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Policy News  &  Views July 2009
Policy News  &  Views July 2009
Policy News  &  Views July 2009
Policy News  &  Views July 2009
Policy News  &  Views July 2009
Policy News  &  Views July 2009
Policy News  &  Views July 2009
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Policy News & Views July 2009

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DISINVESTMENT …

DISINVESTMENT

Government mulls 'creeping disinvestment'

The Union finance ministry is examining a proposal that seeks to dilute the government’s stake in all listed public sector undertakings to at least 90 per cent.

Our view is that ownership impacts the monitoring behavior of the firm. By its very nature public sector ownership is more widely distributed than a private firm’s. Since there is no way for any single owner to sell (alienate) his or her share of the public sector, public owners stand to gain or lose less from firm performance than do private owners, who can sell their shares. These two factors combine to produce sub-optimal levels of monitoring in the public sector. Thus, diluting just 10 percent will still leave ownership very diffused and will not have a positive impact on monitoring and hence performance. In the absence of a majority stake shake out this is just an exercise to raise revenues with little impact on efficiency.

REGULATION

Centre to set up regulatory body for the coal sector

The Centre has initiated work on setting up a regulatory body for the coal sector for the creation of a competitive coal market for user industries.

Our view is that proliferation of regulatory bodies is just a mechanism by the State to create sinecures for its retiring bureaucrats. In the absence of any serious debate on a coherent framework for regulation, regulatory authorities have mushroomed in an ad-hoc fashion without any clear mandate based on principles. For instance, with separate regulators for electricity, petrol and gas and now the proposed coal regulator indicates the either a lack of a clear understanding or cynicism regarding the role of these important institutions in a market economy. Going forward a consolidating legislation will be required to set up more efficient multi-sector regulators. This would eliminate proliferation of regulatory commissions, economise on scarce domain knowledge and most importantly reduce capture by parent ministries.

ENERGY

RIL fails to find enough takers for KG gas

RIL is running its production unit under its capacity as many consumers are not using allocated quota.

Our view as has been noted earlier is that the government should do away with national allocation priorities and quotas (as was indeed the original reforms mandate under NELP). It is ironical that India has plenty of this natural resource but myopic policy has made a mess of its utilization. The allocation mechanism has killed the market for gas even before it could take off. The gas allocation policy is predicated on a completely faulty price-fixation policy. An open bidding process, a cost-plus method or an indexation to oil prices would have been a better way for price discovery in this crucial sector. Is the policy protecting the producer?

