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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Articles
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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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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Cause for indigestion
During the debate on the Food Security Bill (FSB) in the Lok Sabha on August 26, 2013, Congress president Sonia Gandhi observed “it is time to send out a big message that India can take the responsibility of ensuring food security of all Indians”. She added, “the question is not whether we have the resources to implement the food Bill; we have to mobilise resources anyhow”. She also acknowledged leakages in the PDS and asked the states to strengthen it. Gandhi’s observation would appeal to almost all Indians with the promise of subsidised access to food in ‘adequate’ quantities (though 5 kg a month per person is hotly contested) to all. Thus, even those with the lowest income imaginable would...
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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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Running out of gas
In its meeting held on July 17, 2013, the Empowered Group of Ministers (EGoM) considered the ministry of petroleum and natural gas’ (MPNG) proposal to re-prioritise allocation of domestic gas from RIL’s KG-D6 fields ‘to treat power on par with fertilisers’. It was decided to retain extant top priority for the fertiliser sector for now. The fertiliser sector was spared the ignominy of snatching away its claim on gas not because members of the EGoM recognised its legitimacy. It was the fear of reduction in urea production due to curtailment in gas supply and the resultant shortage at the time of impending elections that drove them to maintain the status quo. Gas is a national resource and its use has...
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Fiscal consolidation, a joke
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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