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Tag Archives | Fuel

On Cash Transfers

Abhimanyu Sanghi

Introducing a sunset clause in all central government subsidies, and holding a large-scale two-year pilot program on direct cash transfers.

In the Financial Year 2012, the total central government subsidies accounted for INR 190,015 crore of government expenditure (approximately 2 percent of GDP). This is expenditure that is used for sustaining the country, and does not contribute to the development of the country. In addition, the amount borrowed for subsidies accrues interest, which is an additional amount that is taken away from the development of the country. Subsidies are not targeted, and therefore the middle class is a large unintended beneficiary of the subsidies. India’s current fiscal deficit at 5.9 percent does not allow us the leeway to continue with the high amount of non-targeted subsidies. Food and fuel subsidies account for 49 percent of total subsidies.

Therefore, my first proposal on subsidies is to introduce a sunset clause – a ten-year progressive decrease in subsidies to zero, that is, a reduction in subsidies of ten percentage points every year for the next ten years. This proposal is bound to face opposition. To offset this opposition and have a sustainable targeted safety net program in India, my second proposal is to hold a two-year large-scale pilot of direct cash transfers to the poor in multiple states.

Conditional cash transfers have been successful in poverty alleviation in countries in Latin America and Africa. What makes it challenging in India is the high population density and difficulty in tracking conditionality. On unconditional cash transfers, the sample data points are fewer in number and the available data is less convincing. However, both programs provide a more sustainable means of social welfare than untargeted subsidies.

Abhimanyu Sanghi is a Delhi-based investor and a classical liberal.

(The above piece was written by Abhimanyu in April 2012, as a student of The Takshashila Institution.)

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Foreign Policy Must Power Indian Growth.

Ameya Naik

Problem: Energy Crisis (Inability to find sufficient fuel resources, or to generate sufficient electricity to meet the demands of a high-growth trajectory.)

Why this is a Foreign Policy problem: India’s national interest has broadly been defined as following a high economic growth path, which implies sharp increases in agricultural productivity, industrial productivity & international trade. The first two rely sharply on availability of electricity at critical times. Even trade can at a minimum be said to benefit in an energy surplus environment – indeed, the trade of electricity is most lucrative – besides which it remains affected by currency exchange rates, inflation rates or forex levels, which again link to both productivity & fuel prices. International relations are thus a key component of ensuring we always have the energy supply to maintain the desired trajectory, ceteris paribus, as it were.

Substantive Solution: acquire supplies of fuel which, in combination with technologies available, reliably produce enough energy to meet the demands of the desired growth trajectory. By corollary, acquire technologies that enable us to meet such demands with the levels of fuel supplies we can afford. Given that the problem is hardly unique to India, the implementation of such a solution might generously be described as an intractable problem.

Impact on Foreign Policy: Our freedom to follow strident policies towards existing or potential suppliers of fuel resources or energy generation technology is curtailed. Witness our studied silence on Saudi Arabian action in Bahrain. Hydel power generation is an important component of our negotiations with upper riparian states such as Pakistan, Bangladesh & (especially) China. The proposed TAPI pipeline is an important component of our Af-Pak policy. Maintaining a balance between oil suppliers & nuclear suppliers is a particular challenge: this was India’s dilemna when USA insisted we comply with sanctions against Iran! At the same time, we become natural rivals to nations competing with us for the same fuel resources. Nowhere is the intricacy of the balancing act involved more evident than in our choice of arguments & allies on climate change.

Impact on global capacity: India is seen as a key player in global economic stabilisation & growth. This demands a stable energy supply in India, which in turn means certain concessions have to be made to us. Similar arguments apply with effect to China. Where Indian & Chinese claims come into competition – the recent OVL South China Sea adventure, or as regularly occurs in MENA – a diplomatic impasse is likely. Given relatively limited supplies as well as the linear relation between thermal power generation & carbon emissions, global concerns over energy security & climate change in the coming decade will probably rely on India & China as test cases. The inability to manage demand from the two largest consumers of energy can only lead to increasing global instability. In the simplest terms, if India continues to be energy starved for want of purchasing power, many other developing (or “global South”) nations have little hope of finding supplies.

Time Constraints: In questions of productivity, every day of underutilisation of capacity is deadweight loss. The one state in India that currently seems able to manage these demands is Gujarat; it is possible to see electoral returns in this. In other words, the current government would want to address this issue before the next general election, or risk conceding an important electoral  plank to the opposition. On the other hand, even if this is leveraged into a new mandate by the opposition, it would become a central parameter for assessing their accomplishments when in power. (Note that the current disputes on dispensation of coal in India is precisely along party lines between states.) In other words, the latest time window to solve this issue would be the general  election after next – 2019. Failure to do this would condemn India to a lower growth trajectory than what is currently postulated for the decade 2020-30, with a corresponding retarding effect on the global economy.

Impact on Global Standing: The question is a tautology: how does the global distribution of power affect the global distribution of power? The more stable, diversified & sustainable our energy situation, the greater our pre-eminence in global politics as well. The less we are beholden to any one nation or cartel for our energy needs, the greater our autonomy with respect to allowing other criteria to dictate our policy to them. Indeed, India’s greatest scope to distinguish itself from China is to become a high productivity/high growth energy surplus state, given that we are likely to remain net importers of fuel resources. This requires some adroit diplomacy as well as multiple power sector & policy reforms in the domestic arena, but if successful would position us with diplomatic capital enough to counter the sheer volume of the Chinese political-economic juggernaut. The opposite scenario could see us approach the precarious situation East European states face with respect to Russia – held hostage for daily heat or power over every annoyance their supplier state may face or imagine!

Ameya Naik is a student of International Law and Foreign Policy , living and learning in New Delhi.

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