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  • 1. Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ Policy News & Views Volume 1, Issue 8, July 2009 DISINVESTMENT Government mulls 'creeping disinvestment' The Union finance ministry is examining a proposal that seeks to dilute the government’s stake in all listed public sector undertakings to at least 90 per cent. Our view is that ownership impacts the monitoring behavior of the firm. By its very nature public sector ownership is more widely distributed than a private firm’s. Since there is no way for any single owner to sell (alienate) his or her share of the public sector, public owners stand to gain or lose less from firm performance than do private owners, who can sell their shares. These two factors combine to produce sub-optimal levels of monitoring in the public sector. Thus, diluting just 10 http://www.indicus.net/Newsletter/Policy_News_Views.aspx
  • 2. Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ percent will still leave ownership very diffused and will not have a positive impact on monitoring and hence performance. In the absence of a majority stake shake out this is just an exercise to raise revenues with little impact on efficiency. REGULATION Centre to set up regulatory body for the coal sector The Centre has initiated work on setting up a regulatory body for the coal sector for the creation of a competitive coal market for user industries. Our view is that proliferation of regulatory bodies is just a mechanism by the State to create sinecures for its retiring bureaucrats. In the absence of any serious debate on a coherent framework for regulation, regulatory authorities have mushroomed in an ad-hoc fashion without any clear mandate based on principles. For instance, with separate regulators for electricity, petrol and gas and now the proposed coal regulator indicates the either a lack of a clear understanding or cynicism regarding the role of these important institutions in a market economy. Going forward a consolidating legislation will be required to set up more efficient multi-sector regulators. This would eliminate proliferation of regulatory commissions, economise on scarce domain knowledge and most importantly reduce capture by parent ministries. ENERGY RIL fails to find enough takers for KG gas RIL is running its production unit under its capacity as many consumers are not using allocated quota. http://www.indicus.net/Newsletter/Policy_News_Views.aspx
  • 3. Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ Our view as has been noted earlier is that the government should do away with national allocation priorities and quotas (as was indeed the original reforms mandate under NELP). It is ironical that India has plenty of this natural resource but myopic policy has made a mess of its utilization. The allocation mechanism has killed the market for gas even before it could take off. The gas allocation policy is predicated on a completely faulty price-fixation policy. An open bidding process, a cost-plus method or an indexation to oil prices would have been a better way for price discovery in this crucial sector. Is the policy protecting the producer? Government to build national gas highways The government plans to take up all main gas pipeline projects in the country in a move that could end the dominance of Gail India and Reliance Industries in the sector. A good step in our view as it is in line with the “essential facility” doctrine. The producers being the owners of the pipelines reduce the level of competition in gas production. Thus, if the infrastructure investment is made by the government in a PPP mode for this “essential facility”, evacuation of gas will be easier and reduce the investment risk of the producers. EDUCATION Private medical colleges charging illegal donations Despite explicit Supreme Court’s ban on capitation fees six years before, these illegal donations are still thriving in the country, making a mockery of regulation and values of merit in education. http://www.indicus.net/Newsletter/Policy_News_Views.aspx
  • 4. Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ Our view is that a weak regulatory system and the tyranny of the political class and other vested interests in higher education has lead to the capture of the professional education space by unscrupulous elements and by people who have no competence in running institutes of higher learning. Consequences of this are outright corruption in education delivery and the collusion of the regulators with the management that creates perverse incentives for all the involved stakeholders. More News Government mulls cess on natural gas to fund pipeline plan The government is mulling levy of small cess on natural gas to fund construction of national gas highway network even as it plans to extend LPG reach to rural areas and launch smart cards for kerosene. Government hints at raising NREGS grants by 50 percent The government had indicated that it was going to make the social sector the centrepiece of the upcoming Budget. The government has written to all state governments to send fresh proposals for allocations to be made in the National Rural Employment Guarantee Scheme (NREGS) and the Backward Regions Grants Fund (BRGF). Cabinet to consider easing open access for power In a move that could finally open the power market in India, the Prime Minister has asked the Cabinet Committee on Economic Affairs (CCEA) to decide on a Planning Commission proposal to allocate a portion of power generated from centrally-owned utilities for open access to large consumers. http://www.indicus.net/Newsletter/Policy_News_Views.aspx
  • 5. Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ Separate ministries expected to boost shipping and road sectors The bifurcation of the erstwhile ministry of shipping, road transport and highways into two separate departments under different ministers has gone down well not only with the trade constituents but also with the ministries themselves. Shipping Ministry to award Rs 3,300-cr projects in 100 days As part of the first 100-day ‘action programme’ of the government, the Shipping Ministry would award projects worth more than Rs 3,300 crore for developing and upgrading container and cargo terminals at various ports in the country. CERC for inter-state trade of wind power To attract more investment in the renewable energy sector, particularly in wind power, the Central Electricity Regulatory Commission (CERC) has proposed that wind power should be freely tradable across the country. PMEAC recommends creation of unemployment fund Prime Minster’s Economic Advisory Council (PMEAC) has recommended creation of an unemployment fund, which will be financed by the industry, to take care of employees losing jobs during the downturn. National regulatory body for biotechnology sector on the anvil http://www.indicus.net/Newsletter/Policy_News_Views.aspx
  • 6. Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ The national biotechnology regulatory authority will be set up in partnership with the industry, keeping in view the rapid strides being taken in the area of agro- and food biotechnology research and application, according to the minister of state for science and technology, government of India. Under-recoveries on sale of petroleum products up sharply The continued rally in international oil prices has turned diesel margins red. Oil companies are losing Rs 2.96 on sale of every litre of diesel sold in the fortnight beginning June 16. CCI to put large M&As on automatic route India’s anti-trust body, the Competition Commission of India (CCI), is planning to come out with regulations for automatic approval to large mergers and acquisitions (M&As) if these are not harming the consumers’ interest. Riders for foreigners setting up supercritical power units Foreign companies looking to set up supercritical power equipment manufacturing facilities in the country will have to bring Rs 100 crore into the venture as initial capital before getting permission to start operations, according to a new proposal aimed at keeping away non-serious players. Companies face loss of captive coal mine allotment Metal and power companies including Jindal Steel and Power (JSPL), JSW Stainless, Hindustan Zinc and Nalco face the prospect of losing their allotment of captive coal http://www.indicus.net/Newsletter/Policy_News_Views.aspx
  • 7. Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ mines with the ministry of coal planning to issue show- cause notices to all companies that have failed to meet the milestones finalized for the development of captive coal mines. http://www.indicus.net/Newsletter/Policy_News_Views.aspx

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