Deficit of ideas

The govt has no clue on managing deficit.

The freefall in exports in the second quarter, the highest in the last six quarters, is a clear case of government running out of ideas to arrest the slide. The unprecedented 24.8% exports contraction in July and August alone leave the DGFT and export promotion councils with hard thinking to do on reducing the trade gap of $49.2 billion in the July-September quarter, which has widened the current account deficit. The government still has no clue on managing the growing demand for fuel. The ethanol blending directive last week is the reincarnation of an ill-advised plan to arrest fuel inflation without realising the practical difficulties of ensuring molasses supply and serving the requirements of chemical industries using ethanol as raw material. The move does not factor in different excise duties on ethanol in different states or the rampant profiteering ethanol manufacturers will indulge in if oil marketing companies are pressured to mandatorily blend ethanol with petrol. It will lead to shortfalls and greater dependence on ethanol imports and higher overheads for industries.

It is imperative to devise incentives for upstream and downstream companies to unlock India’s hydrocarbon potential and achieve self-sufficiency, through effective partnerships between the Centre, oil companies, private and inward investing companies, service companies and state governments. As with fuel, self-sufficiency in fertilisers eludes us where a substantial portion of subsidies is utilised in preserving the status quo of artificially low prices against inordinately high demand offset against largescale pilferage. Edible oil and urea prices have not kept pace with production and demand requirements with no proactive decision on reforms in urea procurement and pricing. Surging gold imports are not being addressed effectively via market intervention mechanisms like gold bonds and exchange traded funds.

Coal imports have grown at a CAGR of 15% since fiscal 2004, despite India having the fifth largest coal reserves in the world. According to Coal India data, 179 forestry proposals are awaiting clearances and if approvals are secured, it can more than double output to 1,132 MT, when mines start production from 2016-17. And, a majority of coal projects have been halted or delayed over land acquisition issues and strict rehabilitation rules. Besides, lack of proper road and rail infrastructure to address domestic supply challenges have spurred import dependency. Measured against these drivers, the government’s plans of expanding exports by 20 per cent in the current fiscal from last year's $303.7 billion, appears unrealisable.

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