Economic Times select articles (5-8 June)

Reset Nuclear Power Clock
The new government must review India's nuclear energy policy . It is also a major issue in financial terms.

Building a nuclear capacity of about 50,000 MW in the next 15 years will cost $150-200 billion. But the momentum generated on the nuclear front during UPA-I rule has been steadily dissipating since then.

UPA-I saw the successful negotiation of the hard-fought Indo-US nuclear deal and consequent lifting of nuclear sanctions against India. The deal opened the door for importing uranium and commissioning large foreign-built reactors. Buoyed, the government announced ambitious plans for expanding nuclear power, targeting 20,000 MW by 2020 and a whopping 50,000 MW by 2030.

There was a rapid movement towards this goal soon after the deal was signed. Significant quantities of uranium were imported and initial understanding was reached with reactor builders in Russia, the US and France to build six reactors each.

However, subsequently , plans for buying foreign-built reactors started running into obstacles and, now, progress has slowed to a crawl.

There were three major causes behind this.
1. The first, no fault of our government, was the disaster at Fukushima, whose reactor explosions triggered universal public concern over reactor safety and energised an ti-nuclear activists. While the government managed to overcome the protests against the first Kudankulam reactor, its commissioning got delayed and future reactors are likely to generate similar protests.

2. The second impediment has been the nuclear liability Act, discussed by Parliament under the shadow of the 25th anniversary of the Bhopal chemical tragedy . The Act allowed reactor operators, who must first pay damages to victims, to subsequently sue reactor suppliers. That sounds fair enough, but this being not an international practice, led to consternation among potential reactor builders. Our government then tried to allay their concerns by introducing more supplier-friendly working rules for implementation of the Act. Nevertheless, final agreements to build the reactors are still to be completed, let alone construction.

3. The third factor is the steep rise in the cost of reactor construction.
So we must undertake a comprehensive review of our own plans.

1. France, the US and Russia had all been showed keen interest in building reactors for us even before the deal was complete. Today , five years after the deal was signed and sealed, none of them has finalised a commercial agreement. Some estimate is needed on when actual construction is likely to start on any foreign-built reactor. We are not referring to the Kudankulam reactors, which were drawn up long before the deal.

2. Second are our energy targets. Certainly , construction won't start on any of them within the next year. That implies six or more years of lag before any power flows out of any of them, taking us up to 2020. By then, we were supposed to have achieved 20,000 MW of nuclear capacity . As things stand, we will not reach even 10,000 MW by then, including Kudankulam 2 and additional indigenous reactors. That would only be 3-4% of the total generation capacity at that time. We must face this fact. Similarly , the bigger target of 50,000 MW is much farther away than 2050.

The new government must announce updated, realistic targets. Otherwise, the old targets remain unretracted, misleading planners and undercutting the credibility of the nuclear establishment.

3. What will be the price of electricity from these projects? Estimates differ widely between supporters and opponents of nuclear energy . The government should commission an independent estimate by neutral experts of the provisional price per me gawatt of electricity from these bilateral reactor projects. If the price is much higher than from other sources, some of the funds envisaged for imported reactors should be diverted to indigenous reactors or to solar, wind and hydropower.
4. With uranium easily available through imports, further investments in a parallel closed-cycle thorium route must be reassessed.

5. Finally, we need to address safety concerns. Fukushima and Chernobyl notwithstanding, no objective comparison has shown that reactors are more unsafe than many other forms of modern technology . But this has to be explained to people living near reactors.

