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Subject: Economics

  • What are Private Captive Networks?

    The Cellular Operators’ Association of India (COAI) wrote a letter urging the government against allotting 5G spectrum to private captive networks, claiming that it will diminish their revenue to the point where offering 5G will pointless.

    What is a Private Captive 5G Network?

    • A private captive 5G network is basically a network set up by a private entity for the use of just one organisation.
    • It is similar to a captive coal mine in that the 5G service offered by this captive network will only be utilised by the enterprise concerned, and no one else.

    Why are telecom providers against it?

    • The COAI’s argument is that enterprises are the biggest users of 5G networks.
    • If private entities are allowed to offer captive networks to enterprises, the TSPs (telecom service providers) retail revenues will fall.
    • COAI implied that there is no great demand for 5G right now as “the needs of voice and data of the entire nation is being adequately met by the TSPs through their 4G networks today”.

     

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  • Oil palm

    Context

    Supply disruptions during the pandemic and the Russia-Ukraine war have led many nations to think about “self-sufficiency” in critical food items or at least reduce their “excessive dependence” on imports of essential food products.

    Challenges facing global trade

    • The World Trade Organisation’s (WTO) recently concluded12th Ministerial Conference in Geneva, struggled to find answers to some of the complex questions pertaining to global trade.
    • The Ministerial Conference is the top decision-making body of the agency whose basic goal is to ensure that trade flows as smoothly, predictably and freely.
    • Trading rules for dire situations: As far as agriculture, trade and food security are concerned, the challenge is to figure out the most appropriate trading rules in dire situations like pandemics, wars, social/political disruptions or natural disasters.
    • Export bans: Recent examples include Russia’s export ban on wheat and sunflower oil, Ukraine’s ban on exports of food staples, Indonesia’s ban on palm oil exports, Argentina’s ban on beef exports, Turkey, Kyrgyzstan and Kazakhstan’s ban on a variety of grain products, and India’s wheat export ban.
    • Sudden actions such as these exacerbate the pressure on global trade leading to a spike in the prices.

    India’s import dependence for edible oil

    • India imports 55 to 60 per cent of its edible oil requirements.
    • India’s edible oil import bill in 2021-22 (FY22) crossed $19 billion (for more than 14 MMT of imports) (see figure).
    • Palm oil comprises more than 50 per cent of India’s edible oil imports, followed by soybean and sunflower.
    • Atmanirbharta in edible oil: The “excessive dependence” on imports has raised the pitch for “atmanirbharta” in edible oil. 
    • The Prime Minister launched the National Edible Oil Mission-Oil Palm (NEOM-OP) in 2021.

    Self-reliance Vs Self-sufficiency

    • “Self-sufficiency” and “self-reliance” are two different concepts with very different policy implications.
    • What is self-sufficiency? Self-sufficiency would imply replacing all imports of a commodity (say edible oils in India’s case) at any cost (thus raising import duties exorbitantly).
    • What is self-reliance? Self-reliance would continue to embed the principle of “comparative advantage” in the endeavour to reduce dependence on imports.
    • Case of India’s agriculture: The country’s agri-exports in FY22 touched $ 50.3 billion against its agri-imports of $ 32.4 billion.
    • This means that Indian agriculture is largely globally competitive. 
    • But its biggest agri-import item, edible oil, accounts for 59 per cent of India’s agri-import basket.

