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The proposed gas price pooling policy of the government is expected to increase the Gross Domestic Product (GDP) by 0.50-0.88 per cent says a study.

NEW DELHI: The proposed gas price pooling policy of the government is expected to increase the Gross Domestic Product (GDP) by 0.50-0.88 per cent says a study.

NCAER the National Council of Applied Economic Research has conducted a timely study evaluating the benefits and costs of pooling the price of domestic and imported natural gas for the power sector.  The research study was sponsored by GMR Energy Limited. The proposed gas price pooling policy would pool the existing limited supply of domestic gas with imported Regasified LNG to help operationalise the some 16100 MW of stranded gas-based power plants to start operating from their current zero percent plant load factor (PLF) to either a 30% or 40% PLF.  The price of pooled natural gas will be greater than the domestic price and hence the cost of power production will increase. However the selling price of electricity has been administratively capped at Rs 5.50 per kwh so the gap between the selling price and production cost would lead to a revenue shortfall for gas-based power plants. 

This revenue shortfall is proposed to be partially borne by the government as subsidies and tax concessions and partially borne by the interlinked sectors taking cuts in their revenues. Hence the gas price pooling policy also includes a waiver of the 12.5%VAT/ CST and other levies on natural gas by the states customs duty exemption for R-LNG a 50% cut in pipeline tariff 50% cut in R-LNG regasification charges and a 75% cut in marketing margins by the Gas Authority of India (GAIL) which is the designated gas pool operator. 

The proposed Gas Price Pooling Policy is complex and leads to a chain of events: potential gains to interlinked sectors as well as potential losses to interlinked sectors. The NCAER Study gives a composite picture of the total gains and total losses to all sectors due to these inter-linkages as well as of the fiscal costs to the government of this policy. 

In addition the NCAER Gas Price Pooling Study captures the macroeconomic impact of the increased power generation and its multiplier effects as a result of greater availability of gas and computes the net impact of the proposed policy. These simulations have been done under different scenarios including plants operating at 30% PLF 40% PLF and 50% PLF and with and without the additional availability of domestic gas.

Without first considering the impact on economic growth the NCAER Study finds that if plants were to operate at 30% PLF in a scenario in which some domestic gas is available and the rest is imported the total revenue shortfall for the gas-based power plants in 2015-16 would be Rs 10165 crores. This shortfall is projected to be divided as follows: Rs 4531 crore in subsidies borne by the central government Rs 3162 crore tax revenue loss due to tax concessions (VAT/CST/ Customs) and Rs 2472 crore revenue losses to be borne by other sectors taking cuts in regasification charges pipeline tariffs and marketing margins. However if no domestic gas is available and 100 percent of the gas is imported the revenue shortfall would be some 50 percent higher at Rs 15270 crores. 

With higher capacity utilizations and in a scenario where domestic gas is available the revenue shortfalls are higher at Rs 15255 crores and Rs 22423 crores at 40% and 50% PLF in 2015-16.  These revenue shortfalls would also be apportioned as subsidies tax concessions and revenue cuts as per policy guidelines.

Turning to the overall growth impact of the policy the increased power generated as a result of the policy will have positive growth multiplier effects due to its forward and backward linkages. NCAER’s input-output and computable general equilibrium models were used to compute these multiplier effects to assess the change in the economy’s GDP employment and fiscal parameters.  Much would depend on the PLF achieved by the new capacity.

The NCAER Study finds that the gas price pooling policy would lead to an increase in GDP of 0.50% (or Rs 69431 crores) with a PLF of 30% 0.70% (or Rs 96107) with a PLF of 40% and 0.88% (or Rs 122783 crores) with a PLF of 50%.  The increase in employment in 2015-16 is 0.31% or 13 lakh new jobs with a 30% PLF 0.43% or 18 lakh new jobs with a 40% PLF and 0.61% or 23 lakh new jobs with a 50% PLF. The details for all other years are in the NCAER Report.

The NCAER Study finally calculates the net impact of the proposed Gas Price Pooling policy by taking into account its benefits from higher GDP and its costs which include fiscal costs and costs to other sectors. For instance in 2015-16 in the scenario that some domestic gas is available the net benefits are projected at 0.43% of GDP or Rs 59266 crores with 30% PLF  0.59 % of GDP or Rs 80852 crore with 40% PLF and 0.74% of GDP or Rs 102438 crores with 50% PLF.

Dr Indira Iyer Senior Fellow and team leader of this study at NCAER noted that:

“Globally there is a strong correlation between economic growth and energy consumption and India is no exception. This NCAER Study builds on larger and more detailed studies at NCAER examining the energy sector in India and the policies that impact energy production. We have examined the potential benefits and fiscal costs of the gas price pooling policy under various scenarios. Simulations suggest that this policy will yield positive net benefits as long as policymakers build suitable safeguards into this policy to not pick up and pay for the inefficiencies of the public and private sectors over a long time period or to bail out companies for a period more than strictly necessary. How the policy envisages ending the subsidy on gas for power production is as important as how it responds to the logic of starting the subsidy.”

Read the complete report here.