MANUFACTURING Agenda for Manufacturing Micro Enterprises
The world of MSMEs is highly polarised. Of the 11.5 million manufacturing MSMEs (4th Census), 99% are MEs and less than 1% are SMEs. Also, 91% of the units are unregistered. Interestingly, the pain points that constrain the growth prospects of MEs and SMEs are not similar on many occasions.
One prime issue that cripples MEs is access to formal finance. The major obstacles are registration of units, availability of small value loan at competitive rates and efforts of formal finance to reach MEs. MEs which started business either from home or rented premises, often end up operating from non-industrial land — almost a no-no as per banking norms. This requires policy intervention in supporting them in seamless conversion or relocation, if in cluster. Relocation needs to be done for the entire value chain, not just the industry in question. Special allocation of land must exist for this in a time bound manner.
A large number of MEs have a need for loans of less than Rs. 5 lakhs in one go. Such small value loans are not an attractive business scenario for some banks. Here, NBFCs can be supported to create various combo products for the ME clusters there, so that loan disbursement is fast. Also, NBFCs may be allowed to disburse subsidies given by ministries. Simultaneously, banks may be given targets not only with respect to value, but also to the number of non-repetitive-ME loans.
Role of pollution control boards is regulatory. Pollution control equipments are costly. There is also no approved vendor for pollution control equipment. Some desired interventions are
(a) supporting MEs in reaching the pollution norms gradually in a time bound manner, rather than frightening them away
(b) incentivising research for creating affordable pollution control equipment and
(c) creating a list of approved vendors for sourcing pollution control equipment/techniques.
Most MEs are not even aware of scores of labour laws, leave aside the intricacies and confusions.
While simplification is the solution, immediate support is needed for providing
(a) legal education and counselling in each of the industrial townships, starting with locations having more than 10 ME clusters and
(b) creating an incentive mechanism for MEs who cater to these norms.
95% of MEs are proprietary/partnerships and are mostly one-person shows. They need affordable and quality business development service providers (BDSPs). At present, BDSPs who are useful are mostly not affordable. Availability of labour is a prime issue. While some of it is due to growth in real wages via MGNREGA, MEs, particularly unregistered ones who have the lowest capacity to pay, took the worst hit.
Taking the clue, there has been a trend for mechanisation. With passing years, this may lead to deskilling of labour, for whom it will be a point of no return, leading to further rise in labour costs. MGNREGA must be linked to providing employment incentives for industrial skilled work. The situation also needs creating or transferring ME friendly technology on a war footing, if we want to touch the planned target in manufacturing value added.
Also of importance is the means of communication. Most support schemes are available in English and are too complex. Simpler versions may be made available in Hindi and vernaculars. Adequate budgetary arrangements are also needed to take care of rising applications through this process. Not least is the need for clearance in a fortnight and ensuring that the cost of availing support should not be costlier than the quantum of support itself.
Cluster-level product based industry associations can help achieve these goals, if they are strengthened by creating a strong secretariat along with necessary infrastructure. They will also be the one-stop shop for putting forward the voice of MEs to ensure these achievements.
New Foreign Trade Policy to Give More Thrust to Services Exports

Officials said the department of commerce is expected to expand the scope of the Serve for India Scheme (SFIS) in the new policy by making duty credit scrips tradable.

Exporters are given credits for exports that can be used for payment of inputs used in imports.
These credits go waste if an exporter does not use imported inputs. But if the credits are made tradable, the exporter can monetise these incentives by selling them in the open market.

“We want to make SFIS scrips tradable. Hotels are using it since they can import liquor and other things, tour operators import cars and vehicles, but what about others? The scheme is not of any use to them. If you are not able to use it, one must be allowed to sell it,” a commerce department official said on condition of anonymity.

SFIS is the only incentive available to services exporters. Under the scheme, duty credit scrips equivalent to 10% of free foreign exchange earned are issued.

But since it is on an actual user basis, not many services exporters other than hotels and tour operator are able to utilise the benefit. Making it tradable will help exporters from other sectors like education, healthcare, consultancy and real estate that do not import much.

If the commerce department has its way, SFIS scrips may even be made adjustable against 12% service tax. The department may also increase the overall amount of the scheme. “The scrips should be used to pay service tax and the amount should be increased. The SFIS scrips should be allowed to adjust 12% service tax,” said the official quoted earlier.

FM to Meet Industy Today for Pre-Budget Consultations

Three UPA Legacies Govt is Worried About

The Need for Environmental Governance

WHAT ARE THE THREATS TO THE INDIAN ENVIRONMENT?
The main threat to the Indian environment comes from the rapid change in lifestyles and the increase in urbanization, industrial growth and consequent need for power, minerals, ports and transportation. A major concern is that global models of development that are at times inappropriate for India are being brought in. A good example would be the Bt technology for food and the rapid replacement of Indian seed varieties and farmers' independence. The loss of wild bio-diversity is also a major threat.
Protected areas are a good strategy but by no means sufficient. Many species are intricately connected with what happens outside protected areas and strategies to conserve this need to be rapidly put in place.