    Way forward

    • 1] Develop oil palm: Given the way international prices of edible oils have surged in the last year or so (by more than 70 per cent), it may be time for India to ramp up its efforts in developing oil palm.
    • Why oil palm? The Prime Minister launched the National Edible Oil Mission-Oil Palm (NEOM-OP) in 2021.
    • Challenges in traditional oilseed: Achieving atmanirbharta in edible oils through traditional oilseeds such as mustard, groundnuts and soya would require an additional area of about 39 million hectares under oilseeds.
    • Danger to food security: Such a large tract of land will not be available without cutting down the area under key staples (cereals) – this could endanger the country’s food security even more.
    • So, a rational policy option to reduce import dependence in edible oils is to develop oil palm at home and ensure that it gives productivity comparable to that in Indonesia and Malaysia — about four tonnes of oil per hectare, which is more than 10 times mustard can give at existing yields.
    • India has identified 2.8 million hectares of area where oil palm can be grown suitably.
    • So far the objective of NEOM-OP is to bring in at least 1 million hectare under oil palm by 2025-26.
    • 2] Declare oil palm as a plantation crop: The other option is to declare oil palm as a plantation crop and allow the corporate players to own/lease land on a long-term basis to develop their own plantations and processing units.
    • This does not seem plausible in the current socio-political context.

    Challenges

    • Long gestation period: It takes four to six years to come to maturity; during this period, smallholders need to be fully supported.
    • The support (subsidy) could be the opportunity cost of their lands, say profits from paddy cultivation, which is largely the crop oil palm will replace in coastal and upland areas of Andhra, Telangana and Northeast India.
    • Pricing formula: Further, the pricing formula of fresh fruit bunches (FFB) for farmers has to be dovetailed with a likely long-run average landed price of crude palm oil with due flexibility in the import duty structure.
    • Appropriate import duty: One needs to identify trigger points when import duties need to be raised as global prices come down, and when to reduce these duties in case of rising global prices.
    • Oil recovery: Besides this, the processing industry needs to ensure an oil recovery of at least 18 to 20 per cent – that must be built into the pricing formula.

    Conclusion

    Overall, unless India thinks holistically and adopts a long-term vision, the chances of reducing India’s imports of edible oils from 14MMT in FY22 to 7MMT by FY27 look bleak.

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  • [pib] BIS develops an Standard for ‘Non-electric Cooling Cabinet made of Clay’

    Bureau of Indian Standards (BIS), the National Standards Body of India, has developed an Indian Standard, IS 17693: 2022 for ‘non-electric cooling cabinet made of clay’.

    IS 17693: 2022

    • BIS standard specifies the construction and performance requirements of a cooling cabinet made out of clay, which operates on the principle of evaporative cooling.
    • These cabinets may be used to store perishable foodstuff without the need of electricity.
    • This standard helps BIS in fulfilling 6 out of 17 UN Sustainable Development Goals (SDGs) like No poverty, Zero hunger, Gender equality, Affordable and clean energy, Industry, innovation, and infrastructure, and Responsible consumption and production.

    Why such move?

    • Named as ‘Mitticool refrigerator’, Mansukh Bhai Prajapati from Gujarat is the innovator behind the refrigerator which projects an eco-friendly technology.
    • It is a natural refrigerator made primarily from clay to store vegetables, fruits, milk, and also for cooling water.
    • It provides natural coolness to foodstuffs stored in it without requiring any electricity.
    • Fruits, vegetables, and milk can be stored reasonably fresh without deteriorating their quality.

    Back2Basics: Bureau of Indian Standards (BIS)

    • BIS is the National Standards Body of India working under the aegis of the Ministry of Consumer Affairs, Food & Public Distribution.
    • It is established by the Bureau of Indian Standards Act, 1986 which came into effect on 23 December 1986.
    • The organization was formerly the Indian Standards Institution (ISI), set up under the Resolution of the Department of Industries and Supplies in September 1946.
    • The ISI was registered under the Societies Registration Act, 1860.
    • A new Bureau of Indian standard (BIS) Act 2016 has been brought into force with effect from 12 October 2017.
    • The Act establishes the Bureau of Indian Standards (BIS) as the National Standards Body of India.

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  • India better placed to avoid Risks of Stagflation: RBI

    India’s economy is better placed than many other countries to avoid the risk of potential stagflation worldwide, said the Reserve Bank of India Deputy Governor.

    Why in news?

    • Stagflation remains a risk to the US economy, and there are similarities between the situation in the 1970s and today, a/c to World Bank.
    • Surging prices for oil and food are pushing up the cost of living, and business executives are voicing concerns about the outlook for the economy.

