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Economic Policy News And Views April 2009
 

Economic Policy News And Views April 2009

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NHAI projects worth Rs 13,000 crore hit roadblock ...

NHAI projects worth Rs 13,000 crore hit roadblock

On account of inadequate government support NHAI projects worth Rs. 13,000 crore (up to 1,055 km) under fifth phase of the National Highway Development Project (NHDP) are facing roadblock. The government has halved the portion of grant accorded to private partners from 20% to 10% under NHDP-V. Under NHDP-III a grant of 40% was given to private players.
Our view is that one of the major failures of the outgoing UPA government has been the National Highway Development programme (NHDP). The government even managed to reverse some of the gains made by the previous government. The total completion rate of the NHDP stands at a shameful 28% overall or 9,165 km out of the proposed 31,755 km. Even progress of already awarded projects is slow; mainly owing to delays in environmental clearance, land acquisition, litigations, etc. Ensuring NHAI works autonomously in real sense would be the first task for the incoming government in order to improve the efficiency of the current programme.


POWER
Power ministry trips open access plan
The Ministry of Power (MoP)’s bid to keep control over electricity allocation is the latest hurdle in the Planning Commission’s attempt to kick-start open access. The MoP has discretion in the allocation of 15% of total power produced by generating utilities owned by the Centre. The MoP has opposed a planning commission’s recommendation to sale a part of 15% through open access.
Our view is that this is a sheer excuse given by the MoP to stall competition in this sector. Without the introduction of open access the state monopsony in the market for electricity will not be broken. Private capital will be chary about entering an industry dominated by a politically opportunistic, contractually unreliable and fickle, and financially suspect, state-owned monopsonist. Refusal to sell a part of the electricity produced by the central entities in the open market and only through a quota mechanism can be and should be challenged as anti-competitive behaviour as this is tantamount to refusal to deal

FINANCE
Government may leash pay of financial top dogs
The government is planning to cap the salaries of executives working for institutions such as credit rating agencies, stock exchanges and clearing corporations. The move is aimed at removing unrealistic target linked incentives to the executives. The reason is unrealistic incentives may encourage the executives to maximize profit through unethical means that could lead to Wall Street like crash. These institutions have a gatekeeping role and enjoy some sort of monopoly, so cannot have incentive structure similar to purely commercial enterprises.
Our view is that capping of salaries by the government be it the executives working for institutions such as credit rating agencies, stock exchanges and clearing corporations or for other companies is a bad idea and is tantamount to a price control with no welfare arguments. This seems to be a knee jerk reaction to a crisis. The only people who should determine the salaries of the CEOs is the Board of Directors who represent the shareholders. Thus, the government should concentrate its efforts on implementing laws that improve corporate governance. Stringent laws and their implementation will ensure that there is no collusion among the Board of Directors and the management and the Board of Directors is competent and answerable to the shareholders. However, if the government is bailing out a company out of a crisis then as a “shareholder” it can impose salary caps.

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    Economic Policy News And Views April 2009 Economic Policy News And Views April 2009 Document Transcript

    • Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ Policy News & Views Volume 1, Issue 5, April 2009 HIGHWAYS NHAI projects worth Rs 13,000 crore hit roadblock On account of inadequate government support NHAI projects worth Rs. 13,000 crore (up to 1,055 km) under fifth phase of the National Highway Development Project (NHDP) are facing roadblock. The government has halved the portion of grant accorded to private partners from 20% to 10% under NHDP-V. Under NHDP-III a grant of 40% was given to private players. Our view is that one of the major failures of the outgoing UPA government has been the National Highway Development programme (NHDP). The government even managed to reverse some of the gains made by the previous government. The total http://www.indicus.net/Newsletter/Policy_News_Views.aspx
    • Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ completion rate of the NHDP stands at a shameful 28% overall or 9,165 km out of the proposed 31,755 km. Even progress of already awarded projects is slow; mainly owing to delays in environmental clearance, land acquisition, litigations, etc. Ensuring NHAI works autonomously in real sense would be the first task for the incoming government in order to improve the efficiency of the current programme. Read More ... POWER Power ministry trips open access plan The Ministry of Power (MoP)’s bid to keep control over electricity allocation is the latest hurdle in the Planning Commission’s attempt to kick-start open access. The MoP has discretion in the allocation of 15% of total power produced by generating utilities owned by the Centre. The MoP has opposed a planning commission’s recommendation to sale a part of 15% through open access. Our view is that this is a sheer excuse given by the MoP to stall competition in this sector. Without the introduction of open access the state monopsony in the market for electricity will not be broken. Private capital will be chary about entering an industry dominated by a politically opportunistic, contractually unreliable and fickle, and financially suspect, state-owned monopsonist. Refusal to sell a part of the electricity produced by the central entities in the open market and only through a http://www.indicus.net/Newsletter/Policy_News_Views.aspx
    • Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ quota mechanism can be and should be challenged as anti-competitive behaviour as this is tantamount to refusal to deal Read More ... FINANCE Government may leash pay of financial top dogs The government is planning to cap the salaries of executives working for institutions such as credit rating agencies, stock exchanges and clearing corporations. The move is aimed at removing unrealistic target linked incentives to the executives. The reason is unrealistic incentives may encourage the executives to maximize profit through unethical means that could lead to Wall Street like crash. These institutions have a gatekeeping role and enjoy some sort of monopoly, so cannot have incentive structure similar to purely commercial enterprises. Our view is that capping of salaries by the government be it the executives working for institutions such as credit rating agencies, stock exchanges and clearing corporations or for other companies is a bad idea and is tantamount to a price control with no welfare arguments. This seems to be a knee jerk reaction to a crisis. The only people who should determine the salaries of the CEOs is the Board of Directors who represent the shareholders. Thus, the government should concentrate its efforts on implementing laws that improve corporate governance. Stringent laws and their implementation will ensure that there is no collusion among the Board of Directors and the management and the Board of Directors is competent and answerable to the shareholders. However, if the government is bailing out a http://www.indicus.net/Newsletter/Policy_News_Views.aspx
    • Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ company out of a crisis then as a “shareholder” it can impose salary caps. TELECOM TRAI recommends separation of USOF from DoT Observing that Universal Service Obligation Fund (USOF) subsidy has not spurred investment in the rural telecom space, sector regulator Telecom Regulatory Authority of India (TRAI) today recommended separation of fund from the purview of Department of Telecom (DoT) to make effective use of the finances available. It has been almost 7 years since the USOF got a statutory status however the performance of the fund when it comes to financing roll out has been abysmally poor. India has the distinction of the second largest USOF however only 34 % of the 4 billion USD so far collected has been disbursed. One of the reasons may be the lack of independent functioning of the USF administrator which lies under the purview of the DoT. Our view is that while an autonomous body may improve the performance of the fund as far as the design of projects and disbursement goes but the fund has lost its relevance in view of the changing technology and market innovations. Thus, first separate the fund administrator from the DoT, reduce the contributions to the fund to about 1-2% of AGR, currently it is at 5 % , disburse the collected funds for infrastructure creation as soon as possible and last let the fund provide subsidy to any service provider who sets up infrastructure in the rural areas. It is important that the fund is minimalist and does not distort the market incentives for service expansion. Read More ... http://www.indicus.net/Newsletter/Policy_News_Views.aspx
    • Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ Edited by: Payal Malik 31st March 2009 MORE NEWS Companies shed green projects as carbon loses credit Indian companies are shelving green projects that would have earned them carbon credits under the Clean Development Mechanism (CDM) following a 50% fall in the prices of Carbon Emission Reduction (CER) credits due to the global downturn. Fertiliser firms ask Centre to buy back Rs 20,000 crore of subsidy bonds Fertiliser firms are urging the government to buy back the bonds they were given as part of subsidy. The chief of India’s fertiliser industry association said that companies are unable to sell these bonds worth Rs 20,000 crore, leaving them with few options to tide over the current cash crunch. Bigger Bench to decode electricity tribunal powers A constitution Bench of the Supreme Court will consider whether the Appellate Tribunal for Electricity has the jurisdiction to deal with the validity of regulations framed by the Central Electricity Regulatory Commission. States pip NHAI in PPP road projects Companies find the terms in the bidding documents for state projects much more attractive. National highway projects under the public-private partnership (PPP) scheme have found few takers, but state highway projects under the same route are getting record response in Gujarat, Andhra Pradesh, Karnataka and Haryana. http://www.indicus.net/Newsletter/Policy_News_Views.aspx
    • Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ Government withdraws licence fee cut for telcos The government has called off its decision to slash the licence fee for telecom operators with large network presence by up to a third from April 1, following opposition from the finance ministry, giving a Rs 2,000- crore blow to the industry. Government looks to its own to fill CCI vacancies The government will soon begin to search for officers who have specialised in law, economics and investigation from within its ranks to send them on deputation in the Competition Commission of India (CCI). The government has sanctioned the appointment of nearly 100 professionals, of which 38 positions are to be filled with serving government officers. Government mulls alternative set-up for handling misleading ads Worried that a legal bulwark against misleading advertisements may be lacking after the MRTPC is wound up, the government is contemplating an alternative mechanism to address the issue. As the Competition Commission, which succeeds the Monopolies and Restrictive Trade Practices Act, has no powers to investigate cases of misleading advertisements. Delay in big-bang infrastructure projects costs another bomb Delay in execution of 116 infrastructure projects has seen about Rs 38,000 crore jump in their original cost estimates. As on January 1, 2009, the cost escalation has gone up by 41% from Rs 91,841 crore to Rs 1,29,560 crore. TRAI: Government stalling unrestricted telephony Telecom regulatory authority of India (Trai) said that the government is stalling unrestricted internet telephony in the country and accused the government for not http://www.indicus.net/Newsletter/Policy_News_Views.aspx
    • Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ addressing the issue of lifting curbs on internet telephony. The telecom regulator has been advocating unrestricted internet telephony since last year, but without success. Further Trai stated that the government has recently cleared entry of mobile virtual network operators (MVNOs) without putting norms in place. CERC wants state authorities to function independently for smooth open access Power sector regulator Central Electricity Regulatory Commission (CERC) has taken strong exception to the State Load Despatch Centres (SLDC) denying open access in inter-state power transmission. CERC has called for total functional independence of these statutory authorities to ensure smooth functioning of the open access system in the country. Forum of Regulators for selecting transmission companies The Forum of Regulators (FoR), a forum of State Electricity Regulatory Commissions (SERCs), has recommended that state governments phase out the single-buyer model and put in place a system that offers a choice of selecting transmission companies that wheel out power from the generators. PSUs to feed state-run banks The government has extended by a year an order asking profitable state-run entities to park their surplus funds with public sector banks to ensure that the financial institutions have enough cash at a reasonable cost, which they can lend at the present reduced rate of interest. Companies get nod to hedge carbon credits, freight deals abroad The Reserve Bank of India (RBI) has allowed Indian companies to hedge carbon credits and freight contracts on overseas exchanges, a move that will help them cope http://www.indicus.net/Newsletter/Policy_News_Views.aspx
    • Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ with the intense volatility in global markets. With this, carbon credits and freight have been recognised as commodities by the RBI, and will join the ranks of metals, bullion, energy and agricultural produce, which are already permitted to be hedged abroad. DoT: Difficult to start 3G auctions before polls The global auction for 3G spectrum is likely to be taken up by the next government with the telecom department said that it is difficult to start the auction process before the general elections commence in mid-April 2009. http://www.indicus.net/Newsletter/Policy_News_Views.aspx