Land, which is a critical resource is perhaps the most neglected and taken for granted. In some of our most fertile regions we build factories and try to improve farm productivity in land which is otherwise poor. The threat is the loss of fertile land. The loss of green cover especially on the hill sides further adds to soil erosion which will be very difficult to replace. Similarly, water is the lifeline of our country.
Climate change threatens the monsoon pattern. Any change in the water cycle would be quite disastrous. Water, both on surface and ground water is being polluted and aquifers are rapidly deteriorating.
WHAT ARE IMMEDIATE STEPS THAT NEED TO BE TAKEN FOR BIO-DIVERSITY CONSERVATION?
Protection of indigenous crop varieties is important. India is the home to several of plants and animals that it has domesticated and preserved over thousands of years. Special characteristics appropriate for India and the particular environment have led to many varieties such as over 20 breeds of cows or the 2000 plus varieties of brinjals. Use of Bt technologies in varieties which are indigenous to India is very dangerous and the precautionary principal needs to be followed.
Without adequate regulatory mechanisms in place or clarity as to whose liability it is, allowing field trials is not a wise step.

Urgent and new strategies are required for the protection of bio-diversity outside of protected areas. In many cases traditional corridors where animals moved have been blocked not only causing human-animal conflict but also major accidents. Birds like the Harriers, which migrate to grasslands in India but feed in cotton fields around the protected area, are under threat. One needs a multi stakeholder collaboration to develop a conservation strategy. There are good examples of this and the government needs to support such efforts.

Traditionally much of India's biodiversity was also linked with livelihood and craft traditions. With the erosion of bio-diversity the impact has been on both these. Crafts person have often switched to chemicals or other substitutes. Such non-agricultural plant material needs to be carefully put into a system of sustainable use and consumption. The same is true of other areas such as traditional fishing. The threat of industrialized operations not only destroys the fish stock but also kills local traditions and destroys local livelihoods.
An initiative on sustainable use of biodiversity has been taken and needs to be made into a full fledged program.

Key species which are under threat need individual strategies as the threat or reason for decline in each case is different. In many cases such as protecting the Tiger, Elephant or Rhino, an effective conservation strategy might suddenly collapse as a result of new threats and new technologies. These need to be monitored and new solutions found. In many other cases such as the Gangetic Dolphin, the success of the specie is also the success of the efforts to clean the Ganga. This requires careful strategy and public support.

Ultimately in a democracy it is only as a result of wide public support and awareness that conservation will be possible. India has been able to protect its bio-diversity to a large extent due to the deeply entrenched belief system and practices. But these are rapidly changing.
We need to bring more understanding and reach out to the young. The proposed national nature camping program wherein every child who goes to school will attend at least one certified Nature Education Camp is a step in that direction. Programmes such as these will need the necessary resource to make them possible. The Science Express Biodiversity Special which took a biodiversity exhibition around the country on a train is another example.
WHAT, ACCORDING TO YOU, WILL BE THE NEW GOVERNMENT'S ENVIRONMENTAL POLICY?
What is the policy of the government of India? In the past I have often been asked this question at international forums.
Unfortunately, there was never a single answer to such a question but multiple ones. Each ministry would have its own policy often contradicting another. The key to success lies in being able to blend environmental concerns with development, and to develop a sustainable development pathway for this country. The new government, with its clear and strong leadership, will be better able to bring a common vision on sustainable development to all the ministries and end what often looked like a set of disjointed policies made by individual ministries. Key areas which need to be addressed include agriculture, energy, urbanization, mining, water supply and the use of schemes such as the MGNREGA. While it is too early to say what the precise view of the new government will be on individual environmental issues, the pronouncement and the actions and new initiatives at co-ordination have been positive signs.

India's legislation has shown a lot of foresight in many areas. However, there has been a major gap between legislation and implementation. The current government's emphasis on better delivery, more transparency and speed will go a long way in ensuring that the environmental initiatives taken actually lead to protection of the environment. The current government seems likely to improve the quality of implementation in the field.

Select articles from ET (2-4 June)

Why PPPs are Failing, and How to Revive Them

Reason for failure of PPP:

In a PPP contract government's obligations are to deliver land for the project and procure preliminary environmental clearances. 

Now private companies believed that these obligations will be met by the government so initially there was a great euphoria for these PPP projects.

But due to overambitious implementation timelines and lack of preparedness, these obligations could not be fulfilled, especially over the last five years.

What followed was a tendency to persuade the private partner to stay with the project and suffer these delays. Private partners generally chose to absorb higher input prices through the delay , than seek legal remedies because 

1. time taken to enforce contracts through the legal process is long
2. these delays can be used to renegotiate favorable terms with the government
Now this led to private companies bidding unreasonably for projects to just get the contracts as they knew that they can renegotiate the contract again later.

