The unprecedented increase in international prices of complex fertilizers primarily di-ammonium phosphate (DAP) as well as raw materials – phosphoric acid and ammonia used in their production – has sent shock waves through the industry. At the beginning of the year, when the prices were up 60 per cent to 70 per cent over last years’ level, the government was in deep slumber. Even as the cost of supplying a bag (50 kg) of DAP went up from Rs 1,700 last year to Rs 2,400, it kept the subsidy unchanged at the last years’ level of Rs 500. As a result, its maximum retail price (MRP) increased from Rs 1,200 to Rs 1,900 inviting farmers’ wrath. The Centre responded by...
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Category: Deccan Herald
Time to reform pricing, subsidy regimes
From October 1, the price of natural gas (NG) on supplies from fields given to Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) on a nomination basis, as well as those given under the New Exploration and Licensing Policy (NELP), has been increased from the current $1.79 per million British thermal units (mBtu) to $2.9 per mBtu – up by $1.1 per mBtu. Going further, the price will rise to $5.93 per mBtu from April 2022 and $7.65 per mBtu from October 2022. Under the NG pricing guidelines in vogue since November 2014, this price – known as the administered price mechanism (APM) — is a weighted average of the price prevailing at four international locations — the...
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Privatising power distribution: A hoax
It cannot happen because political parties need discoms to run their populist schemes of subsidised power A major plank of the Electricity (Amendment) Bill (EAB), 2021, is to de-license the electricity distribution business, bring in competition, and give the consumer power to choose her supplier (‘open access’). This is easier said than done. It has to do with the fundamental weakness of State-owned and controlled power distribution companies (discoms), who will come under greater stress if private players also get involved. What makes discoms weak? The states order them to sell electricity to poor households and farmers at a fraction of the cost of purchase and distribution, or even free. On units sold to them, discoms incur huge under-recovery. This...
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Taxing MNCs: G-7 formula is flawed
The agreement reached by the finance ministers of the advanced economies at the G-7 meeting on taxing MNCs stands on two main pillars: one, a global minimum corporate tax (GMCT) rate of 15%, and two, “reaching an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20% of profit exceeding a 10% margin for the largest and most profitable multinational enterprises.” Concurrently, efforts are to be made for the removal of all Digital Services Taxes (DST) imposed on these companies by several countries. The move is prompted by MNCs registering in low-tax jurisdictions such as the Netherlands, Ireland and Luxembourg, and showing all their revenues and profits in those jurisdictions regardless of...
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FDI in retail: Clear the maze
The government should legitimise direct selling by foreign companies in Indian retail without any riders In the backdrop of complaints by the Confederation of All India Traders (CAIT) regarding violation of the Foreign Direct Investment (FDI) policy by global e-commerce players, Amazon and Walmart-owned-Flipkart etc, the Ministry of Consumer Affairs has proposed a set of new rules called Consumer Protection (e-commerce) Rules, 2020 which the government proposes to implement after factoring in the views of all stakeholders. The rules require all e-commerce entities that are not established in India, but intending to operate here: (i) register with the Department for Promotion of Industry and Internal Trade (DPIIT) in the Commerce Ministry; (ii) bar affiliated entities from selling on e-commerce platform...
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Fertiliser subsidy policy is skewing crop yields, soil health
A major factor fuelling resentment among farmers is the spiralling prices of fertilisers that are critical in the production of agricultural products. There are two types of fertilisers: Urea— the predominant source of nitrogen or ‘N’ nutrient supply— and phosphate and potash fertilisers— the source of ‘P’ nutrient and ‘K’ nutrient; there are 22 grades of such fertilisers and the most widely used are Di-Ammonium Phosphate (DAP) and Muriate of Potash (MOP). The Maximum Retail Price (MRP) of urea is controlled by the Centre at a low level and is unrelated to the cost of production and distribution which is higher (the excess amount is reimbursed to the manufacturers via the subsidy on a ‘unit-specific’ basis under the New Pricing...
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Covid-19 vaccine pricing: Modi has got it wrong
The Centre should make vaccination ‘free for all’ and conduct centralised purchases from the manufacturers Under the ‘Liberalised Pricing and Accelerated National Covid-19 Vaccination Strategy’ (LPANCVS), which kicked off on May 1, the Centre has plans to vaccinate all adults aged 18 and above — about a billion people. Given the mammoth task ahead, the vaccine pricing strategy has to be guided by two overarching considerations, namely (i) People should have absolutely no hesitation whatsoever in coming forward to get vaccinated, which, among other things, requires that this be done ‘free of charge’; and (ii) Manufacturers and suppliers should be willing to arrange for supplies of at least two billion doses within the shortest possible time frame, say, not extending...
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Scrappage policy can be more attractive
Announcing a ‘voluntary’ vehicle scrappage policy in the Lok Sabha on March 18, Union Minister Nitin Gadkari listed its numerous benefits, such as doubling the turn-over of the Indian automobile industry from the present Rs 4.5 lakh crore to Rs 10 lakh crore, the salutary effect on environment due to mitigation of vehicular pollution, a reduction in fuel consumption and fuel import bill, job creation, increased safety on the roads, reining in input costs for industries such as automobile, steel, electronics, etc., increase in GST collection, and so on. Currently, there are 5.1 million vehicles in India which are more than 20 years old, 3.4 million that are between 15 and 20 years old, and 1.7 million vehicles older than...
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Oil prices can be reined in
Currently, India imports nearly 85% of its crude oil requirement, making it perennially vulnerable to rising international price Skyrocketing prices of petrol and diesel (in some states such as Rajasthan, petrol has hit the Rs 100 per litre mark) has led to a war of words between the ruling dispensation and the Opposition. While the former has put the blame squarely on the erstwhile UPA regime for not doing enough to increase domestic petroleum production, with Prime Minister Narendra Modi himself leading the charge, the latter says the “steep increase in central excise duty (CED) under Modi” is the real culprit. Currently, India imports nearly 85% of its crude oil requirement, making it perennially vulnerable to rising international price. Modi’s...
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Fiscal deficit target goes for a toss
An offshoot of the economic crisis triggered by the pandemic is manifest in the Centre coming out with the ‘real’ state of its finances. In the Budget presented on February 1 by Finance Minister Nirmala Sitharaman, the revised estimate (RE) for fiscal deficit in 2020-21 is put at 9.5% of GDP. This is almost three times the budget estimate (BE) of 3.5%, which itself was 0.5% higher than the 3% threshold required by the Fiscal Responsibility and Budget Management (FRBM). It was justified by her as due to “far-reaching structural reforms with unanticipated fiscal implications.” The slippage is not just due to a shortfall in tax collection and non-tax revenue, especially proceeds from disinvestment, but also due to inclusion in...
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