Articles of interest - June 21 2012

Here are some interesting reads:

Plight of India's airline business : Bangalore Aviation

Coal's tough road ahead:  Bloomberg

Promise of renewables : Bloomberg

Aadhar's LPG subsidy pilot

    Followup to the previous post.. A new pilot program is being tested by Aadhar and the state oil companies in providing subsidies to LPG cylinders. This is how the program works:

Under the direct transfer system, the gas agencies will obtain UID numbers or Aadhaar of the consumers (of the entire family members and an authorised person) and their bank account numbers. The bank account will be made Aadhaar-enabled.

At the time of delivery of the refill cylinder at the consumer’s door steps, biometric details of any one of family members or the authorized person are verified using hand-held “point of sale device”. Only if the bio-metric details of the person are matched with the consumer data already stored in the device, a bill gets generated and the refill cylinder is delivered. Consumers will be charged the market rate for the refill – which is presently around Rs 800 per cylinder.

The successful operation of matching the biometric details and generating bill, triggers an automatic process of transfer of subsidy amount (approximately Rs 400 per refill) from the bank account of the oil company to the bank account of the consumer, officials said.

    The apparent intent of this pilot is to reduce leakages in administration of these subsides. It may take time to know if the program is successful. However, if it does yield positive results there could also be an interesting side benefit. At the moment, government agencies and oil companies struggle to explain the rationale for increasing petrol , Diesel and LPG cylinders prices when the costs of oil commodities increase.

    By making consumers pay the market price upfront and then claim the subsidy, actual market price of the LPG cylinder is made clear to the user. Taking it a step further, the upfront price should be varied in tune with the prices of crude oil and natural gas. For example, if the market price declines to Rs.750 for a cylinder, charge the customer Rs.750 upfront and when prices go up to Rs.850 charge the customer Rs.850. The values of subsidies in each case can be adjusted to make it palatable to both sides.
   
    At the moment you see oil companies launching media campaigns to explain why they are forced to raise prices. Instead a transparent payment system like this could be an effective way to illustrate to consumers the overall cost of subsidies. And hopefully, help make a better case to reduce some of them. With a bit of political will, the same mechanism could be introduced for fertilizer prices too.

Articles of interest - June 15 2012

Here are some interesting reads:

Chronic Malnutrition - India's eternal disgrace : Bloomberg

The doomsday scenario: Project Syndicate

Marshall plan for Germany in post World war-2 : Free exchange - The Economist

Article of interest - 10 June 2012

Here are some interesting reads:

Real estate in Mumbai : The Economist

Failing food distribution in India: The New York Times

Paying a fair price

    It wasn't too long ago that The Economist was projecting India's growth rate to overtake China's. In less than 2 years all that has given way to overarching gloom. It could be argued that the pessimism is overdone. To be sure, there are some bright spots. Parts of infrastructure development are gathering momentum, finances at the state level are improving steadily and the recent decline in crude oil prices should help.
  
    The more worrisome part is the lack of broad support for reform:

Second, as the bureaucracy has degenerated, politics has fragmented. The two big parties, the ruling Congress and the opposition Bharatiya Janata Party (BJP), are losing support to regional ones. For all the talk of aspirations, voters do not seem to connect reform with progress. India’s liberalisers over the past two decades, including Mr Singh himself, have reformed by stealth. That now looks like a liability. No popular consensus exists in favour of change or tough decisions.

    For us the average middle class Indians, the idea of paying market prices for petrol, diesel and LPG is still a heresy. We are outraged when electricity prices go up even as most state distribution companies drown in mounting losses. Drivers take a dim view of having to pay tolls for usage of newly built roads.

    The recent governments deserve criticism for not adequately opening up the economy for investment and competition. A bigger failure has been their inability to convince middle classes to pay adequately for the public goods and services they consume. In the long run, that is a harder problem to solve than having to persuade people to tolerate Wal-Mart setting up shop in their neighborhood.

Articles of interest - 31 May 2012

Here are some interesting reads:

India's slowdown - The Economist

Impact of Iraq's rising oil output - The New York Times

Do not blame Greece - Economic Times

That 90's vibe

   Ever miss the days when Amitabh Bachchan was playing action hero in Lal Baadshah, Daewoo Cielo was one of the coolest cars on the road and Doordarshan was a widely watched television channel in India? Those days are back!

   No, Amitabh Bachchan is not starring in a sequel to "Lal Baadshah" and Daewoo has long ceased to be a car maker in India. It is the dismal GDP growth rate of 5.3% in 2012 Jan-Mar quarter that reminds me of the late 90's and the early 2000's.

                                         GDP - real growth rate 1999-2010

source: indexmundi

   Much like 1999 , we have had three years of unproductive, dysfunctional central governments. As bad as things are, there is scant hope of a quick shift in course by the government. Elected officials bemoan the vagaries of a squabbling coalition that constrain them from enacting reforms. A grand total of 36 months have been squandered by the UPA-2 with little progress to show. Which begs the question, what good would another 24 months of them in power do?