In the euphoric years of high economic growth, these problems were masked; but with the economic slowdown, lower-than-expected demand for services and sharp increase in input costs, these have snowballed into crises, notably in the highways sector.

A principal reason is this casual attitude of both parties towards contracts and disregard for their non-violable nature. Inability to take timely decisions under the contract is equally to blame -it may have been better for the government to terminate projects in case of delay by the private partner in raising debt from banks, given the lower financial viability of the projects due to aggressive bidding.

Sometimes, the reluctance to take a tough stand is the fear that bidding the project a second time could result in lower bids, which auditors and vigilance authorities could frown upon.

As solutions slowly emerge for such projects, what could be the lessons for the future rollout of PPPs? 

First, set realistic milestones for programmes rather than impose unattainable deadlines on underprepared organisations. It would be equally important to simultaneously build capacities of government agencies to administer complex contracts and deliver on critical obligations quickly .

When bids are unsustainable, it is important to terminate the contract early , before funds are disbursed and investments made. It is important to protect officials from the consequences of right decisions, irrespective of the outcome of subsequent rounds of bidding. This would instil the needed confidence in officials to take the best decisions in the interest of the project.

The role of banks and financial investors to rigorously appraise projects also needs to be emphasised, given their rather cavalier approach to financing in the past. Further, as recommended by various stakeholders, establishing independent regulatory and dispute settlement mechanisms for expeditious settlement of disputes or to deal with industry-wide concerns needs to be fully explored.

Rajan could Hold Rates if Price Pressures Ease

Namo Govt Drawing Up its 100 Day Agenda What Could Be On The Cards

10 Tax Issues the Budget Needs to Address

UNEARTHING BLACK MONEY Will New Govt Set Things Right..

Highways Min Keen to Clear Road-building Bottlenecks

The highways ministry plans to float Cabinet notes on three key issues that have blocked road building as it looks to get the moribund sector bustling again. These three action areas are 

• the liberty to choose the mode of project implementation, 
• the power to make changes in the model concession agreement (MCA) and 
• allowing concessionaires to exit fully after construction.

The highways ministry had been keen to push the three items under the previous government as well but there wasn't enough support for the plan. Officials had earlier said that increased power to choose between public private partnerships (PPPs) and cash contracts (engineering, procurement and construction, or EPC) when awarding projects would help at a time when private sector participation has gone down drastically and help projects get awarded faster.

The ministry currently follows the BK Chaturvedi committee recommended waterfall mechanism to determine how to execute a road project. Under this, depending on the traffic density, the tolled BOT (build, operate, transfer) method must be tried first, followed by the annuity BOT model and then EPC.

Govt Readies Plan Rs.25k-cr National for Waterway Grid

The Narendra Modi government has drawn up an ambitious Rs25,000-crore plan to create a national waterway grid linking Ganga, Brahmputra, Mahanadi and Godavari rivers.
“The plan is ready....We will soon move a formal proposal,“ a senior shipping ministry official said, adding that the underlying objective is to enable water from big perennial Himalayan rivers to flow into peninsular ones generally have strong seasonal flows.
The waterway grid will also help control floods. The proposed grid will have road linkages to ports to facilitate faster movement of cargo.
How Does 5G Work
WHAT IS 5G? 
5G is the short for fifth generation, a mobile broadband technology that is in the early stages of works and likely to be in place six to seven years from now. A 5G network will be able to handle 10,000 times more call and data traffic than the current 3G or 4G network.

Data download speeds on 5G networks are likely to be several hundred times more than 4G.

WHAT WOULD A TYPICAL 5G EXPERIENCE BE LIKE?

You could download a three-hour high-definition movie on a mobile device in one second. It takes several minutes on a 3G or 4G network and several hours on 2G.

Live gaming and real-time video streaming will be possible without any lags as data transmission happens literally in the blink of an eye. Those annoying video buffering during streaming sessions would disappear.

WILL 5G WORK ON THE SAME SPECTRUM BANDS THAT 3G AND 4G RUN ON?

Researchers have yet to finalise the spectrum band for 5G. But indications are that 5G networks will run on ultra-high spectrum bands like 15 GHz, 27 GHz or even 70 GHz.

These bands offer far broader bandwidth than the lower 700 MHz, 800 MHz or 1800 MHz frequencies used for 4G, and hence can carry a lot more data at super speeds.

Spectrum, in this case, may be likened to a highway of airwaves on while telecom signals travel. Broader the highway, higher the amount and speed of data that can travel on it. The result: a richer mobile Internet experience.

