Policy News & Views August 2009

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CLIMATE CHANGE
India cannot take legally binding GHG emission cuts: Ramesh
India said it was not in a position to accept any "legally binding" reductions in green house gas (GHG) emissions.
Our view is that though accepting any “legally binding” reductions in GHG emissions may not be a politically palpable, but this does not mean that India should not make some compromises on its “business as usual” approach to climate change. It can self regulate and achieve certain benchmarks on GHG emissions. Bargaining strategy should then be to ask the developed world for technology transfer to facilitate reductions. If India and the developing world continue to take an intransigence stance it is not hard to predict the outcomes of Copenhagen which will not yield anything other than you vs. us.
Climate Change Negotiations Stalemate and copenhagen
TELECOM
Raja cornered over spectrum allocation
Opposition leaders put union minister A. Raja on the mat by charging that allocation of spectrum to mobile operators resulted in a loss of Rs 60,000 crore to the exchequer.
Our view is that the opposition is right but will the minister go! By issuing licences bundled with a promise of allocating 2G spectrum at an arbitrarily decided price of Rs. 1651 crores, the minister violated all the principles of efficient allocation of this scarce resource. Once these firms got the licence they resold large chunks of their businesses at a price that was determined in the market. Not surprisingly it was way above the paltry licence fee that they had paid. This rent seeking on the part of these companies was an obvious outcome of the flawed spectrum allocation mechanism. The policy of bundling spectrum with licence meant that the firms got spectrum cheaply and this denied the public huge amount of money. Was it naïveté? We have been suggesting market based procedures, like auctions of spectrum, precisely because they reduce the incentives for corrupt public officials to use their discretion to serve sectional or private interests.


POWER

CERC reviewing power trading margin cap

The Central Electricity Regulatory Commission (CERC), the apex power sector regulator, is reviewing the 4 paise per unit cap on power traders’ margin.

The cap on power traders’ margin was put in place to discourage gaming by the power traders; such that they do not divert quota based allocated power from the beneficiary states to deficit states that were willing to pay higher prices in the open market. Our view is that power trading margins were a distortion created in the power markets. The distortion was introduced in order to address the problems with vested contracts, where states had some assured power from central government generation companies at a very low price. However, these states denied electricity to their own state and sold it in the open market. Prominent among these was West Bengal, but trading margins were not a way to address this as it did not allow power markets to develop. This speculation did harm the consumers and they responded to this in the Lok Sabha elections.

EDUCATION

Rajya Sabha passes landmark Right to Education Bill
A landmark bill providing for free and compulsory education as a fundamental right of children in the 6-14 age group was passed by Rajya Sabha.
A more interesting provision of the Bill is the requirement that private schools register at least 25 percent students from marginalised communities, with the state reimbursing the schools based on average spending per child. Given the anectodal evidence from Delhi and some micro survey results of this mechanism of social inclusion, we are inclined to endorse these reservations. These reservations unlike the recent caste based reservations in institutions of higher learning are more likely to achieve the objective of providing equal opportunities. Since, poor schooling and poor training disadvantages talented kids from poor household at higher levels of educati

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Policy News & Views August 2009

