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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News & Media
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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A crude demand for royalty
SUMMARY The subsidy ONGC gets on crude sales to downstream oil PSUs is not a part of its sales realisation and, hence, Gujarat’s demand for high royalty is illogical While administrative and judicial bodies are expected to aid the process of economic reforms, they sometimes tend to obstruct the smooth conduct of business. A case in point is the decision of Gujarat government to collect a royalty of 20% on the discount given by Oil and Natural Gas corporation (ONGC)—an upstream central oil & gas PSU—on the sale of crude to downstream oil PSUs. The decision has been upheld by the Gujarat High Court, which has ordered ONGC to pay dues worth R5,000–6,000 crore retrospectively from 2008. ONGC is already...
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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 beg at Bali?
The Indian delegation, led by commerce minister Anand Sharma, is approaching the WTO Ministerial in Bali with a ‘begging bowl’. The government has agreed to the so-called ‘peace clause’—a euphemism for not taking any penal action for violating commitments under Agreement on Agriculture (AoA)—proposed by WTO Director General but with the caveat that this will remain in place until a permanent relief is granted. India’s concurrence with the ‘peace clause’ proposal of DG tantamounts to conceding that India has committed a violation but would want WTO to alter rules to allow developing countries to maintain agricultural subsidies in excess of 10% of agricultural GDP. This has catapulted developed countries to a position from where they resort to aggressive posturing. They...
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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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Retail-FDI lost in policy maze
More than a year after the government approved FDI in multi-brand retail with 51% foreign ownership, India has not received even a dollar’s worth of investment. Now, retail-giant Walmart, which had a 50:50 JV with Bharti for wholesale cash-and-carry depots and was contemplating a retail partnership with the latter, has exited the JV and put the other plan on hold, the sole reason being regulatory hurdles. Why is our regulatory environment not conducive? Why, even after protracted efforts to streamline rules, does the regulatory maze refuse to go away? Let us reflect a bit on the Indian retail scenario—its challenges and opportunities, and, most importantly, its need for foreign investment. The Indian retail market is worth around $500 billion. The...
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Stand firm on farm subsidies
In the run-up to the WTO ministerial meeting at Bali on December 3-4, the G33 developing countries, led by India, have sought ‘flexibility to continue helping poor farmers through support prices without a limit on subsidy’. The US promptly rejected it on the grounds that this will be tantamount to altering the rules of the game. Pascal Lamy, former WTO director general, promptly echoed the US stance. However, the rejection is without basis. Under the Agreement on Agriculture (AoA) 1995, support to poor farmers was excluded from the calculation of the aggregate measurement of support (AMS) and the decisions regarding subsidy reduction commitments with reference to the 1986-94 Uruguay Round. The reason for this exclusion was that support to poor...
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