The Bharatiya Janata Party (BJP) on 22 August was left isolated on seeking Prime Minister Manmohan Singh's resignation over the coal block allocations. BJP ally JD(U) said that it wanted a discussion in Parliament on the CAG report even as Trinamool Congress (TMC) Mamata Banerjee turned down the request to join hands against the Prime Minister.A belligerent BJP derailed proceedings over coal block allocations in both Lok Sabha and Rajya Sabha. The BJP also derailed the question hour in both the Houses as it continued to press for the Prime Minister's resignation. The government on the other hand said that when it had suggested allocating mines through an auction, a series of states, some of them governed by the BJP, had objected, arguing that this would push coal prices up and adversely impact industrial development in their states. "Rajasthan, Chattisgarh, Jharkhand, Odisha, West Bengal... they all aggressively resisted a bidding process," said coal minister Sri Prakash Jaiswal. If coal is auctioned to get the maximum market price from power producers, then power producers will be able to recoup their cost from the consumers by hiking the prices steeply. Now question arises will the electricity regulatory authorities allow power producers to hike tariffs if the cost of fuel is high?Meanwhile, Firspost.com reported that CBI probe was likely to turn the heat on the chief ministers of three states which had recommended the allocation of coal blocks to private companies. Central and state government officials who let the allottees sublet the captive coal blocks have also come under scrutiny.Three NDA chief ministers, including two from the BJP, are likely to be mentioned by the CBI for recommending the names of three private parties for the allocation of coal blocks.Coal Minister Sriprakash Jaiswal has repeatedly pointed out that three state governments – of Chhattisgarh, Rajasthan and West Bengal – had opposed the ‘competitive bid’ policy.States Opposed Coal Block Bidding Idea: Jaiswal Coal minister Sriprakash Jaiswal said the bidding process for coal block allocation could not be implemented due to stringent opposition from five coal-rich states like Chhattisgarh, Jharkhand and West Bengal.Asserting that Prime Minister Manmohan Singh could not be held responsible in any manner on this issue, he said: "Five states -- Rajasthan, Chhattisgarh, Jharkhand, Odisha and West Bengal -- had strongly opposed to the idea introduction of coal block allocation through the bidding route".Though the concept of allocation of captive coal blocks through competitive bidding was first mooted in 2004, the modus operandi is yet to be finalised by the government.Government auditor CAG had earlier this week said private firms are likely to gain a whopping Rs 1.86 lakh crore from allocation of 57 coal blocks without competitive bidding between 2005 and 2009."Delay in introduction of the process of competitive bidding has rendered the existing process beneficial to the private companies. Audit has estimated financial gains to the tune of Rs 1.86 lakh crore likely to accrue to private coal block allottees," the CAG report had said.The Comptroller and Auditor General (CAG) arrived at the estimates based on the average cost of production and average sale price of opencast mines of Coal India in 2010-11.Stating that the coal ministry tried but in vain to bring the erring states on board on the issue, Jaiswal said states had opposed the bidding idea as they apprehended this would impact industrial activity as coal would become costlier.Jaiswal criticised the Opposition for creating ruckus in the Parliament and said that given a chance, he would bring forth the real picture.BW Online had pointed out 17 August (Coal of The Wild), the day CAG filed the report in Parliament that the UPA government had not caused a loss of Rs 1.86 lakh crore by allocating coal blocks. If there is a whiff of corruption, the blocks can be cancelled. The coal is still in them. And if there is corruption, then chief ministers of states that recommended the allocations are also likely to be implicated.The law ministry had advised the government that amending the Mines and Minerals (Development and Regulation) Act or rules under the law will place the process of competitive bidding for coal blocks at a higher legal footing.This was in response to the decision at a meeting convened by the Prime Minister's office in the first half of 2006 in which it was felt that the MMDR Act should be amended as this would cover all minerals, not just coal. (With input from Agencies)