    What is Stagflation?

    • Stagflation is a stagnant growth and persistently high inflation. It, thus, describes a rather rare and curious condition of an economy.
    • Iain Macleod, a Conservative Party MP in the United Kingdom, is known to have coined the phrase during his speech on the UK economy in November 1965.

    What happens in Stagflation?

    • Typically, rising inflation happens when an economy is booming — people are earning lots of money, demanding lots of goods and services and as a result, prices keep going up.
    • When the demand is down and the economy is in the doldrums, by the reverse logic, prices tend to stagnate (or even fall).
    • But stagflation is a condition where an economy experiences the worst of both worlds — the growth rate is largely stagnant (along with rising unemployment) and inflation is not only high but persistently so.

    Possible reasons behind

    • Volatility due to war: Global economic conditions continued to deteriorate as commodity prices and financial market volatility have led to heightened uncertainty.
    • Monetary tightening: In advanced economies, the war against inflation would entail significant monetary tightening, complicating the growth-inflation outlook.
    • Global slowdown: Emerging market economies grapple with the global trade slowdown, capital outflows and imported inflation.

    Why is it so unpopular?

    • The combination of slow growth and inflation is unusual, because inflation typically rises and falls with the pace of growth.
    • The high inflation leaves less scope for policymakers to address growth shortfalls with lower interest rates and higher public spending.

    Back2Basics: Inflation and its impact

    • Depression: It is Economic depression is a sustained, long-term downturn in economic
    • Deflation: It is the general fall in the price level over a period of time.
    • Disinflation: It is the fall in the rate of inflation or a slower rate of inflation. Example: a fall in the inflation rate from 8% to 6%.
    • Reflation: It is the act of stimulating the economy by increasing the money supply or by reducing taxes, seeking to bring the economy back up to the long-term trend, following a dip in the business cycle. It is the opposite of disinflation.
    • Skewflation: It is the skewed rise in the price of some items while remaining item prices remain the same. E.g. Seasonal rise in the price of onions.
    • Stagflation: The situation of rising prices along with falling growth and employment, is called stagflation. Inflation is accompanied by an economic recession.

     

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  • The uneven toll of inflation

    Context

    This upsurge of inflation is affecting the poor more than any other social group because some of the commodities whose prices are increasing the most (like petrol and certain food items) represent a larger fraction of the budget of the most vulnerable sections of society.

    Factors fueling inflation in India

    • The Wholesale Price Index (WPI) and the Consumer Price Index (CPI) show an upward rising trend, annually, at 13.11 per cent and 6.07 per cent respectively.
    • Falling rupee: Inflation is here to stay because it has much to do with the decline in value of the rupee that has fallen to its lowest, which makes imports of oil and gas more expensive.
    • Ukraine crisis: The war in Ukraine has the same effect and pushes the price of some food items upward.

    Rising inequality

    • Impact on the poor: This upsurge of inflation is affecting the poor more because some of the commodities whose prices are increasing the most represent a larger fraction of the budget of the most vulnerable sections of society.
    • Rising inequality: As a result, inequalities — which were already on the rise — are increasing further.
    • Recently, the State of Inequality in India report showed that an Indian making Rs 3 lakh a year belonged to the top 10 per cent of the country’s wage earners. 
    •  Inequalities are also increasing among salaried people, who are privileged compared to those of the informal sector: The bottom 50 per cent account for only 22 per cent of the total salary income.
    • The situation of the lower-middle class and poor is deteriorating.
    • The Reserve Bank of India shows slow farm wage growth in nominal terms: From an average of 6.6 per cent in fiscal 2021 to 5.7 per cent in fiscal 2022 (April-November average). This is below the inflation rate.

    Inequality in healthcare

    • India’s spending on healthcare is among the lowest in the world.
    • A decent level of healthcare is available only to the ones who can afford it because of increasing out-of-pocket expenditure — the payment made directly by individuals for the health service, not covered under any financial protection scheme.
    •  Overall, these out-of-pocket expenses on healthcare are 60 per cent of the total expenditure on public health in India, which is one of the highest in the world.

