subsidies are administered through these undertakings. Under instructions from the Government, these PSUs sell kerosene, LPG and diesel at low prices (prior to June 2010, price of petrol was also regulated). How is the excess of cost over selling price covered? Oil and gas PSUs contribute 40 per cent of differential amount by way of discount on crude supplies. The Government is supposed to reimburse 60 per cent as subsidy. However, it rarely meets its commitment in full! RISING UNDER-RECOVERIES Thus, during the first nine months of 2012-13 fiscal (April-December 2012), these PSUs had...
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Cash transfers: Food for thought
The ‘Direct Cash Transfer’ (DCT) of funds into bank accounts of beneficiaries began this month in 20 districts. It will cover the entire country by April 2014. But food and fertiliser have been kept out of its ambit. There are complex issues to be sorted out, the Finance Minister has said, without really giving an indication as to when the rollout in these critical areas will actually take place. Payments are estimated to be Rs 3,20,000 crore annually. The scheme is being bandied as a revolutionary reform that will bring transparency, enhance reach, empower poor, improve fiscal deficit and reduce corruption. The implementation if done in a manner as contemplated — correct identification of beneficiaries, inclusion of all deserving persons,...
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No case for hike in KG gas price
Arvind Kejriwal has expressed serious concern over the price hike in gas supplies from RIL’s KG fields. He has also alluded to a bonanza of Rs 45,000 crore that would accrue to Mukesh Ambani over the next two years. Whether or not the Government acquiesces to RIL’s demand for hike in price from the existing $4.2 per mbtu (million British thermal unit) to around $14 per mbtu is a matter on which the EGoM has to take a call. However, what it will have in store for the economy is an issue that we need to seriously consider. India imports 80 per cent of its crude requirements. Apart from being a cleaner fuel, gas offers enormous scope for reducing import...
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End the oil, fertiliser subsidy raj
A likely trade deficit of around $200 billion during the current year ($110 billion during April-October 2012) — exceeding last year’s all-time record of $185 billion — is ringing alarm bells. When viewed against the backdrop of deceleration in industrial output — in particular, the capital goods sector — this shows that excessive imports are being resorted to for supporting consumption, instead of growth. Crude petroleum, fertilisers, edible oils, pulses, account for a major share of our import bill. Their imports remain high, irrespective of the prevailing international prices. Thus, even when prices shoot up, imports do not go down. We import 80 per cent of our crude requirement. In phosphate, this is 80-85 per cent; potash 100 per cent...
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