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 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
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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