    How policies are contributing to the increasing inequality?

    • High indirect taxes: The share of indirect taxes in the state’s fiscal resources has increased from 2014 to 2019 to reach 50 per cent of the total taxes in 2019.
    • Higher indirect taxes are the most unfair as it affects everyone, irrespective of their income.
    • Taxes on alcohol and petroleum products are cases in point.
    • In contrast, the big companies are flourishing, again, partly because of certain fiscal policies. 
    • Low corporate taxes: The government’s budget in 2015 substantially lowered the corporate tax.
    • Withdrawal of enhanced surcharge: In addition to these tax cuts, the government withdrew the enhanced surcharge on long- and short-term capital gains for foreign portfolio investors (FPIs) as well as domestic portfolio investors.
    • These government policies are clearly promoting the supply side at the expense of demand.
    • The central bank has raised interest rates and CRR in an attempt to curb demand, but demand in the country is already choking.

    Way forward

    • Higher allocation for MGNREGA: A higher allocation of funds for MGNREGS in rural areas, as well as the introduction of similar employment generation schemes in urban areas, should, therefore, be a priority.
    • Municipal bonds at state level: At the state level, the development of municipal bond markets could be a plausible alternative.
    • Reduction on excise duty on fuel: A reduction in the excise duty on fuel prices and easing the fuel tax burden could also supplement the disposable income and reduce the input cost burden for producers.

    Conclusion

    Though the government is opting for market-based economics, currently, India needs a mixed solution that comprises price stability via government channels and subsidies.

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    Back2Basics: Long and short-term capital gain

    • When you buy and sell assets, the profit that you earn is called a Capital Gain.
    • Long Term Capital Gains are those that you earn when you sell an asset after 36 months (3 years) from the date on which you acquired the asset.
    • Short Term Capital Gains are those that you earn when you sell an asset in under 36 months (3 years) from the date on which you acquired the asset.

  • Freebie model of Governance

    Context

    The newly elected Punjab government’s announcement of providing up to 300 units of free power to every household has raised questions: What constitutes “freebies”?

    Two categories for providing support

    • In India government provides two types of support.
    • 1] support to low-income households for augmenting their consumption of selected goods and services.
    • 2] Government also provides incentives to support selected categories of investors and producers.
    • Different objectives: The economic objectives in these two categories are quite different.
    • The first category would include the free or subsidised provision of foodgrains and services such as health and education.
    • Examples of the second group include the central government’s recent initiative for production-linked incentives to various sectors and tax concessions.
    • In the past, incentives in the form of reduction of corporate taxes have been offered to promote investment in general, or in certain regions such as backward areas.

    What commodities should be distributed free?

    • The key question is to decide what commodities should be distributed free or at a subsidised level and what the level of subsidy should be.
    • Essential goods: The provision of foodgrains at a heavily subsidised price to target groups has found general acceptance, particularly among political parties, even though there are some critics of the measure.
    • The distribution of commodities which are considered “essential”, primarily foodgrains, faces no criticism.
    • Merit goods: There is also a category of goods which are called “merit” goods where significant positive externalities are associated with their consumption — for instance, health and education-related provisions, including mid-day meals and breakfast.
    • In such cases, subsidisation is justified: If only market prices prevail, the community will consume less than what is socially desirable.

    What should be the suitable mode of providing support?

    • The question of a suitable model for providing budgetary support arises in the context of both consumption and production-supporting initiatives.
    • 1] In the first case, budgetary support to a targeted segment of the population for augmenting their consumption of essential items may be provided either through direct income support or by a free or highly subsidised provision. 
    • Procurement set up and distribution system: When the provision of subsidised goods is involved, there may, in general, be a requirement of a procurement set-up and a public distribution system.
    • Managing procurement and distribution by government agencies involves additional costs which tend to be higher than the corresponding supply through the market because of leakages and avoidable administrative costs.
    • 2] Production-related incentives: In the case of production-related incentives, alternative methods include direct budgetary support and indirect support through tax concessions.
    •  Both have a differential impact.
    • These schemes also require to be carefully designed to avoid their misuse and minimise their costs. The provision of free power to farmers was often misused.
    • In the case of tax concessions, there have not been any convincing studies as to whether the stated initial objectives were achieved in line with the large budgetary costs.
    • The magnitudes involved amounted to 1.9 per cent and 2.5 per cent of the GDP in 2018-19 and 2019-20 respectively.

