PM Modi has raised expectations to dizzying heights without a strategy to show
December 3, 2014, 5:50 AM IST
TK Arun in
Cursor | Companies,
Economy,
Edit Page,
Finance,
India,
Markets,
Times View |
30
To build up great expectations is a good strategy, in the run-up to an election. It helps you get elected. But there is the evident downside: you have to live up to them. So far, the Modi government has done precious little to meet elevated expectations. Modi himself has raised expectations further, building up a personality cult in the process.
Investment remains stalled. Fixed capital formation as a proportion of GDP is down to 28.5% of GDP in the second quarter, a far cry from the low 30s of the days of heady growth. Without reviving investment, growth cannot regain momentum. The RBI says excess capacity in consumer and capital goods makes it difficult for these sectors to lead an investment resurgence. Infrastructure must take centre-stage.
Policy in the power sector remains amess. Around 50,000 MW of installed capacity lies idle, because of shortage of coal or gas. Instead of creating afunctional market for coal, policy is creating an extremely skewed playing ground. Some players can buy coal from the state monopoly, Coal India Ltd (CIL), at a subsidised price.
Some others — state-owned companies and cronies confident enough of getting quality coal on easy terms from the government to bid aggressively low tariffs for power projects —can have captive mines. Some can buy pricey coal from electronic auctions of CIL, or compete in the proposed auctions for captive mines. And some have to depend on costly imported coal.
And they are all expected to compete in the market for power or power-intensive steel, aluminium or cement. All this is designed to discourage, not incentivise, investment in power or other industries that use a lot of power. The Modi government’s policy interventions in coal reinstate the government as arbiter of industrial destinies, instead of leaving the field open to enterprise and innovation.
The government is also reported to be thinking of asking for upfront payment of a share of the net present value of the coal contained in a mine in the proposed auctions. We do not do this in the case of oil and gas, where developers of gas or oil fields bid on how large a proportion of the revenue they would share with the government.
How expensive will power become if the coal used to produce it has to incorporate an element of the capitalised value of the mine from which it has been extracted. This is silly, not business-friendly and will eat into the competitiveness of the Indian economy.
OPEN UP THE MINES
India needs competitive, uniform pricing of coal for all end-users. Coal India subsidiaries must be made autonomous companies that compete. The coal sector must be opened up to professional miners, who observe the highest safety standards and also have the expertise to dig deep underground, instead of just scratching below the surface as Coal India and the present lot of captive miners do. The government must explain what holds its hand in this regard.
The Indian economy needs to replace its rickety indirect tax system with a goods and services tax (GST). This calls for not just sense, but also accommodation of the Opposition. The BJP stalled GST for 10 years when it was in the Opposition. If it now wants all Opposition-led state governments and the Rajya Sabha majority to cooperate on GST, it must show the Opposition some respect.
Nor must such accommodation be aflash in the pan. It must derive from alarger respect for a democratic polity. This means eschewing rants against Muslims and export of meat by ministers and Sangh Parivar leaders and adherence to the values of democratic equality guaranteed by the Constitution.
If this is hard, harder still is the task in mobilising investible funds out of the Budget while staying committed to fiscal restraint. Out of the total expenditure of some 14% of GDP, 2% of GDP goes on subsidies. Fertiliser and food subsidy eats up.`200,000 crore of the Centre. Irrigation and power account for similar levels of subsidy at the state level.
These subsidies are grossly inefficient, create shortage of fertiliser, induce overuse of water leading to salinity of the soil, and result in an artificially low price that gives Indian farmers the illusion that they are globally competitive and are prevented from cornering a larger share of the export market only because of a ban on exports.
USE ORATORY HERE
The challenge is to withdraw these subsidies and use them for investment in various kinds of rural and other commodity storage, freight and export infrastructure while removing export bans on farm produce. As Africa and other parts of the developing world prosper, the demand for food will rise and Indian farmers must be empowered to take advantage of this opportunity at home and abroad. Investment, rather than subsidy, will empower them.
Such a radical change cannot be accomplished without skillful political management. This is where Modi has to deploy his considerable skill at political communication.
Post Sukma Maoist attack, call for Raman Singh’s ouster grows louder within BJP
By BHAVNA VIJ AURORA, ET Bureau | 3 Dec, 2014, 10.20AM IST
29 comments |Post a Comment
NEW DELHI: Chhattisgarh CM Raman Singh is under fire for repeated Maoist attacks in his state, with a growing demand for his ouster from even within BJP. BJP president Amit Shah is scheduled to visit Raipur on December 10 to meet party MLAs and seek their views. "There might not be any developments in the next few weeks, but a message will certainly be delivered to the CM," a senior BJP leader said.
Congress, too, demanded dismissal of his government in Lok Sabha on Tuesday in the w ..
Read more at:
Post Sukma Maoist attack, call for Raman Singh’s ouster grows louder within BJP - The Economic Times