WHAT IS THE CURRENT STATUS OF 5G?

The European Telecommunications Standards Institute is formulating 5G global technology standards, which are likely to be formalised by 2019.

Telecom companies such as Nokia, Ericsson, Alcatel-Lucent , NTT DoCoMo, NEC, Samsung, Huawei and Fujitsu are driving bulk of the 5G-related innovations.

WHEN WILL PEOPLE BE ABLE TO EXPERIENCE 5G?

5G networks are likely to be rolled out commercially between 2020 and 2025. If the global standards are finalised by 2019, the earliest commercial deployments could happen by 2020.

Japan's NTT DoCoMo is targeting a 5G commercial launch by 2020 and will start indoor trials at its R&D centre in Yokosuka this year. French-American telecom equipment maker Alcatel-Lucent is looking at a commercial rollout by 2025.

WILL 3G AND 4G HANDSETS RUN ON 5G NETWORKS?

No. 5G will require new chipsets and devices capable of supporting speeds upwards of 10 gigabits per second. 4G and 3G run at a fraction of that speed.

Good Articles from Economic Times (17th-22nd March)

JNNURM: Hit or Flop 

 The Jawaharlal Nehru National Urban Renewal Mission (JNNURM),the first major intervention by the UPA government in urban development,was used as an incentive fund to bridge the investment gap in urban infrastructure.The uniqueness of JNNURM lay in linking federal grants to reforms in governance.
Its critics say that the JNNURM has had limited impact on cities since it was launched in 2005.If we ask a question regarding the impact of the programme on Indian cities,one thing stands out: in all mission cities,its public impact has been the ubiquitous JNNURM low-floor buses.

The pivot of the JNNURM lay in 
1. reforms and fast-track planned development of identified cities with a focus on efficiency in urban infrastructure and service delivery mechanisms,
2. community participation and 
3. accountability of urban local bodies,or parastatal agencies towards citizens.

Current Scenario

• As of November 2013,of a total 567 projects that were sanctioned as part of the JNNURM,217 were completed,of which water supply projects took precedence,accounting for 30% of all projects (in numbers). 
• In terms of cost,water supply and sewerage projects took the lions share,accounting for one-third and one-fourth of total cost respectively.These are sectors that hold tremendous potential for growth in terms of public-private partnerships and mean the most to the public,given they are basic amenities.
• The programme has made a difference to the size of investments and breadth of coverage across cities and sectors,and in catalysing multiyear investments and reformed development in urban infrastructure.Some cities have prepared city development plans for the first time.
• The JNNURM has disbursed more funds than all urban development schemes in the last 25 years.The programme is the only scheme so far that gives both investment support and is reform-linked.

Reform Agenda

The JNNURM specifies several mandatory and optional reform agenda required to be fulfilled by state governments and urban local bodies.At the local body level,the following mandatory reforms are required by JNNURM: 
1. Movement to double-entry system of accounting,since this reflects the fiscal health of a city accurately.
2. Improvement in property tax coverage to 85% (of all properties).
3. Improvement in property tax collection efficiency to 90%.
4. Full cost recovery for water supply and solid waste.
5. Internal earmarking of funds for services to the urban poor.
6. Provision of basic services to the urban poor.
7. Setting up of e-governance.
 
Besides,there are several statelevel and certain optional reforms required both at the local and state levels that are required for access to JNNURM funds.These relate to the 
1. introduction of property title certification system,streamlining the approval process and,more generally,revision of building by-laws,
2. earmarking 25% developed land in all housing projects for economically weaker sections and low-income groups,all at the local body level,along with other administrative and structural reforms.

Mixed Results

We review the status of only the mandatory local body-level reforms.

• Most mission cities in Maharashtra,such as Mumbai,Pune and Nashik,have successfully fulfilled all local body mandatory reforms.
• The JNNURM website says that 42 of the 63 cities have provided basic services to the urban poor,41 cities have earmarked internal funds for providing basic services to the poor and 34 mission cities have moved over to a double-entry system of accrual accounting which is more accurate. 
• Cities such as Bangalore,Mysore and Chennai have not yet been able to commit to 100% recovery of operation and maintenance costs of providing water supply and solid waste management.
• Delhi has a long way to go in terms of property tax collection efficiency,and most cities have not yet been able to provide basic services to their poor.