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Cities are wealth-creating centres, playing a vital role in a country’s economic development. Their competitiveness vis-a-vis other cities within the country and outside is crucial to their ability to attract investment. Indian cities (and their regions) are expanding in population and gross domestic product (GDP) at a rapid pace. By 2030, for instance, the Mumbai Metropolitan Region will have a population equal to that of Canada’s. Similarly, the National Capital Region (NCR) will have a GDP larger than Portugal’s. Policy-makers and corporates, among others, are forever grappling with the decision of which cities to invest in, and when.But even though cities remain the vital cogs in an economy, simply establishing some new cities and overlooking the pitfalls that urbanisation brings in its wake can be disastrous.In India, as it is elsewhere, population is moving from rural to urban areas in search of opportunities and a better quality of life. The influx creates enormous pressure on cities, leading to a shortage of power, water, housing and transportation, with concomitant pollution, sewage, poor public health and educational standards, rising unemployment and poverty. The India City Competitiveness Report 2012, prepared by the Institute for Competiveness India and the Institute of South Asian Studies (National University of Singapore) has evaluated 50 Indian cities. The resultant competitiveness index is built on the underlying principles of Michael E. Porter, a renowned Harvard Business School professor. His Microeconomic Competitiveness — or Diamond Model — helps assess cities from various dimensions. THE HUB: Mumbai retains the second spot in the rankings(BW Archive)This year’s index has Delhi retaining its status as the country’s most competitive city. Interestingly, this is the third time that the city has grabbed the numero uno position. Next up is the country’s financial hub, Mumbai, which has also maintained its position and is stable in second place. Chennai holds the third rank, Hyderabad comes fourth, Kolkata fifth, Gurgaon sixth, Bengaluru seventh, Noida eighth, Pune ninth and Ahmedabad is at the 10th place. There have been quite a few changes in the top 10, with many improving their position and a few slipping. Chennai has moved from fifth in 2011 to third this time around, Hyderabad from eighth to fourth, Kolkata from seventh to fifth and Noida from 11th to eighth. By the same cue, Bangalore has slipped from third to seventh, Pune from fourth to ninth and Ahmedabad from ninth to 10th. Raipur replaces Goa this year in the rankings. A significant fact highlighted by the index is an improvement in the rankings of NCR cities: Noida, Gurgaon and Faridabad. The last, in fact, moving up a whopping 19 spots since 2011 to finish 29th. Many tier-2 and tier-3 cities have also put in a good showing. Cities such as Nagpur (13th to 11th), Chandigarh (15th to 12th), Coimbatore (22nd to 14th), Indore (20th to 18th), Mysore (24th to 21st) and Bhubaneswar (35th to 22nd) are on the growth path and just waiting for the right set of opportunities. To capture the level of competitiveness and the associated prosperity of cities, the index comprises four principal categories, which are further divided into 12 sub-categories wherein the latter consist of the indicators that gauge competitiveness. The four categories are infrastructure conditions, demand conditions, competition and institutional infrastructure. A comparison of the results across them shows Delhi topping in infrastructure, demand and competition but coming tenth in institutional infrastructure. Hyderabad, surprisingly, is No. 1 when it comes to institutional infrastructure. Again, Chennai outscores Delhi when it comes to innovation, while Mumbai is far ahead in financial muscle. While the top 10 cities are where everyone wants to live, work and do business in, the 11-20 bracket is where the potential rests. Dominated by cities from western and southern India, this segment is hot on the heels of the top 10 and requires the right strategies to break into the big boys’ club. In 21-30 range, Mysore has moved up four places since last year to rank 21st. At 23rd and 24th positions are Vadodara and Rajkot respectively, both cities in Gujarat. METHEDOLOGYTHE INDIA CITY COMPETITIVENESS REPORT 2012 evaluates 50 cities. It assesses the cities’ overall performance in the context of infrastructure (financial, physical, communication, administrative, human capacity and innovation) demands (demographic and income), competition (intensity and diversity of firms and business incentives) and institutional infrastructure (supplier sophistication and institutional support). As per Census 2011, habitations with a population of more than 100,000 are called cities. The Census identified 475 cities with a population of more than 100,000 and 53 cities with over a million people.The report has used data from reports disseminated by various ministries in different operational areas, government-funded research organisations and other organisations. The study uses hard data collected from reliable sources to eliminate the possibility of personal bias or sampling errors.Each of the 12 sub-categories is further classified to dig deeper