India has lived with many economic philosophies — “commanding-heights” socialism, import-substitution, licensing, de-licensing, reservation for small scale and public-private partnership for infra. Today, we see the state grappling with one of the most complicated, contentious and emotionally-charged issues: the pricing and allocation of natural resources.
The issue is complex for several reasons:
One, the canvas is very wide. Natural resources cover coal, minerals, petroleum, gas, forests, land, water, spectrum and possibly even air.
Two, the administrative jungle is lush with overgrowth; each area has layers of Acts, rules, regulations, policies, guidelines and change notifications.
Three, issues between the Centre and states are constitutionally sticky — for example, river-water sharing and royalty on mineral extraction.
Four, choices between competitive market structures and administered allocation and pricing are contentious.
Five, taking a clear position on “growth” versus “sustainability” is not easy.
Six, issues relating to national economic security complicate matters — for example, high dependence on oil imports vis-à-vis more intensive mining of resources like coal and gas at the cost of forests.
Seven, from a public policy point of view, objectives are often fuzzy — for example, revenue maximisation versus penetration (spectrum debate), or value-addition versus export-earning maximisation (iron-ore exports).
Eight, pricing an item for its use as a “factor of production” (as in land for a factory) or “stock-in-trade” (as in land for a commercial or residential real estate project) can be difficult to defend.
Nine, determining the real opportunity cost of harnessing resources and collecting it from the user – negative externalities – is complex. This principle is often used in the allocation and pricing of forest land or in displacements as a result of large hydroelectric projects.
It is against the backdrop of these nine value-laden choices that a series of discomfitures, and a bevy of scams have occurred, all relating to natural resources — spectrum, coal, iron ore, and forest or tribal land.
The government, thus, has had no choice but to swing into action. In January, 2011, the government set up a high-powered Committee on “Allocation of Natural Resources” (coal, minerals, petroleum, natural gas, spectrum, forests, land and water) under the chairmanship of former Finance Secretary Ashok Chawla, now chairman of Competition Commission of India, assisted by Govind Mohan, a serving IAS officer, as the member secretary. The committee submitted its recommendations in May, 2011.
A year later, on May 25, 2012, the prime minister met key ministers and officials and asked them to swiftly implement the Ashok Chawla Committee’s recommendations. “It was decided that all the 69 agreed recommendations would be pursued for implementation by individual ministries in a timely manner. Detailed timelines will be finalized,” said an official release from the Prime Minister’s Office.
But what exactly did the committee recommend?
In his foreword to the report, Chawla clearly reduced expectations by pointing out that “…in the limited time of 100 days allotted to us… we could at best paint with broad strokes of the brush… the details… would have to come by way of follow-on work.”
Thus, the committee articulates its fundamental position:
“In the Committee’s opinion, the test of transparency needs to be applied regardless of whether the allocation process is market-related or non-market. While market-related processes are likely to be inherently more transparent, there are a number of possible opacities in pre-qualification and bid evaluation that need to be removed to the maximum extent possible. Similarly, non-market processes can also be made more transparent by ensuring that the reasoning underlying these decisions is clearly spelt out and available in the public domain. For example, in pricing, the overall approach taken by the committee is to ensure transparency in all decisions that deviate from a market discovered price. Institutionally, it means that if a good or service is sought to be subsidized, then it is best to do it at one place, preferably at the consumer end, rather than at the input end, where it affects the pricing of natural resources. The instruments for such consumer subsidies are being progressively established, through regulatory institutions and direct transfer mechanisms.”
In the middle of all this, the honourable Supreme Court muddied the waters considerably by positing that all natural resources should be auctioned only.
A rattled government retaliated on May 9, 2012, with a Presidential Reference under Article 143 of the Constitution querying the Supreme Court on four broad counts:
i) Whether the only permissible method for disposal of all natural resources across all sectors and in all circumstances is by the conduct of auctions?
ii) Whether a broad proposition of law that only the route of auctions can be resorted to for disposal of natural resources does not run contrary to several judgments of the Supreme Court including those of larger Benches?
iii) Whether the enunciation of a broad principle, even though expressed as a matter of constitutional law, does not really amount to formulation of a policy and has the effect of unsettling policy decisions formulated and approaches taken by various successive governments over the years for valid considerations, including lack of public resources and the need to resort to innovative and different approaches for the development of various sectors of the economy?
iv) What is the permissible scope for interference by courts with policy making by the government including methods for disposal of natural resources?
On the Presidential reference, the court solicited the opinion of various parties including the chambers of commerce and industry. Predictably, the broad swath of recommendations was the following:
- Transparency should be the underlying principle.
- Not all decisions of pricing and allocation can be made through market processes.
- Clarity of process by which decisions are made is paramount.
- Stability of policy regimes is imperative.
- Understanding the variety of choices available in competitive auction and bid structures is crucial.
- Balance needs to be struck between revenue maximisation and public good.
- Independent regulatory authorities are the best institutional mechanisms.
- Monitoring post-award obligations and commitments is equally important.
On July 24, 2012, the government told the Supreme Court that it cannot restrict itself to the route of auction in allocating natural resources. It would depend on the objectives for which they are alienated. “Thus, it is entirely permissible for the government to choose different methods of allocation for different resources,” Attorney General G E Vahanvati told a five-judge Constitution Bench headed by Chief Justice S H Kapadia.
It is reliably understood that the Supreme Court is coming around to the government’s point of view.
After all this brouhaha, and much intellectual flotsam and jetsam down the Yamuna, what has seemingly been achieved is an all-around insistence on greater transparency. That, in the field of pricing and allocation of India’s natural resources is indeed a path-breaking revelation!
The author is the Chairman of Feedback Infrastructure. vinayak.chatterjee@feedbackinfra.com ;
Twitter: Infra_VinayakCh