Highlighting Problems
However,the journey has begun and on internal earmarking of funds for providing services for the poor,the adoption of the cities has been the highest,based on the scores awarded to cities on this agenda.
While service-level benchmarks have been developed for most basic services,unfortunately,there is no data on physical progress on the services or processes on which the JNNURM funds have been spent.Hence,it is easy for critics to call the programme not a bang but a whimper.Nonetheless,the biggest contribution of the programme is not that it has solved urban problems,but that it has brought them to the fore and has highlighted how important our urban areas are.

India May Board Train to Chinese IT Market   

The Change in Indias Telecom Landscape 

 Recent events in Indian telecom indicate an overhaul of the business in the future.The sector is emerging from a flux and operators are chalking out growth strategies as regulatory clarity emerges.The beginning of 
1. industry consolidation,
2. data-focused spectrum acquisition,
3. shift towards higher tariffs and 
4. collaboration among operators are signalling a transition.

That the recently-concluded spectrum auction earned the government.61,162 crore points to a renewal and change in the competitive landscape.Despite the high cost of spectrum in 900 MHz,incumbents have secured most of their spectrum.The auctions also emphasised investment capabilities of operators and how only the fittest will survive in the Indian market.

The bidding pattern also points to a growing data focus.The auction of almost 80% of airwaves in the 1,800 MHz band indicates operators intent to use this band for high-speed 4G services.By acquiring 1,800 MHz airwaves,operators have not only hedged future launch of data services but also future-proofed their investments in favour of the globally prevalent LTE band.The strengthening of 1,800 MHz holding in their dominant service areas will reduce their dependence on non-metro 900 MHz spectrum.Given that this spectrum is up for renewal next year,the contingency plan of continuing services in 1,800 MHz would save them from desperate bidding in the future.But the auction has again left a major dent on operators balance-sheets.The pre-auction industry debt was pegged at around.2,50,000 crore,and the recent auction outgo will further weigh down on financials.

As an after-effect of increased financial payouts,the overall tariff in the sector is expected to go northwards.The telecom market has seen declining tariffs for 18 years;a phenomenon deemed unsustainable by industry and analysts.But pricing power has started returning to the operators.In 2013,a marginal increase had already been witnessed with operators reducing free airtime minutes and increasing call voucher prices for prepaid customers.A steeper rise of 15-20 % is foreseeable over the next 12 months.

Another predictable change will be the end of price-based competition.The days of India being the lowest-priced telecom market can soon be history.Telcos are unlikely to indulge in price wars on the data front.Operators are likely to create differentiation on the basis of customer experience and service quality,instead of pricing.

The go-ahead on M&A guidelines is welcome and India is likely to see a wave of consolidation in the future.The current market is likely to stabilise to six players.Most subscriber and revenue shares will be with three or four players,in tandem with international standards.This will improve margins,operating profitability and the cash-flow situation.

Moreover,spectrum trading and sharing will also play a part in the sectors consolidation.Currently,spectrum holding of individual operators is very fragmented,which leads to inefficient utilisation of the scarce resource.The final judgement on trading and sharing of airwaves will allow companies to sell off valuable assets in cases where a merger is not as lucrative for the players.With high capital spending,collaboration between operators is likely to increase.Over the past one year,operators have entered into several mutually beneficial arrangements.For instance,2G intra-circle roaming pacts have been signed between operators.Also,operators have partnered to share their infrastructure including towers,optic fibre network inter- and intracity and submarine cable networks.These deals have cut the capex for operators and also led to reduced timeto-market for new entrants.It also accrues additional benefits to the operator leasing its infrastructure in the form of additional income of underutilised assets.

On the regulatory front,many policy decisions are on the anvil like spectrum trading and sharing,and auction of 700 MHz and 800 MHz bandwidths.These will help operators plan their growth strategies.

The Way Forward on Natural Resources 

Over the last decade,about 44 billion tonnes of coal was allocated to the public and nearly 100 private firms global annual production is 7.8 billion tonnes with 142 blocks allocated without competitive bidding.Coal production stayed in the doldrums,leaving power plants mothballed.