on the variables that influence cities. In all, there are about 800 indicators. For instance, the population, literacy rate, transport conditions, factories operating, etc., help understand the importance and distinctiveness of each city.Constructing the index had eight steps: developing a framework, identifying the parameters, collecting both secondary and current data, analysing various components of factor conditions, exploring demand conditions, examining business opportunities, investigating threats and opportunities and computing the competitiveness index. The cities have been selected by combining both qualitative and quantitative research techniques.NCR holds sway even as many tier-2 and tier-3 cities show a dramatic improvementThe ranks notwithstanding, Indian cities have plenty of catching up to do with their West counterparts. They need to move from factor-led competition to efficiency-led models and, finally, transition to an innovation-based culture. For that, cities will have to invest heavily in infrastructure. While Delhi, Mumbai and Bangalore have already made a mark on the global stage, the smaller cities will need to carve out a niche for themselves. Some of that change is already under way. Many cities have improved the quality of life they offer; some of that is due to the measures taken under the Jawaharlal Nehru National Urban Renewal Mission, which has resulted in better public transport. With inputs from Johnson PaulCLICK TO DOWNLOAD INDIA’S MOST COMPETITIVE CITIES 2012 (This story was published in Businessworld Issue Dated 27-08-2012)
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Rejecting charges of wrongdoing in coal block allocations, Prime Minister Manmohan Singh said on 27 August the government has already initiated the process of cancelling mines to companies which failed to develop them and action would be taken against "wrongdoers" if any."We have initiated action to cancel the allocations of allottees who did not take adequate follow-up action to commence production," Singh said in a statement in both Houses of Parliament amid uproar created by the BJP.Singh's rebuttal came in the wake of Government auditor CAG computing that private firms gained a whopping Rs 1.86 lakh crore undue benefit from allocation of 57 coal blocks without competitive bidding between 2005 and 2009.The Prime Minister said the parties who were alloted mines could not start production which could be "partly due to cumbersome processes involved in getting statutory clearances...."The issue of delays in production, he said, was being addressed separately.Contending that CAG's observations were "clearly disputable", he stressed that the CBI was also "separately investigating" the allegation of malpractices on the basis of which due action will be taken against wrongdoers, if any.The government had earlier said that of the 57 blocks allocated, 20 fall in no go areas and only one was operational out of the remaining 37.The CAG, in its report tabled in Parliament on August 17, had said that blocks were allocated to private firms on nomination basis instead of competitive bidding, which amounted to Rs 1.86 lakh crore loss to national exchequer.It had named 25 companies including Essar Power, Hindalco, Tata Steel, Tata Power and Jindal Steel and Power which had got the blocks in various states. (PTI)
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Shares in Adani Ports and Special Economic Zone, Lanco Infratech and Punj Lloyd fall after The Economic Times reports India's home ministry has barred them from participating in two major port projects because of security concerns. The business newspaper reported in its edition of 27 august' 2012 that Adani Ports and Punj Lloyd have been denied security clearance for the coal import terminal at Mormugao Port in Goa, while Lanco has been denied permission for the cargo berth facility at Tuticorin Port in Tamil Nadu. Lanco Infratech declined to comment, Punj Lloyd was not immediately available for comment, while Adani Ports referred to its comments to the newspaper, when contacted by Reuters. Economic Times quoted Rajeeva Sinha, a director at Adani Ports, as saying: "We are not aware that the ministry of home affairs has denied national security clearance to APSEZ to participate in the terminal development projects in Mormugao and Tuticorin Ports." The news is not likely to impact the valuation of the stocks as these projects are not yet awarded to these firms, an analyst at a domestic brokerage says, but the news hits sentiment. Adani Port is down 3.2 per cent, Punj Lloyd falls 1.5 per cent while Lanco Infra is also down 2.5 per cent.(Reuters)
