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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News & Media
Food Security Act – A recipe for disaster
The Cabinet has approved promulgation of an ordinance to give effect to the Food Security Act (FSA). Far from providing food security, the Act will crack at its very foundation. The FSA guarantees availability of 5 kg of cereals per person per month at R3 per kg rice, R2 per kg wheat and R1 per kg coarse cereals to 67% of India’s population (75% rural and 50% urban). This is an astounding admission that six-and-a-half decades after Independence, nearly 800 million of country’s population is so poor that it needs be given food at ‘close to zero’ prices. The huge gulf between what people can pay for food and the cost of supply (R20 per kg plus) makes a mockery...
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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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Debate – Should gas prices be raised as per Rangarajan plan?
While a price hike to about $8/mmBtu from $4.2 at the moment will increase fertiliser production costs and subsidies, even this hike will not be enough to bring in new investments or prop up gas production from existing fields Uttam Gupta Gas is a natural resource which is ‘inherently’ more energy efficient. It is much cleaner and environment friendly and requires less investment, and is much sought after. It is also most preferred for production of fertilisers. About 80% of urea capacity in India is based on gas. The rest on fuel oil and naphtha is being switched over to gas. A spate of projects under new urea investment policy (UIP) are also based on natural gas. The viability of...
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A logical step to honour patents
Once wedded to patent, the government should take all steps to ensure that holder’s rights are fully protected In recent times, MNC pharmaceutical companies have approached Indian courts seeking to prevent regulatory authorities from granting market approval to generic companies for drugs they hold patent. Thus far, the courts have acted in a denial mode. In the 2010 Bayer-Cipla case, a division bench of the Delhi High Court had refused to ask the government to link the patent status of a drug to grant of market approval for generic version. Recently, US drug giant Merck Sharp & Dohme petitioned the court to restrain an Indian firm Glenmark from making and selling anti-diabetes drugs which violated its patents in India. Like...
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Don’t kill the goose that lays golden eggs
Though TRIPS allows patent laws to take care of public interest, this should not be pushed to a point whereby the very incentive to innovate is stifled The Supreme Court verdict in the Glivec case – the cancer treatment drug for which the Swiss major Novartis had sought a patent – has generated an air of exuberance amongst the ‘generic’ producers. It is good news for lakhs of patients who will have access to this drug at a fraction of the treatment cost offered by Novartis (already some generic companies are offering at one-tenth; this will go down further). Millions of patients in other parts of the developing world, especially Africa, also have reasons to rejoice even as Indian companies...
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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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A fertiliser plant closing near you
After netting the carryover subsidy from FY13, just Rs.30,000 crore is left in FY14 for fertiliser subsidies Finance minister P Chidambaram has achieved a fiscal deficit of 5.2% of GDP for 2012-13, thereby redeeming government’s commitment to contain it within the 5.3% target—though the latter, by itself, is higher than the 5.1% provided for by Pranab Mukherjee in the last Budget. Further, true to exhortations he made during his road-shows to demonstrate that India is serious about fiscal consolidation, he has budgeted the deficit at 4.8% during 2013-14. He also intends to reduce it to 3% by 2016-17. The achievement is more fortuitous rather than being a result of credible efforts made on ground zero. A substantial compression in Plan...
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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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