Prime Minister Manmohan Singh’s recent comment on the need to rationalize energy prices in the country is understandable. With import dependence on oil as high as 80%, the burden on the exchequer is significant and constrains the government’s ability to spend on social welfare measures. This is besides the damage inflicted on the energy market as mispricing energy turns away private capital and blunts competitive forces.
There is no denying that it is a significant challenge to raise prices of mass consumption products such as diesel, kerosene and cooking gas for a coalition government. And, the Prime Minister’s stated approach to deal with the situation is optimal—that of increasing prices in a phased manner.
However, a long-lens view of UPA I and II’s performance thus far is a lesson in missed opportunities—prices have hardly been raised in a phased manner.
And now this option looks even more difficult. General elections are a year and half away, with several state assembly elections due in the interregnum. These are events that “pause” price revisions, lest it adversely affect voter sentiment.
Hence, the Prime Minister’s call for “Centre and state governments to work together and create awareness in the public on the need for curbing energy subsidies” lacks conviction.
That said, there are several hard reform measures in the energy domain that can be initiated, and won’t lead to “adverse” reactions in the mind of the electorate.
For a start, the government should consider opening up the coal-mining sector and allow free mining of the commodity, especially since Coal India Ltd is unable to keep up with domestic demand. Since mines take a minimum of two years to develop, market-priced coal will hit the market with enough time to take away the political sting. If required, for political expediency, the price of this coal can be moderated by pooling it with supplies from Coal India, which sells at controlled prices.
This model has been adopted in the solar energy sector with much success. Here, under the first phase of the National Solar Mission policy framework, power produced from NTPC Ltd has been pooled with expensive electricity produced from solar plants.
Clearly, this lesson can be replicated in the thermal power sector.
Are there “politically feasible” power reforms that the UPA can implement? Tell us at email@example.com