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Prime Minister Manmohan Singh rejected accusations of wrongdoing against him in coal block allocations on 27 August, attacking CAG's computation of loss of Rs 1.86 lakh crore in coal block allocation as "flawed" and "misleading". Singh took the battle to the Opposition camp, blaming it for thwarting the Centre's efforts to shift to competitive bidding. The Prime Minister also said the government has already initiated the process of cancelling mines to companies which failed to develop them and action would be taken against "wrongdoers" if any. (Read: Cancellation Starts)Making a statement in both Houses of Parliament amid uproar created by BJP members, Singh refused to be on the back foot, declaring that he takes "full responsibility" for the decisions taken as he contended that CAG's "observations" are "clearly disputable". With BJP creating disruptions, he read out a few portions of his four-page statement before laying it in Lok Sabha and Rajya Sabha which were repeatedly adjourned because of uproar. "I am sorry that the House is not allowed to function and the BJP is determined to disrupt the proceedings of Parliament. I wish to assure the country that we have a very strong and credible case," he told reporters outside Parliament House after the opposition disrupted his speech in Lok Sabha. "Once again I appeal to the opposition to come back to the House to debate on these issues and let the country judge where the truth lies," Singh said. Conscious that the CAG reports are normally discussed in detail in the Public Accounts Committee of Parliament where the ministry concerned responds, Singh said he was departing from this established procedure "because of the nature of the allegations that are being made and because I was holding the charge of coal minister for a part of the time covered by the report." Responding point-by-point to the CAG's observations, the Prime Minister said even if the government auditor's contention that benefits accrued to private companies were accepted, "their computations can be questioned on a number of technical points." He asserted that aggregating the "purported gains" to private parties "merely on the basis of the average production costs and sale price of CIL (Coal India Limited) could be highly misleading." As coal blocks were allocated to private companies only for captive purposes for specified end-uses, he said, it would not be appropriate to link the allocated blocks to the price of coal set by CIL. The Prime Minister, whose resignation is being sought by the BJP, asserted that "any allegation of impropriety is without any basis and unsupported by facts". Seeking to corner the Opposition over the issue, he said the policy of allocating coal blocks without competitive bidding existed since 1993 and previous governments also allocated "precisely in the manner that the CAG has criticised". He also said major coal and ignite bearing states like West Bengal, Chhattisgarh, Jharkhand, Orissa and Rajasthan "ruled by Opposition parties" were "strongly opposed" to a switch over to competitive bidding process. On the charge of delay in bringing the Coal Mines Nationalisation (Amendment) Bill, 2000 to facilitate commercial mining by private companies, Singh said it was pending in Parliament for a long time owing to "stiff opposition from the stakeholders" and government wanted broader consultations and consensus. Singh said these state governments felt that a switch over would increase the cost of coal, adversely impact value addition and development of industries in their areas and dilute their prerogative in the selection of leases. Citing instances, he said the then BJP Chief Minister of Rajasthan Vasundhara Raje had written to him in April 2005 opposing competitive bidding. The Prime Minister quoted Raje as saying then that the competitive bidding was against the spirit of the Sarkaria Commission recommendations. Singh also named another BJP Chief Minister Raman Singh (Chhattisgarh) saying that the latter had written to him in June 2005 seeking continuation of the extant policy of coal block allocation. He said the Chhattisgarh Chief Minister had requested that any change in coal policy be made after arriving at a consensus between the central government and the states. "The state governments of West Bengal (Left) and Orissa (BJD-led) also wrote formally opposing a change to the system of competitive bidding," Singh said Last week, the government had said that when it had suggested allocating mines through an auction, a series of states, some of them governed by the BJP, had objected, arguing that this would push coal prices up and adversely impact industrial development in their states. "Rajasthan, Chattisgarh, Jharkhand, Odisha, West Bengal... they all aggressively resisted a bidding process," said coal minister Sri Prakash Jaiswal. If coal is auctioned to get the maximum market price from power producers, then power producers will be able to recoup their cost from the consumers by hiking the prices steeply. Now question arises will the electricity regulatory authorities allow power producers to hike tariffs if the cost of fuel is high?