The Ordinance issued for the amendment to Right to Fair Compensation and Transparency in Land Acquisition Rehabilitation and Resettlement Act 2013 has raised more controversy.

The debate has unfortunately not been looked at from a proper perspective.

The issues are as follows: over the last 67 years since Independence the nature of our economy has undergone a major demographic and sectoral change. The population has grown from around 300 million to 1.2 billion.

The GDP ratio between agriculture industry and services has undergone a major change. At independence the contribution of agriculture and allied activities to India’s GDP was around 60% while those of industry and services were 20% each.

Now the agriculture sector’s share has shrunk to barely 25% and that of the service sector has gone up to over 50%.

At the same time the rural-urban ratio which was 85%-15% around Independence is still 70% plus rural and nearly 30% urban. This aberration calls for a major rethink on our economic policy.

The erstwhile Planning Commission never had a spatial policy and if there was one it was to keep the rural population in rural areas as far as possible with planning for non-farm employment with doles like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) scheme.

No guided policy 

The Planning panel never thought in terms of a guided policy of urbanisation and urban-based industrialisation till the concept of Industrial Corridors/Special Economic Zones (SEZs) came up in the last few years.

In fact our policy sounded more like the Chinese policy which officially bans urban migration from rural areas in spite of massive industrialisation in urban areas leading to migrants in urban industrial areas as second-class citizens like our slum dwellers.

India saw voluntary migration into urban areas which did not plan for its growth leading to mushrooming of urban slums by illegal encroachment of public lands with slum population reaching 50% in many metro cities.

The response of the urban planners is to mitigate it by various slum improvement schemes and by the politicians to legitimise illegal settlements for votes.

This dismal state of affairs has gone on for too long. What India needs is to have a policy towards urbanisation and industrialisation. There should be a target fixed for urbanisation based on the data of present uneconomic agricultural holdings and further break-up due to the growth in rural population.

As the division of a family agricultural land leads to unviable holdings for a family to wreak a living out of it forced migration to cities by young adults looking for jobs takes place leading to growth of slums with its known consequences.

The Modi Government’s ‘Make in India’ policy of encouraging industrialisation is coming a day not too soon. Massive urbanisation is a necessity for India; not just to avoid rural unrest but also to get out of prejudices of caste and religion so entrenched in conservative rural India.

‘Make in India’ should be twined with an urbanisation policy to facilitate the process of transfer of young rural population smooth with as little pain as possible. This will also help in making agricultural holdings more viable. Side by side the MGNREGA should be tapered off.

Archaic Act 

Coming back to the Land Acquisition Act 1894 was made in British times and it continued to 2013 with some amendments. However land acquisition was for a public purpose which remained largely undefined. It was under this Act that the DDA acquired village after village for a purpose as amorphous as ‘large scale acquisition of land for development of Delhi’ without going into anything specific.

As a result the DDA became a land broker within the government and after development and conversion; it auctioned commercial and residential plots with windfall profits. Compensation was insignificant and the villagers were evicted from their land.

Although the present Act allows acquisition for private companies and for PPP projects it proposes consent of land-owners up to 80% for private companies and 70% for PPP projects.

The new ordinance has however done away with clauses like the consent as mentioned above but it has not tampered rehabilitation. Land acquisition excesses are well known and governments both in the Centre and states including public sector undertakings already have huge tracts of land which are either not utilised or remain underutilized.

Most of the unauthorised occupied land belongs to the government and public sector undertakings.

Realistic target 

There is an urgent need for a comprehensive urban-rural policy which should put a realistic target of urbanisation likely to take place in view of the fast fragmentation of agricultural land which making plots unviable.

A pan-India study basis through satellite imageries the lands available for urbanisation is needed. It should then make a road map for future urbanisation keeping in mind that urbanisation should not take away quality agricultural land.

While the Delhi–Mumbai Industrial Corridor type concepts are excellent minimum agricultural land should be acquired. We now have to plan for an urban population of at least 60-70%% in the next decade. This will relieve rural areas of the burden of over-population and under-employment uneconomic holdings and poverty.

What form the urbanisation should take place needs to be debated and decided and our industrial policy has to be based on it. If we do not do it massive urbanisation will continue to take place. In most developed countries the agricultural population is between 5-10%. Therefore we are sitting on a bomb and if we do not go in for spatial planning we will face massive rural unrest and slum growth in urban areas.

The erstwhile Planning Commission had hardly any policy in terms of spatial planning and mass migration. This was a major policy deficit on its part. The new incarnation NITI Ayog it is hoped will look into this important aspect and provide for a direction for a planned and incentivised migration from rural to attractive urban destinations taking into account the minimum land acquisition and use of redeveloped waste or saline lands which will not impact much on agriculture.

Dr. Sanat Kaul is a former Secretary (Lands) Govt of NCT of Delhi and Prof D.B. Gupta is at National Council of Applied Economic Research (NCAER

With no financial capacity to save and invest a dismal record of use of bank accounts and the severe lack of trust in the current model of using business correspondents it is extremely difficult to envisage how opening of bank accounts will slowly help inculcate the habit of saving among the poor. The government needs to rethink the measures to make financial services more inclusive and ask whether just opening bank accounts is the means to achieve it.