Category: Pricing Policies & Subsidies

ONGC/OIL ‘freed’ from subsidy sharing

Given his DNA, viz., “nation first”; “clarity of vision”; “decisiveness” and “firmness”, prime minister, Modi has the capacity to transform his ideas in to action in a fairly quick time frame. This is especially true of subject matters that are entirely within the executive domain. One such subject matter relates to Oil and Natural Gas Corporation [ONGC] – a central public sector undertaking which is the single largest contributor to India’s oil and gas production and country is heavily dependent on it for taking its energy security mission forward. Modi has taken a far reaching policy decision to unshackle it from controls. Before, we dwell on the policy decision and what it has in store for the future of ONGC...
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‘Premium’ pricing of gas – is government falling in to a trap?

In August, 2014, Modi – government had set up an inter-ministerial committee of secretaries (CoS) under chairmanship of secretary, ministry of petroleum and natural gas (MPNG) to recommend a new structure of pricing domestic gas. The committee submitted its report on September 16, 2014 Guidelines for pricing domestic gas Based on its recommendations, on October 18, 2014, cabinet committee on economic affairs (CCEA) approved guidelines for pricing of all domestic gas [except supplies from fields awarded prior to NELP (new exploration licensing policy) where PSC (production sharing contract) did not provide for approval of price by government] based on ‘modified’ Rangarajan formula. Nicknamed after Dr C Rangarajan, chairman, economic advisory council to prime minister [he headed a committee on gas...
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Gas supply ‘conundrum’ – haunting India

In its Performance Audit Report on Supply and Infrastructure Development for Natural Gas (tabled in the Parliament on May 5, 2015), the comptroller and auditor general (CAG) has pulled up the government for failing to create infrastructure for domestic gas production and supply. CAG said that India lost subsidy savings of Rs 11,800 crores between 2010 and 2013 on this account. Infrastructure for domestic gas – CAG revelations It noted that non-availability of long-term gas supply and inadequate pipeline connectivity were the main constraints in increasing of urea production capacity. During 2011-12 and 2012-13, urea production was only 44.6 million tons against the requirement of 60.4 million tons. The shortfall of 15.8 million tons was imported at much higher cost...
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FUNCTIONAL SYSTEMS DON’T NEED FIXING

Capping the price of domestic gas will be a retrograde step. It will undermine the 2014 formula-based pricing system and also give bureaucrats unnecessary powers The Union Government is contemplating putting a cap on the price of domestic gas. The Ministry of Petroleum and Natural Gas has prepared a draft note for consideration by the Cabinet Committee on Economic Affairs. Based on the recommendations of the Committee of Secretaries, the National Democratic Alliance regime in October 2014 approved of the new pricing guidelines for domestic gas. According to the guidelines, the price of gas will be determined based on the ‘modified’ Rangarajan formula that came into effect from November 1, 2014. The R-formula, used the average prices of global benchmarks...
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Lift the veil on subsidies

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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Time to say ‘good bye’ to subsidies

One of the planks on which Modi got mandate to govern was his promise to deliver on fiscal consolidation. In its maiden budget for 2014-15, government has pledged to achieve this by pruning subsidies and higher tax revenue based on lower rates. Recently, prime minister approved constitution of an expenditure management commission (EMC) under chairmanship of Dr Bimal Jalan former governor RBI to recommend a road-map up for rationalizing and phasing out major subsidies viz., food, fertilizers and oil. The commission has been asked to submit its report within 18 months. However, it will submit an interim report in 6 months. The protracted time frame for the committee should not be taken to mean any dilution of government’s commitment on this crucial reform....
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