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Lurching from crisis to crisis ever since the 2G scam was unearthed by CAG two years ago, Prime Minister Manmohan Singh was faced with three key CAG reports which were tabled in Parliament on 17 August indicting the government of causing a combined loss of crores of rupees to the national exchequer.The Comptroller and Auditor General (CAG) accused the government of allocating coal blocks, power projects and land for Delhi's flagship airport at a fraction of market prices, potentially costing the exchequer tens of billions of dollars in lost revenues.The much-awaited CAG report on coal block allotment said private firms are likely to gain Rs 1.86 lakh crore from coal blocks that were allocated to them on nomination basis instead of competitive biddingThe audit report on Delhi airport slams the levy of development fee on passengers and says the civil aviation ministry violated the bid conditions for the benefit of GMR-led DIAL. The consortium was granted rights for commercial use of 240 acres of land worth Rs 24,000 crore against an equity infusion into the project of just about a tenth - Rs 2,450 crore, This, when the consortium expected to generate revenue of Rs 88,337 crore for itself.The third CAG report flays post-bid concessions to Reliance Power and says the Anil Ambani-led firm got undue benefit of Rs 29,033 crore when the government allowed use of surplus coal from blocks alloted to Sasan power plant for its other projects. (Read: Reliance Power Unduly Gained)The Opposition, Bharatiya Janata Party, demanded an immediate explanation from the beleaguered government of Prime Minister Manmohan Singh, particularly about one report that suggested private companies made windfall gains of about $33 billion (Rs 1.86 lakh crore) because of the underpriced sale of coal fields.The opposition has sought to link Singh, who was in charge of the coal ministry in 2006, to the affair, which the media has dubbed "Coalgate"."We want an explanation from the prime minister who was in charge of the coal ministry during the period of sale," BJP leader Rajiv Pratap Rudy told reporters after the report was released.The government on its part rejected the CAG report estimating Rs 1.86 lakh crore gain to private firms in allocation of coal blocks and said the policy followed was transparent and not faulty."The policy adopted to allocate coal blocks was not faulty. There could not be a more transparent policy for allocation of coal blocks (since 2004 when no competitive bidding process was present)," coal minister Sriprakash Jaiswal said in New Delhi.In a draft of its report, which was leaked earlier this year, the state auditor estimated that private companies' "windfall" gain from allocations had amounted to a much larger figure, $211 billion (Rs 10.7 lakh crore). The 2G scam may have cost the government up to $36 billion (Rs 200,520 crore).The CAG in its report on coal-block allocation named 25 companies including Essar Power, Hindalco, Tata Steel, Tata Power and Jindal Steel and Power which have got the blocks in various states."Delay in introduction of the process of competitive bidding has rendered the existing process beneficial to the private companies. Audit has estimated financial gains to the tune of Rs 1.86 lakh crore likely to accrue to private coal block allottees," CAG said in a report on allocation of coal blocks.The CAG said it has arrived at the estimates based on the average cost of production and average sale price of opencast mines of Coal India in the year 2010-11."A part of this financial gain could have accrued to the national exchequer by operationalising the decision taken years earlier to introduce competitive bidding for allocation of coal blocks," CAG said.The auditing body said it is "of strong opinion that there is a need for strict regulatory and monitoring mechanism to ensure that benefit of cheaper coal is passed on consumers". Shares in Reliance Power, India's second-largest power producer by market value, tumbled on 17 August after they were mentioned by the CAG reports which were presented in parliament. (Read: Sensex Pares Gains)In another report CAG also said airport land was allocated at a tenth of its market value, giving the developers an undue profit of $4.3 billion.Shares in GMR Infrastructure Ltd, who the auditor said was sold airport land too cheaply, fell sharply.Airport & CoalIndia has for years allocated coal blocks directly to companies on the basis of recommendations by state governments. Since 2004 the government has said it will change to more transparent auctions, but had not done so even in February of this year, the report said."The procedure followed for allocation of coal blocks to captive consumers lacked transparency as the allotments ... were made merely on the basis of recommendation from state governments and other administrative ministries without ensuring transparency and objectivity," CAG said in its report.Reliance Power stock fell more than 6 per cent after the auditor said the company benefited from a government decision allowing the power producer to use surplus coal from its captive block for another project it was not meant for.It said Reliance, controlled by billionaire Anil Ambani, gained Rs 29,000 crore in undue benefit from the government decision.The CAG pulled up the government for what it said was unduly favouring the GMR Infrastructure Ltd led consortium that was awarded the contract for the upgrade of the international airport in New Delhi in 2006.The Delhi International Airport (DIAL) joint venture of GMR Group, Airports Authority of India, Germany's Fraport and Malaysia Airports Holdings Berhad, has a mandate to develop, operate and maintain the airport for a term of 30 years extendable by another 30 years.GMR Infrastructure's shares fell as much as 4.2 per cent after the report was released.