Author has suggested the way forward on natural resources :

• The price of a non-renewable resource should grow at the market interest rate,with resource depletion compensated for by returns from substituted capital infrastructure,human capital or money.
• Allocation needs to be via competitive bidding,utilising reserve prices and auction design to prevent collusion.
• Transfer pricing opens up avenues for corruption.Greater transparency of company accounts is needed,with regular monitoring by revenue authorities.As suggested by the Extractive Industries Transparency Initiative (EITI),rigorous standards should be adopted,with audits focusing on commodity trading operations,transfer pricing across concession holder group firms and social expenditure.Resource firms and governments must disclose what they give and receive.
• Pricing of commodities like gas should be market-based,reflecting extraction costs,international pricing and local demand,with appropriate liquidity to avoid interest group capture.
• Equity stake sales of natural resource firms like Coal India and IOC should be conducted at appropriate market prices,instead of being pushed through to meet arbitrary deficit targets.
• Every coal mine has its local conflict.As suggested by IFC and the UN,standard setting for fiscal contracts should adhere to global standards,with accountability enforced through legal mechanisms,investigations and clearly defined sanctions.Local people need to be actively consulted before,during and after the resource extraction phase.To avoid disputes about consultation,independent audits must be conducted.As recommended by the World Bank,transparency about resource allocation should be promoted at local,state and national levels,with concession contracts publicly presented and revenue allocation clearly tracked.
• Unlike a multinational,villagers cannot afford armies of economists and lawyers.Fiscal linkage is critical.The pending mining (MMRDA) Bill needs rework,with royalty rates supposedly set at optimum levels and mining leaseholders supposed to pay an annual amount to the District Mineral Fund (DMF) 26% of profits for coal,100% annual royalty for others for the benefit of affected persons.Seemingly fair,this imposition of additional costs through DMF payments could make mining unviable,particularly in areas with little infrastructure.The DMFs governing council,regulating disbursement,will be composed of various government officials and mining firm representatives,with little representation from affected families.With DMF compensation linked to profits,any shortfall,fair or foul,will be covered by the state government,putting pressure on its finances.
• The push to mine natural resources,with little regard given to the environment and impoverishment,will initiate political movements and revolts.Fair valuation,allocation and equitable distribution is needed.Whether we turn into a Norway or break down into a Venezuela,only time will tell. 

Time to Settle the India-China Border  

The Henderson Brooks report,a survey of the causes of the India-China conflict of 1962 and the reasons for Indias failure then,has been leaked on the net by Neville Maxwell,a retired journalist.The report had been locked up by the government for 51 years after its submission.In an election season,politics will be attributed to the timing of the leak,but that is irrelevant.Only three major things matter.

First,the government has to set a firm commitment to release classified official documents after a certain number of years.Declassification is useful for a variety of reasons: 
*a better understanding of history is an important one,and
*learning from past errors is another useful trait for any society.

Second,it is important for India to understand how badly the military underestimated Chinese capabilities and overestimated its own.This came from a failure of communication between the military establishment and its civilian political masters.This should never happen again.

Three,the report will force both India and China to acknowledge one important historical fact.Both are ancient civilisations but the idea of a nation-state,with defined borders,came to us late.For India,this happened with the advent of the British and consolidation of colonial power.Partition in 1947 created our present borders.The Chinese nation-state is an outcome of its 1949 communist revolution.Given this historical reality,there are bound to be parts of our border that are open to interpretation and dispute.We must resume the border talks that started during the Rajiv Gandhi era,and settle our borders with a mutually-accepted agreement.

SEZ Scheme a Non-starter : 60% Notified Land Still Lying Vacant 

The UPA governments special economic zone (SEZ) scheme,aimed at creating infrastructure to facilitate exports,doesnt seem to have succeeded in doing so and may instead end up turning into a real estate play as had been feared,said analysts and critics of the way in which the plan has been implemented.

Some facts:
1. More than 60% of the total land notified as SEZs is vacant years after the scheme opened in 2006.

2. So far,the government has notified 389 SEZs,envisaged as enclaves of export excellence.Of the total 47,803 hectares of SEZ land notified,only 17,689,or 37%,has been put to use so far,according to ministry of commerce and industry data.

3. Only 185 of the 389 notified units are functional,defined as at least one working export unit.

There are some developers who are simply sitting on land and not doing anything.

SEZs get three years after they are notified to become operational,which is the setting up of at least one unit.However,they can apply for extensions at board of approval meetings.

Not all SEZs have been deliberately delayed though.
1. Many of the notified SEZs do not have full approvals while others are in the process of setting up infrastructure before units can be set up.
2. In a lot of other cases,the units are not coming in. 
3. A number of approvals are stuck due to issues such as environmental clearance,among others.

Changes in tax laws have also made these zones less attractive.Former finance minister Pranab Mukherjee imposed a minimum alternate tax of 18.5% on the book profits of SEZ developers and units located in such zones in 2011-12,which saw drew strong protests.