    What should be a prudent fiscal limit for funding such programmes?

    • Let us consider the case of distribution of commodities that are meant to support consumption.
    • Limited budgetary resources: This question should be considered in light of our limited budgetary resources.
    • Stagnating revenue to GDP ratio: In India, the revenue to GDP ratio has been stagnating over a long period of time.
    • During 2010-11 to 2019-20, combined revenue receipts of central and state governments, relative to GDP, have languished in the narrow range of 18.4 per cent to 20.3 per cent.
    • In contrast, in many developed and emerging market economies, this ratio tends to be much higher.
    • In 2019, these ratios were 36 per cent and 30.1 per cent for the UK and USA.

    Suggestions

    • It is advisable to limit the distribution of commodities and services at highly subsidised levels to essential and merit goods.
    • Infrastructure expansion: Production may be incentivised more effectively by other methods such as infrastructure expansion.
    • Determining the total quantum of support: In respect of production-related incentives also, greater care is required for determining the total quantum of support as well as the specific forms of such support.
    • Limit of 10 %: It would be prudent to limit overall fiscal support for the distribution of commodities to less than 10 per cent of the total expenditure of the central government and state governments until their revenue GDP or GSDP ratios are successfully increased in a sustained way.

    Conclusion

    Governments that do not pay adequate attention to the strength of their fisc eventually become exposed to the cost of the choices that they make.

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    Back2Basics: Merit goods

    • Merit goods are the goods that are provided generally by the government to certain sections of the society.
    • Unlike in the case of pure public goods, the merit goods are not provided to the entire society; rather they are given to certain targeted people.
    • The government here believe that the deserving people may under-consume such goods and hence provides these to them at low cost or no cost.

    Positive externalities

    • A positive externality exists if the production and consumption of a good or service benefits a third party not directly involved in the market transaction.
    • For example, education directly benefits the individual and also provides benefits to society as a whole through the provision of more informed and productive citizens.

  • Cabinet approves mega 5G auction

    The Union Cabinet has approved the auction of airwaves capable of offering fifth generation, or 5G, telecom services, including ultra-high-speed Internet, and gave its nod for setting up of captive 5G networks by big tech firms.

    What is the news?

    • The auction of over 72 GHz of the spectrum will be held by July-end.
    • Auctions will be held at reserve prices recommended by the sector regulator, Telecom Regulatory Authority of India (TRAI).
    • TRAI had earlier recommended about a 39% reduction in the reserve or floor price for the sale of 5G spectrum for mobile services.

    What is 5G technology?

    • 5G or fifth generation is the latest upgrade in the long-term evolution (LTE) mobile broadband networks.
    • It mainly works in 3 bands, namely low, mid and high-frequency spectrum — all of which have their own uses as well as limitations.

    Three bands of 5G

    (1) Low band spectrum

    • It has shown great promise in terms of coverage and speed of internet and data exchange, the maximum speed is limited to 100 Mbps (Megabits per second).
    • This means that while telcos can use and install it for commercial cellphones users who may not have specific demands for very high-speed internet, the low band spectrum may not be optimal for the specialized needs of the industry.

    (2) Mid-band spectrum

    • It offers higher speeds compared to the low band but has limitations in terms of coverage area and penetration of signals.
    • Telcos and companies, which have taken the lead on 5G, have indicated that this band may be used by industries and specialized factory units for building captive networks that can be molded into the needs of that particular industry.