  1. 1. Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ Policy News & Views Volume 1, Issue 9, August 2009 CLIMATE CHANGE India cannot take legally binding GHG emission cuts: Ramesh India said it was not in a position to accept any "legally binding" reductions in green house gas (GHG) emissions. Our view is that though accepting any “legally binding” reductions in GHG emissions may not be a politically palpable, but this does not mean that India should not make some compromises on its “business as usual” approach to climate change. It can self regulate and achieve certain benchmarks on GHG emissions. Bargaining strategy should then be to ask the developed world for technology transfer to facilitate reductions. If India and the developing world continue to take an intransigence stance it is not hard to predict the outcomes of Copenhagen which will not yield anything other than you vs. us. Climate Change Negotiations Stalemate and copenhagen TELECOM Raja cornered over spectrum allocation http://www.indicus.net/Newsletter/Policy_News_Views.aspx
  2. 2. Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ Opposition leaders put union minister A. Raja on the mat by charging that allocation of spectrum to mobile operators resulted in a loss of Rs 60,000 crore to the exchequer. Our view is that the opposition is right but will the minister go! By issuing licences bundled with a promise of allocating 2G spectrum at an arbitrarily decided price of Rs. 1651 crores, the minister violated all the principles of efficient allocation of this scarce resource. Once these firms got the licence they resold large chunks of their businesses at a price that was determined in the market. Not surprisingly it was way above the paltry licence fee that they had paid. This rent seeking on the part of these companies was an obvious outcome of the flawed spectrum allocation mechanism. The policy of bundling spectrum with licence meant that the firms got spectrum cheaply and this denied the public huge amount of money. Was it naïveté? We have been suggesting market based procedures, like auctions of spectrum, precisely because they reduce the incentives for corrupt public officials to use their discretion to serve sectional or private interests. POWER CERC reviewing power trading margin cap The Central Electricity Regulatory Commission (CERC), the apex power sector regulator, is reviewing the 4 paise per unit cap on power traders’ margin. The cap on power traders’ margin was put in place to discourage gaming by the power traders; such that they do not divert quota based allocated power from the beneficiary states to deficit states that were willing to pay higher prices in the open market. Our view is that power trading margins were a distortion created in the power markets. The distortion was introduced in order to address the problems with vested contracts, where states had some assured power from central government generation companies at a very low price. However, these states denied electricity to their own state and sold it in the open market. Prominent among these was West Bengal, but trading margins were not a way to address this as it did not allow power markets to develop. This speculation did harm the consumers and they responded to this in the Lok Sabha elections. EDUCATION Rajya Sabha passes landmark Right to Education Bill A landmark bill providing for free and compulsory education as a fundamental right of children in the 6-14 age group was passed by Rajya Sabha. http://www.indicus.net/Newsletter/Policy_News_Views.aspx
  3. 3. Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ A more interesting provision of the Bill is the requirement that private schools register at least 25 percent students from marginalised communities, with the state reimbursing the schools based on average spending per child. Given the anectodal evidence from Delhi and some micro survey results of this mechanism of social inclusion, we are inclined to endorse these reservations. These reservations unlike the recent caste based reservations in institutions of higher learning are more likely to achieve the objective of providing equal opportunities. Since, poor schooling and poor training disadvantages talented kids from poor household at higher levels of education, the point of intervention has to be primary school. This will also take care of the fact that many disadvantages are just due to poor English language skills and by the time they reach the university it is too late to fix that. Read INSTITUTIONAL FRAMEWORK Mamata virtually nixes land acquisition bill Mamata Banerjee has virtually capped the government's proposal to introduce a greater balance between the land holder's rights and the imperatives of land acquisition for industry and public purposes by shooting down the twin land acquisition and relief and rehabilitation Bills. The basic issue of contention is who should have the rights to acquire land, the state or the private sector. Under ideal conditions with clear titles and ownership rights well defined the private developers should acquire the land at a market determined price and there are various possibilities to address the issue of bargaining equity. The problem, however arises when the land is too fragmented and private property rights are poorly assigned, the private sector will be chary to acquire land and will require state support. By not allowing any role of state, private parties may not be interested and this is especially true in the case of West Bengal where there is no market for land. This may not be the case everywhere. More News India flags off another phase of port privatization India has flagged off yet another phase of port privatization with the signing of a concession agreement for construction of a deep draught iron ore terminal at Paradip Port. http://www.indicus.net/Newsletter/Policy_News_Views.aspx
  4. 4. Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ Government to introduce Food Security Bill soon The government has said it will soon introduce a Bill to enact a Food Security law that will provide 25 kg of rice and/or wheat at Rs 3 to each family below the poverty line - a key poll promise of the Congress that heads the ruling coalition. Not possible to end cesses: Plan panel People will have to live with cesses and surcharges as it is not possible for the government to eliminate them at present as has been advocated by the Economic Survey. Few takers for JNNURM Four years after the launch of the Jawaharlal Nehru National Urban Renewal Mission, just above a third of the central funds allocated under the scheme have been used. KG basin gas belongs to government: Deora Petroleum Minister Murli Deora has asserted that the KG basin gas belongs to the government and not to either of the Ambani brothers, Mukesh and Anil, who have taken the battle to court. Six states breach unbundling deadline The government’s six-year initiative to unbundle state electricity boards into separate entities for power generation, transmission, distribution and trading businesses is set to be delayed further, with seven states still to do so. Private oil companies may get government subsidy The government is open to allowing private sector oil firms such as Reliance Industries Ltd (RIL), Essar Oil Ltd and Shell India to access government subsidy on domestic fuel sales, provided they pass on the benefits to consumers. India breaks Potash cartel to save Rs 5000 crore India has managed to clinch almost 3 million tonne of its annual average of 5 million tonne potash imports at a record low price of $ 460 per tonne after busting a global potash cartel’s stranglehold on pricing. No proposal to free fuel prices: Minister http://www.indicus.net/Newsletter/Policy_News_Views.aspx
  5. 5. Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ The government is not considering a proposal to free controls on retail prices of petrol and diesel, minister of states for oil and gas Jitin Prasada said. Government to set up expressway authority: Kamal Nath The government plans to set up an expressway authority for the speedy execution of expressway projects, road transport & highways minister Kamal Nath said. No plans to open up retail sector further: Minister In a signal that India's retail trade sector may not be opened any further, the government has said the interests of small traders will be protected as the industry is the second largest employer after agriculture. DoT wants Trai to limit number of telcos Confronted with the pending applications of 24 companies for telecom licences, the department of telecom now wants sector regulator Trai to cap the number of telecom players who are allowed to offer mobile services in the country. http://www.indicus.net/Newsletter/Policy_News_Views.aspx

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