The original scheme provided for a complete tax holiday for SEZs,including exemption from MAT and dividend distribution tax.However,these units still get 100% income-tax exemption on export income for the first five years,50% for the next five years and 50% of the ploughed back export profit for another five years.

SEZs registered a 31% growth in exports in 2012-13 when Indias overall outbound shipments contracted.In the April-December period this year,exports from SEZs have only grown 7% from last year while overall exports have grown 6%.

Arpita Mukherjee of Icrier said,Land is not the problem in SEZs,else there would not have been such a large area lying vacant.The government needs to assess where its policy went wrong as units do not want to get in, Mukherjee said.

An Opportunity to Boost Forex Reserves   

Volatility is the hallmark of currency markets.The rupee is expected to strengthen,in the wake of huge inflows of portfolio investments,to levels far stronger than warranted by the Indian economys fundamentals.This presents the Reserve Bank of India with an opportunity to buy up dollars and accumulate reserves.It makes no sense to allow fickle capital flows to set the value of the rupee in a way that would harm real economic activity.This is so,even if it is tempting for the government to use a strong rupee to cheapen imports,particularly oil and gas,and hold the price line in the run up to elections.
There are several reasons for the turnaround in the rupees fortunes from being the worst-hit emerging market currency to the most resilient in a matter of eight to nine months.
1. One is the credible and creditable progress in macroeconomic management: 

• the fiscal deficit has been held in check and is on course to fall further,
• the current account deficit will compress sharply to less than 2.5% of the GDP and 
• inflation has begun to ease.

2. Another has to do with the political cycle.It is widely believed that political parties and their backers bring

money back to India using foreign financial institutions,to meet the huge expenditure on the election process.

3. The final touted reason for foreigners newfound fascination for Indian stocks is the prospect of political stability,with poll forecasts suggesting a very strong showing by Narendra Modi.The reality is that a renewed political mandate for the government at the Centre is sufficient to catalyse growth after elections.India has had only shaky coalitions and minority governments since 1989 but the economy has grown at its fastest pace in this period.Regardless of who forms the government,the economy should see renewed vigour after the elections.
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National Solar Mission Way Short of Target   

Three years after Prime Minister Manmohan Singh announced an ambitious plan to generate 20,000 mw of solar power by 2022 under the Jawaharlal Nehru National Solar Mission,the programme is yet to take off in a meaningful way and remains far behind target.

Marred with delays,trade disputes and competition from state-level schemes,the central programme could so far contribute just one-third to the Indias total solar capacity.The programme is losing on time and offering small capacities.
The first phase of the solar mission from 2010-2013 added just 252.5 mw of solar power generation capacity against the targeted 1100 mw.
In the second phase started in 2014,a year later than planned,the government aims to add 10,000 mw solar energy capacity by 2017,under both photovoltaic (PV) and concentrated solar power (CSP) or solar thermal technology.

In a tender floated in January,it bid out PV projects totalling 750 MW,for which it received bids thrice the requirement.Companies are ready to offer more and government could have easily announced a second bid for the surplus amount.

The solar mission would hopefully add around 800 MW this year and all states combined are expected to add another 600 MW.So,we are looking at a miniscule 1500 MW of capacity addition in solar this year and all this after when three years of the mission have already been consumed.

Indias total solar power installation currently stands at 2208 MW,out of which 661 MW has been contributed from projects selected under the national solar mission.The balance is from the state schemes for solar power development,with 70% coming solely from Gujarat.

Madhya Pradesh is looking to add another 800 MW of solar by June 2014.Several independent power producers are lining up to invest in state schemes that come with offers such as costfree land and tax breaks.

Officials at MNRE are,however,hopeful that the mission would meet its target.We were actually thinking of scaling up the target to 1 lakh MW by 2022.But it was prudent to first develop a domestic market and stabilise it and then reach for bigger goals, a senior MNRE official said.

The second phase of the mission was delayed due to trade dispute among the domestic and foreign manufacturers of solar cells,with recurrent changes in the mission guidelines.A case of dumping of equipments against solar companies of China,US,Malaysia and Taiwan is going on.And the US has filed two complaints against India in World Trade Organisation for safeguarding its domestic industry and restricting competition in JNNNSM guidelines.Analysts said such delays hurt a nascent sector like solar.The uncertainty or lull that happened last year is not desirable for a programme of this scale.The bidding in the current phase has undoubtedly been impressive and government needs to keep up with the investment resonance happening in the sector, a renewable energy market analyst said.

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