    (3) High-band spectrum

    • It offers the highest speed of all the three bands, but has extremely limited coverage and signal penetration strength.
    • Internet speeds in the high-band spectrum of 5G have been tested to be as high as 20 Gbps (gigabits per second), while, in most cases, the maximum internet data speed in 4G has been recorded at 1 Gbps.

    Where does India stand in the 5G technology race?

    • On par with the global players, India had, in 2018, planned to start 5G services as soon as possible, with an aim to capitalize on the better network speeds and strength that the technology promised.
    • Indian private telecom players have been urging the DoT to lay out a clear road map of spectrum allocation and 5G frequency bands so that they would be able to plan the rollout of their services accordingly.
    • One big hurdle, however, is the lack of flow of cash and adequate capital with some companies due to their AGR dues.

    Global progress on 5G

    • More than governments, global telecom companies have started building 5G networks and rolling it out to their customers on a trial basis.
    • In countries like the US, some companies have taken the lead when it comes to rolling out commercial 5G for their users.
    • A South Korean company, which had started researching on 5G technology way back in 2011, has, on the other hand, take the lead when it comes to building the hardware for 5G networks for several companies.

     

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  • First train under Bharat Gaurav Scheme inaugurated

    The ‘Bharat Gaurav’ train service from Coimbatore to Shirdi, a first of its kind in the country, was inaugurated at the Coimbatore North Railway Station.

    What are Bharat Gaurav trains?

    • Bharat Gaurav express trains are operated by private players, who have the right to use the rail infrastructure provided by the Indian Railways.

    About Bharat Gaurav Scheme

    • Under this Scheme, theme-based tourist circuit trains, on the lines of the Ramayana Express, can be run either by private or State-owned operators.
    • Till now, the Railways had passenger segments and goods segments.
    • Now, it will have a third segment for tourism under the Bharat Gaurav.
    • The scheme has been developed after extensive stakeholder discussions and a lot of State Governments, including Odisha, Rajasthan, Karnataka and Tamil Nadu, have shown interest.

    Key features

    • Service providers, who can be an individual, company, society, trust, joint venture or consortium will be free to decide themes/circuits.
    • They will offer an all-inclusive package to tourists including rail travel, hotel accommodation and sightseeing arrangement, visit to historical/heritage sites, tour guides etc.
    • They have full flexibility to decide the package cost.
    • The service providers will also be able to design/furnish the interior of the coaches based on the theme and put branding or advertising inside and outside of the train.

     

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  • International North–South Transport Corridor (INSTC)

    Iran started the first transfer of Russian goods to India via a new trade corridor which transits the West Asian nation, people on the Iranian side familiar with the developments told news outlets.

    The cargo will travel through the International North-South Transport Corridor (INSTC).

    What is the news?

    • The cargo ship departed St. Petersburg for the Caspian Sea port city of Astrakhan.
    • It will reach the northern Iranian port of Anzali and then will be transferred by road to the southern port of Bandar Abbas on the Persian Gulf.
    • From Bandar Abbas it will reach via ship to India at Jawaharlal Nehru Port Trust (JNPT).

    International North–South Transport Corridor (INSTC)

    • The INSTC is a 7,200 km-long multimodal transportation network encompassing sea, road, and rail routes to offer the shortest route of connectivity.
    • It was established on 12th September 2000 in St. Petersburg, by Iran, Russia and India for the purpose of promoting transportation cooperation among the Member States.
    • It links the Indian Ocean to the Caspian Sea via the Persian Gulf onwards into Russia and Northern Europe.
    • It will move freight between India, Iran, Afghanistan, Armenia, Azerbaijan, Russia, Central Asia and Europe.

    Significance of INSTC

    • Trade facilitation: INSTC is aimed at reducing the carriage cost between India and Russia by about 30 per cent and bringing down the transit time by more than half.
    • New corridor in making: It has the potential to transform the economies of countries along the corridor into specialized manufacturing, logistics, and transit hubs by facilitating access to newer markets.
    • Multimodal transit: The recent Suez Canal blockade, which cost the global economy hefty damage amounting to US$9 billion, has amplified the optimistic outlook towards the INSTC as a cheaper and faster alternative multimodal transit corridor.

