Opinion Left to their own resources
The gas judgment should not return sole control to government. It is a call to improve market determined pricing....
What impact could the Supreme Court judgment on the RIL-RNRL case have on the institution of market-determined pricing for natural resources such as gas and oil? Reform is needed in these critical sectors. The Petroleum Minister Murli Deora asserted that the Supreme Court had now given the Centre the right to decide the price of gas. At present the government does not decide the price of gas but merely approves a price that is discovered after an open market bidding process. So it might be dangerous for the government to interpret the judgment in the way Murli Deora and the petroleum secretary have done at the first instance.
An unfettered right accorded to the government to decide any price will surely take us back to the control era where arbitrary rent seeking was rampant. Besides,a reasonable market-determined price will be absolutely essential to ensure that more investments,domestic and foreign,flow in to aid further gas discovery in India . As it is,the RIL-RNRL dispute these past few years has ensured that not many deep-sea exploration companies are coming forward to invest in India. The KG basin is not yet fully exploited. For that to happen India will have to further buttress its institutions which help strengthen the market-determined pricing system. Therefore,the governments discretion to decide pricing must be minimised. In fact this is the core issue which has dogged the allocation of spectrum or coal in the recent past.The government used arbitrary methods to allocate spectrum and that resulted in a spate of disputes and allegations of corruption. The latest auction of the 3G spectrum has brought some sanity to the process simply because it is purely market-
determined. Being market determined has also helped the government garner revenues upward of Rs.40,000 crore through spectrum auction. In fact,all the ills and allegations of corruption visiting 2G
spectrum lwas precisely because the government decided to determine pricing arbitrarily.
The same analogy holds for gas. A market determined price regime will get government higher revenues which it can use for spending on other socially useful schemes. The Supreme Court suggested the government has the unfettered right to determine the price of a national resource. True,as per the Constitution the government has a sovereign right over all national assets. But all governments are expected to put in place mechanisms to rationally discover the market price of scarce resources. This is more relevant for India where a consistent growth boom has resulted in a massive scramble for resources by capitalists. The finance capital boom has additionally fuelled a massive valuation game based on who gets how much resources. The near collapse in the stock price of RNRL on Friday is symptomatic of this phenomenon. RNRL valuation was clearly built on the expectation that the company will get gas at a certain price. The shareholders bought into the idea despite the initial prospectus mentioning as a risk
factor the fact that receipt of gas at a certain price was subject to
government approval.
The scramble for resources will only intensify among Indias big businesses as we go along. The Tata group admitting that it has been lobbying for a level playing field is directly in the context of getting its share of national resources to drive various businesses.
So it is the governments duty now to get its act together and put in place a flawless system to allocate resources such as gas,spectrum,coal and other rare metals in a manner that does not make India look like some banana republic. In the past,some actions of the government have indeed created grave doubts as to whether India well ever get a transparent regulatory system which creates a genuine level playing field. Sadly,the lack of such a fair and transparent mechanism is partly because of the nature of polity we have where natural resources have become a major source of political funding during elections. The mega mining scam involving the Reddys in Karnataka is a case in point.
The present battle between the Ambanis over gas has also got exacerbated because of the arbitrary and non-transparent evolution of policy these past few years. Murli Deora,therefore,must not gloat at the fact that the government has been accorded an unfettered sovereign right over its national assets. A cursory reading of the Constitution would tell you that the state,even in the most robust capitalist societies,has an unfettered sovereign right over natural resources. We needed the Supreme Court to bring this truism to us simply because of the mess various state and non-state actors have created over the years through excessive greed and bitter legal disputes. In fact,an ideal state is supposed to create orderly and fair institutions to ensure a smooth functioning of capitalism.
In India such maturity is not visible now because the capitalist bourgeoisie are busy trying to outdo each other in the attempt to grab scarce resources. The state actors are part of this game and must not act holier than thou,as they are doing after the Supreme Court order on KG gas. The West also saw a similar scamble for resources in the initial stages of its capitalist development. In the early 1900s J.P. Morgan controlled over 60 per cent of all market capitalisation on the stock exchanges because he owned all steel and railroad companies. A similar debate over resource monopoly later led to a forced breaking of J.P. Morgans empire by the US government. So at times the state appears to collaborate with rampant resource exploitation by monopoly businesses but at some later stage it also violently strikes back to break such monopolies. We must learn from the Western experience and avoid such big disruptions that have historically marked the development of capitalism. To achieve this would require an orderly rule-based framework for capitalist growth. The sooner Indias political class understands this,the better.
The writer is managing editor,The Financial Express
mk.venu@expressindia.com
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