Stealth reforms PDF Print E-mail
Wednesday, 22 October 2014 00:00
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Doing it via discretion implies it can also be put off

Given how around 40,000 MW of coal-based power capacity is starved of supplies, it is not surprising the government is working overtime to deal with the wholesale cancellation of mines by the Supreme Court. There are some obvious problems with the solution since, for instance, PSUs and state governments can get allocated mines while private sector firms will have to bid for them—it is, as yet, not clear how the level playing field will be taken care of in a scenario where firms bid for power based on their coal supplies. To ensure that PSUs don’t hand over their allocated mines to JVs—this is what happened earlier—the rules will have to put in strict end-use restrictions.

More important, however, is the issue of whether the government has simply ducked the big reform of opening up the sector to commercial miners. You only have to look at the levels of productivity of big Australian mining companies and compare them to either Coal India or Indian captive mines to know the difference this will make to production—in the Indian case, a look at what companies like Cairn India and Reliance Industries have done in the petroleum sector is instructive. While finance minister Arun Jaitley was clear the ordinance did not amount to denationalisation of the mining sector, the fact is it does have a clause that allows for commercial mining—when that is to happen, however, is not clear. Chances are the government could look at this option after Coal India’s production rises as well as when the captive mines have a reasonable production—this will create a counter to ensure commercial mining doesn’t make market prices sky-rocket.

Based on the measures announced over the past few days, it appears the government is introducing the possibility of reform but keeping the details a secret till the time they are publicly announced. So, in the case of natural gas prices where the price announced was disappointing, the government has left open a window to hike prices for deep water blocks which is where the bulk of India’s natural gas is. In the case of LPG, similarly, while announcing the move towards direct benefit transfers, a cap has been put on the amount of subsidy. While no clarity has been provided on what that cap will be or whether the cap will be revised from time to time, the government says it hopes to save at least R10,000 crore from this measure alone. In the case of tax claims based on the retrospective amendments of the UPA, similarly, a high-powered committee is to decide on whether new cases are to be admitted; and in the defence sector, 100% FDI is to be allowed subject to FIPB clearance. In which case, this could either be a case of reforms by stealth, or it could be taking India back to the licence permit raj. The one thing the government needs to keep in mind, though, is that reforms which are not formally codified are problematic in that they can just as easily be rolled back or can be kept on hold by bureaucrats who choose to be difficult—keep in mind how, despite the UPA being in favour of FDI in multi-brand retail, the rules were complicated so badly by the bureaucracy, it kept investors away.



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