    Benefits offered to India

    • Export promotion: The INSTC connects India with Central Asia, and Russia, and has the potential to expand up to the Baltic, Nordic, and Arctic regions, increasing the scope of trade multifold.
    • Ease of trade: For India, it provides a shorter trade route with Iran, Russia, and beyond to Europe, creating scope for increased economic engagement.
    • Alternative Route to Central Asia: It opens up a permanent alternative route for India to trade with Afghanistan and Central Asia, given the hurdles in the direct route through Pakistan.

     

     

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  • Coal Shortages in India

    Context

    The recent power crisis due to the coal shortage in India underscores the need for measures to avoid a repeat of episodes in the future.

    Factors contributing to power crisis

    • Spike in power demand: With the sudden early onset of summer in 2022, power demand spiked, riding on the back of the post-Covid economic recovery.
    • Increase in price due to Ukraine crisis: The matter was further exacerbated by the Ukraine conflict, which led to a sharp increase in the price of imported coal.
    • Consequently, power stations designed on imported coal stopped importing because it was no longer economical for them to generate, given their contract price with the distribution companies.
    • Availability of railway rakes: It’s not that domestic coal was not available since enough stock had been built in the mines.
    • The issue was of availability of railway rakes for transportation.

    What were the measures taken by the government ?

    • 1] Import of coal to 10 per cent: First, all generators have been asked to import coal to the extent of 10 per cent (as against 4 per cent earlier) and that half of this should be physically available by the end of June.
    • CIL as aggregator: Coal India will function as the aggregator on behalf of the generators.
    • CIL functioning as the aggregator is a better idea and it may be able to import at a cheaper cost by accumulating demand as well as standardising the coal grade to be procured.
    • Moreover, it would be easier for regulators to calculate the revised energy charge since the price at which coal was imported would be well-documented.
    • 2] Section 11 of the Electricity Act 2003 (Act) invoked: Under this section, the government directed imported coal-based plants to run at full capacity with the assurance that their enhanced cost of operation would be compensated.
    • 3] Tolling: The government invoked the concept of tolling, which allowed states to transfer their allotted coal to private generators located near the mines instead of transporting it to far away state generators.
    • This move would ease the burden on the availability of railway rakes.
    • 4] Seeking the consent of beneficiaries for hike: the government issued policy directions to the Central Electricity Regulatory Commission (CERC) overriding CERC’s regulations that made it mandatory to seek the consent of beneficiaries if the tariff went up by more than 30 per cent, if some alternate fuel is used.
    • 5]  Committee to rework the energy charge: A committee of officials was set up to rework the energy charge for imported coal-based generators.
    • 6] Additional working capital: The government is cognisant of the fact that there is a need for additional working capital and has advised REC/PFC as well as commercial banks to arrange for this.

    Issues with the measures

    • Use of Section 11: The government invoked Section 11 to give  direction to private generators to import coal at a higher cost.
    • Section 11(1) allows the government to give direction to a generation company to operate and maintain a generating station in extraordinary circumstances.
    • Section 11(2) of the Act mentions that the adverse financial impact on generating compacy due to directions referred to in sub-section (1) would be offset by the regulator.
    • Going by Section 11(2), the government should have left the job of working out the energy charge to the regulator instead of setting up a committee of officials to do so though, of course, the CERC was represented in the committee.
    • 2] No transparency: The committee has already worked out the revised energy costs for six of the plants but there is no transparency regarding the coal cost assumed, its calorific value, transportation cost, etc.
    • 3] Additional rakes: We have to bear in mind that the coal problem arose because of the non-availability of rakes.
    • With 38 MT of coal to be imported by October this year, and half of that by end of June, the need for rakes will not only go up but would be front-loaded.
    • We need the requisite number of rakes otherwise, we are back to where we began.

    Conclusion

    While the government is taking steps to increase coal imports and addressing the other issues, it must ensure that domestic production does not dip during monsoon season.

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