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Tuesday, 11 June 2013 02:22
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UPA has goofed up, but we need some clarity on what Narendra Modi’s economic philosophy is going to be

 

Negative campaigns, as in they-never-did-this, may not be the best election strategy and, to that extent, BJP’s new campaign-chief Narendra Modi’s acceptance speech in Goa on Sunday seemed a bit strange. But, with three election victories in Gujarat under his belt, Modi obviously knows a thing or two about election strategies, so quibbling is probably a bad idea. In any case, the larger point Modi has been making in all his speeches as prime ministerial-hopeful, from the one at Shri Ram College to the one at CNBC, is that the UPA has badly blunted India’s edge, the edge the BJP under Atal Bihari Vajpayee sharpened when, in FY04, India’s GDP rose to 8.1%.

It is in this context that Modi’s speeches need to be seen. So, at CNBC, he said it wasn’t his job to inspect lifts in buildings—he said buildings were coming up so fast, it was easier to find a chief minister as compared to a lift inspector—or industrial boilers. Translated, it meant, I’m going to do a lot more to remove India’s infamous inspector-raj. At Shri Ram College, he spoke of the aspiration of the youth and the internet economy, suggesting the UPA was out of sync with the two.

At Goa, he spoke of how factories in India were losing precious output as over 34,000 MW of power capacity is simply lying idle—Modi didn’t do the maths, but just multiply the number of factories not being able to work with the number of people they employ, and we’re talking of tens of millions of potential jobs lost. Why, he asked rhetorically? Because the Centre wasn’t able to assure coal supplies. A very large power capacity, and of various industrial plants, including in his own state, he said was also lying idle because there was no natural gas.

Why is there no coal supply? Modi didn’t say, but the assumption everyone made, that everyone was supposed to make, was that Modi would fix this were he to come to power. Why is there no gas? Modi was a bit more explicit here—it was, he said, because the central government wasn’t even able to come to a conclusion on what prices to fix for the gas supplied. No country, he was absolutely right in saying, can afford to have a government that simply cannot take decisions. After all, India’s energy needs are all set to rise four times in the next two decades—coal demand around 4.5-5 times, oil around 3.5 times and natural gas more than 2.5 times. What may still be a minor problem today—unused power capacity is about a fifth of total capacity—will rapidly become a major choke-point in a few years with even banks standing to lose thousands of crores in loans advanced to power plants that have no fuel to run on.

It is obvious that election campaigns are about rhetoric, about sketching the broad picture instead of detailed architectural kind of drawings. But at some point in the campaign, and from Modi’s handlers if not from him directly, we need to know some specifics.

Is the BJP’s unannounced prime ministerial candidate saying that, were he to come to power, he will open up the coal sector, effectively putting an end to the Coal India monopoly that has cost the country so much? It is important to get some clarity because, like any other political party, the BJP is higher on rhetoric than it is on delivery. It is a fact, for instance, that the BJP introduced a Bill in the Rajya Sabha to allow private coal miners in—but when it was in Opposition, the BJP’s view has been more nuanced, such mining will be allowed only for captive users. Indeed, last year, the BJP’s official view was that exports of ore needed to be banned.

Pricing of natural gas is even trickier—about a tenth of India’s power capacity is based on this and the lack of gas means these plants are functioning at just half their expected capacity. Let’s assume Narendra Modi is in favour of allowing free market prices, and this clearly makes sense since almost all suppliers including the state-owned ONGC have made it clear they cannot prospect for gas in the deep seas at the current level of prices. But were the prices to be doubled, in the manner suggested by C Rangarajan, the head of the Prime Minister’s Economic Advisory Council, this will have large implications for the fertiliser and power sectors that use natural gas. Is Modi prepared for the tariff revisions this will entail in both sectors? Given the way his party has reacted to electricity hikes in cities like Delhi, that is not the impression you get.

The same goes for coal-price pooling, one of the issues Modi alluded to in Goa when he accused the government of inaction. After all, even if Coal India cannot supply enough coal, what is to stop power suppliers from importing coal? The fact that imported coal is vastly more expensive, so the only way these units can remain competitive is when the government allows coal-price pooling; that is, even domestic coal-based plants pay a bit of a higher price. Do the coal-price pooling on all 100,000 MW of thermal power and you need to raise prices just 18-20 paise on each unit of power—do it on just the 35,000 MW that came up after 2009, as is proposed today, and the tariff hike required is a mind-boggling 60 paise.

Interestingly, everyone benefits from price-pooling. Even if state electricity boards end up paying 60 paise more for fuel, this is less than the R2.5 or so they will earn from selling each unit of power and the R1-1.2 they end up spending as capital costs for each unit of power in a plant which is not working. But just because it is good economics doesn’t necessarily mean it is good politics. And that’s what we want some clarity on. The country’s middle classes, the aspiring youth, are looking for a government that is willing to break the paradigm and bring in changes which will take India forward. It is in this context, not just in his commitment to secularism, that Modi needs to demonstrate that he too can be a Vajpayee.

 
 

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