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Reliance Power unduly gained over Rs 29,000 crore by diverting surplus coal from mines assigned to its Sasan power project, the CAG said on 17 August, demanding a review of the decision to give a third coal mine to the project.The Comptroller and Auditor General of India in its audit report tabled in Parliament said the post-bid concession of allowing RPL to use excess coal from Sasan project mines in its other projects "not only vitiated the bidding process but also resulted in undue benefit" to the Anil Ambani-led firm. The auditor questioned why a third mine was allocated to Sasan project by snatching it from state-owned NTPC, when it was not established that two previously earmarked mines would be insufficient to generate 3,960 MW of power. RPL had won the Sasan project in Madhya Pradesh quoting a power tariff of Rs 1.196 per unit in 2006. It got Chitrangi project, to which Sasan coal is being diverted, by bidding a tariff of Rs 2.45-3.702 per unit. Reacting to the CAG report, Reliance Power Ltd (RPL) said, "Surplus coal has been made possible through use of advanced coal mining technology and large capital expenditure" and claimed no condition was violated "as the bid documents gave the right to the government to permit use of surplus coal". "The permission to use surplus coal in other projects of the bidder after award of the contract based on acceptance of the lowest tariff, vitiated the sanctity of the bidding process which would result in post-bid concessions to the developer having significant financial implication," CAG said. "This decision resulted in financial benefit of Rs 29,033 crore with a net present value of Rs 11,852 crore to the project developer (RPL)," the official auditor said. "A reading of all the clauses in the allocation letters together conveyed that clauses were inserted in the coal allocation letter as a safeguard measure to prevent misuse of coal by the developer," CAG said. Stating that the government needs to generate confidence among bidders of future ultra mega power projects (UMPPs) of its equity and fairness, the official auditor said allocation of third coal block (Chhatrasal) should be appropriately reviewed. "To ensure fair play, a level playground and transparency of the bidding process for future developers to derive comfort in government action, the allocation of the third coal (Chhatrasal) be appropriately reviewed," CAG said. In seeking such action, it pointed to RPL's commitment to source 20 million tons from the two initial blocks which was adequate to feed the Sasan project. CAG also questioned gaps in bid evaluation criteria, saying RPL was awarded UMPPs on its claims of having experience of developing projects based on additions to the fixed assets, despite the fact that the only capital cost of projects commissioned during the last 10 years was eligible to be counted for project experience. RPL said the decision of permitting use of surplus coal for power generation has been ratified by EGoM on two separate occasions -- once in 2008 and again in 2012. It claimed CAG's recommendations of reviewing the decision on surplus coal permission to Sasan UMPP and allocation of coal blocks to Sasan UMPP "has already been implemented by Government of India". "Audit observations do not completely take into account the extant policy and precedents; India's looming coal shortage, and national interest to augment domestic coal production, which were the basis of the decision taken by the Empowered Group of Ministers (EGoM)" allowing diversion of surplus coal, it said. . CAG said the advice of Power Ministry in October 2006 that Sasan UMPP would require an additional coal block was based on insufficient data as mining plan of Moher and Moher-Amlohri Extension was not available. Also, the condition purportedly permitting diversion of surplus coal was not explicitly stated in the bid document and "the EGoM evidently was not provided accurate information about adequacy or otherwise of coal availability in the two blocks initially allocated to Sasan UMPP leading to their decision permitting usage of surplus coal," it said. "Permission to utilise surplus coal for projects with tariff-based competitive bidding has been violated since tariff for Chitrangi Project, for which permission