Wednesday, Oct 01, 2014

100 day challenge

If the diesel subsidy can be removed, the government will save expenditure on under-recoveries. Higher prices will encourage efficient usage and the cost of oil imports will fall. This could help restrain both the fiscal deficit and the CAD.  (Source: PTI) If the diesel subsidy can be removed, the government will save expenditure on under-recoveries. Higher prices will encourage efficient usage and the cost of oil imports will fall. This could help restrain both the fiscal deficit and the CAD. (Source: PTI)
Written by Kirit Parikh | Posted: June 16, 2014 12:25 am | Updated: June 16, 2014 8:21 am

the cost of oil imports will fall. This could help restrain both the fiscal deficit and the CAD. While the government may not increase the price of diesel at one go, it should decontrol the price immediately, with a fixed per-litre subsidy that could gradually be phased out. Any fluctuation in international prices will be passed on to consumers. To cut the subsidy on LPG, the limit of six subsidised cylinders per family, which was raised at the instance of Rahul Gandhi to 12 cylinders, should be restored. Carefully used, it should be adequate for most families. Eventually, the price of LPG should be increased to reflect its cost. In fact, the government should plan to give all subsidies in the form of direct cash transfers within two years.

Third, the government should denationalise coal. Coal imports of nearly 150 million tonnes stress the CAD. It pushes up the global market price of coal and our costs go up, resulting in higher costs for generating power. Since many state electricity regulatory commissions are reluctant to raise the price of electricity, and since distribution companies have no obligation to meet all demand, they reduce generation and impose power cuts. So it is very important to raise the domestic output of coal. But the most important measure is to denationalise coal, end the monopoly of Coal India Limited and open the sector to private investors, including foreign ones. We need new technology in coal mining and we must promote underground mining.

Forest clearances needed for coal mining can be speeded up by advance action. A 15-year plan for coal mining could be made and clearances sought for all mines upfront. The cleared blocks may be auctioned off to investors, with stringent penalties for delays in working the blocks. The government should also permit the creation of forest banks, which can be prepared in advance and traded against forests that will be destroyed by mining. It is worth recognising that not all forests are equal. There are only a few dense, virgin forests with a huge diversity of plants. One may define these as “no-go” forests, so that no one wastes time proposing to mine coal or other minerals under them.

Until domestic supply increases, coal imports will continue. To reduce the cost of imports and of domestic transport, all coal-based plants should be given tradable coal linkages on a pro-rata basis. Coastal plants far away from mines can sell their linkages to other plants and import coal.

Fourth, power shortages should be history. While deficits, both of peak power and of energy, have been lower in 2013-14 than in the previous year, this is partly due to the fall in industrial growth. To avoid shortages, discoms should be obligated to supply power to all consumers and fined for not doing so. This will make them buy power from states with surplus. Also, the restructured accelerated power development reforms programme to reduce aggregate technical and commercial (AT&C) losses — a euphemism for power theft, inefficiencies in billing continued…

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