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    Posted on 02 March 2012
    Lalit Thakkar

    We expect rational and simple policies

    Significant issues would involve action on the mining and land acquisition bills

    Lalit Thakkar
    Managing Director, Angel Broking

    Photo: Shailendra Pandey

    FOR SEVERAL of the policy issues that are currently affecting India, there are rational, simple solutions that can have an immediate positive impact and minimal negative fallout for any of the stake-holders.

    These reforms may come in the coming budget or outside of it, but in either case would provide a further boost to sentiments already buoyed by the softening monetary policy.

    In our view, one of the most important would be to see some action on the mining and land acquisition bills. Also, as far as spending is concerned, we believe the government acknowledges the high fiscal deficit and so may not indulge in any big-ticket spending. Taxes are also unlikely to be increased as structurally on that front the policy-makers have come to acknowledge that progressive taxation policies have eventually been beneficial for maximising revenues.

    Infrastructure spending: Pick-up in infrastructure ordering activity by government bodies in roads, ports, power transmission, etc. is one of the low-hanging fruit that would have only beneficiaries. Already, ordering activity by the National Highways Authority of India (and Power Grid is reasonably robust and it is a matter of time before other government bodies follow suit.

    Quickly pushing non-contentious foreign direct investment reforms: The balance of payments concerns can be addressed further by potential fdi reforms in aviation, education and insurance to begin with, which are not contentious like retail FDI.

    Resolving seb woes: The financial troubles of State Electricity Boards (SEBS) is another example of irrational policies that can and should be quickly set straight. Currently, reported losses standing tall at Rs 63,550 crore, thanks to inadequate/nil tariff hikes, power theft, and high AT&C losses.

    This unnecessary crisis is finally changing with much required tariff revisions recently 22 states have hiked tariffs and we continue to hold the view that SEBS are unlikely to become NPAs for banks or main culprits for low PLFs of power companies (in our view, fuel availability is the key issue for the power sector).

    Addressing the fuel crises: In our view this is one of the most serious issues that needs to be addressed sooner rather than later.

    The first is the mining logjam due to environment regulations.

    It does not make sense that a developing country like India with a demographic dividend to take advantage of is importing increasing quantities of even those resources that it has abundant reserves of such as coal.

    Even in case of steel we are a net importer, while on the other hand we have been exporting 50 per cent of our annual iron ore production (now mired in mining bans).

    In fact, despite being fifth largest in reserve size, India expensive coal imports continue to rise alarmingly on account of domestic shortage.

    Considering growth in user industries (power, cement, metals), Indian demand for coal is expected to grow from 625mn tonne in FY2011 to 886mn tonne in FY2015 as per Ministry of Coal.

    While production has been constrained, India coal imports are likely to surge from 89mn tonne in FY2011 to 175mn tonne in FY2015. Production from newer mines has been lower on account of time-consuming clearance processes (mainly environment clearance and forest clearance). Further, land acquisition issues have also been a big bottleneck.

    Hence, we are of the view that considering the small land requirement and deforestation implications for mining coal and iron ore as compared to the economic benefits, eventually in the near-to-medium term the government will have to balance environmental concerns and expedite the mining and land acquisition bills as well as the actual auctioning and regulatory clearance of coal and iron ore blocks in order to step up the sagging gross domestic product growth.

    The opinions expressed are the author’s own

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    Posted on 02 March 2012



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