was granted, was already fixed before the permission was granted," it said. CAG said RPL was awarded UMPPs as it "claimed having experience of developing projects based on additions to the fixed assets (Rs 3,123.88 crore for Sasan and Mundra, Rs 2,137.49 crore for Krishnapatnam and Rs 2,254.61 crore for Tilaiya UMPPs) during the last 10 years, despite the fact that only capital cost of projects commissioned during the last 10 years was eligible to be counted for project experince." The audit estimated the financial benefit that will accrue to RPL on the basis of comparison of tariff of Sasan project (Rs 1.196 per unit) with that of Chitrangi project (Rs 2.450 for Madhya Pradesh and Rs 3.702 for Uttar Pradesh). "Government need to generate confidence among bidders of future UMPPs of its equity and fairness," it said. (PTI)
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Despite the growing protest against misuse of subsidised diesel by the rich, the central government has no immediate plan to de-regulate diesel pricing. In a written reply in the Rajya Sabha on 21 August, minister of state for petroleum and natural gas R.P.N. Singh said the public sector oil marketing companies (OMCs) were losing Rs 15.55 a litre on diesel, Rs 29.97 a litre on kerosene and Rs 231 on LPG gas cylinders of 14.2 kg — a daily loss of Rs 450 crore.During 2011-12, the OMCs lost Rs 138,541 crore due to under-recoveries from the sale of fossil fuels. This does not take into account the subsidy of Rs 43,904 crore provided in the fiscal budget. Raising the campaign pitch with a set of studies, the International Institute for Sustainable Development’s Global Subsidies Initiative (GSI) concedes that though the government was committed to reducing subsidies to 2 per cent of GDP, the risk of high inflation and price rise had not allowed any deregulation initiative. The GSI study points out that though diesel prices include a relatively minor fiscal subsidy, the under-recovery is hitting the oil companies and the government, who between them are covering 25 per cent of the price. However, eliminating this 25 per cent under-recovery in diesel prices would lead to around a 1 per cent rise in general price levels. This is too big a burden for a low-salary economy and “even small spikes in inflation can put poor consumers at risk”, admits the GSI report. Sectors such as public road transport would be more vulnerable where prices could rise by as much as 8-10 per cent.These campaign groups suggest that under-recoveries be gradually eliminated by “allowing prices to increase by an average of Re 1 per litre over one or two steps per month, over a year or more.” Meanwhile, direct compensation to businesses that will struggle with higher diesel prices in the short-term, including public transport companies, can also be considered. GSI collaborated with the National Institute for Public Finance and Policy and The Energy and Resources Institute to bring out these reports.A 2009 World Bank study points to international experience. In 2008, the Mozambique government reduced taxes on a variety of oil products in response to high world oil prices. This was a replicated in 49 countries that intervened against the full pass-through of world oil price rises into transport fuels for consumers.India’s experience with rationing and dual pricing has been negative. A 2005 study by the National Council of Applied Economic Research estimates that about 38 per cent of PDS kerosene gets diverted to the black market. With better monitoring, this has been brought under some control.The biggest controversy is with diesel. With petrol costing about 42 per cent more, the use of diesel has shot up to 44 per cent of total fuel consumption compared to 35 per cent a decade ago. The view that owners of fancy diesel-powered cars and SUVs and rich farmers powering their gensets do not deserve these high subsidies is gaining momentum. The Economic Survey 2012 suggests both ‘adjustment’ similar to China, as well as ‘high road tax and vehicle taxes’. However, Praful Patel, heavy industries minister, aligned himself with automakers and opposed any diesel ‘price adjustment’ formula. For now, a consensus is unlikely.(This story was published in Businessworld Issue Dated 03-09-2012)
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