The good of a few

The decision by the Union Cabinet on June 27 to increase the price of natural gas has given rise to a major controversy. The government claims it is acting in the interests of the nation, but its critics argue that the decision to increase gas prices will spur inflation and help corporates not consumers.

That the government chose to double the administered price of natural gas was, in itself, hardly surprising. What was to an extent unexpected was how the Cabinet Committee on Economic Affairs (CCEA) literally split down the middle over this decision that would benefit the country’s largest public sector organisation, the Oil and Natural Gas Corporation, as well as the largest privately controlled corporate entity, Reliance Industries Limited (RIL).
That the government would place corporate interests before consumer interests was again not surprising, for that is the way the government has been functioning for quite some time now. What was amazing was the brazen manner in which the interests of two of the largest companies in India were sought to be equated with “national interests” despite allegations of crony capitalism that have been levelled time and again against the government.
This government has been justifying its policies of aligning domestic energy prices with international prices, be it petrol, diesel or coal, on the plea that high subsidies are placing an unbearable burden on the exchequer even if such policies have fuelled inflationary fires. In the case of gas prices, however, the government has opted for a diametrically opposite strategy and turned its own logic on its head. It has chosen to hike gas prices at a time when world gas prices have plummeted, laying itself open to charges of hypocrisy and, worse, that it has blatantly sought to favour a few at the expense of many.
In addition, Union finance minister P. Chidambaram has stated that higher subsidy may be given to gas-based electricity and fertilisers — the two principal consumers of gas. This is indeed curious for an individual who has so far been steadfastly arguing against higher subsidies. To turn an old and somewhat obscure saying upside down, what is sauce for the goose is, in this instance, not sauce for the gander.
The ground was prepared for this choreographed exercise when a committee led by macro-economist Chakravarthi Rangarajan, head of the Prime Minister’s Economic Advisory Council, presented a report that was highly contentious. The committee did not (deliberately?) seek the advice of international energy experts and used certain questionable benchmarks (including the price of liquefied natural gas in Japan, which is one of the most expensive in the world!) to argue for a higher administered price of domestically produced natural gas.
That’s not all. What is truly scandalous about this entire episode is that ministers in the Union government have exercised their political prerogative to ride roughshod over the recommendations of their own bureaucrats. This becomes evident if one peruses the leaked documents and file notes made by officials of the ministries of petroleum and natural gas, finance, power and fertilisers.
The June 27 meeting of the CCEA was, from all accounts, a rather heated one. Mr Chidambaram, deputy chairman of the Planning Commission Montek Singh Ahluwalia (a special invitee to the meeting and who is is given the rank of a full Cabinet minister), and minister for petroleum and natural gas Veerappa Moily were all reportedly in favour of a steep increase in the price of gas from $4.20 per mmBtu (million metric British thermal units) on the ground that the higher price would “incentivise” exploration efforts which, in turn, would result in gas output going up. At one stage, some of these ministers pitched for a $11 per standard unit price of gas against $8.40 per unit that was eventually agreed upon.
Ranged against this group of neo-liberal hawks were Sudini Jaipal Reddy, minister for science and technology (who had been replaced as petroleum minister by Mr Moily under controversial circumstances), minister of state for power Jyotiraditya Scindia, fertilisers minister Srikant Jena and, interestingly, rural development minister Jairam Ramesh. This so-called “socialist” group argued that a higher administered price of gas would not automatically lead to expeditious new discoveries of gas and higher output.
This group of ministers in the CCEA pointed out that a higher price of gas would push up the prices of gas-based electricity and fertilisers. The consequent higher expenditure on subsidies on fertilisers alone would be in the region of `10,000 crore per year, it was stated.
There were a number of other valid questions that were raised. Why had RIL not been penalised for not drilling the number of wells it was supposed to? Why was the company being treated with kid gloves when its actual production from the D-6 (Dhirubhai-6) block in the Krishna-Godavari offshore basin was less than one-fourth of what had been originally projected — 80 mmscmd (million metric standard cubic metres a day) against 15 mmscmd at present? Is the fall in gas production purely on account of geological complexities, as has been claimed? Why was the administered price of gas denominated in US dollars at a time when the rupee had crashed against the American greenback?
As expected, the neo-liberal group won hands down while Prime Minister Manmohan Singh is said to have maintained a stony silence through the proceedings of the CCEA. Mr Chidambaram later went to great length to claim that the Cabinet’s decision was in the interests of the country, including the public sector ONGC, and not tailored to benefit a particular private company — he did not mention RIL by name. Communist Party of India MP Gurudas Dasgupta fulminated and reiterated what he had been saying when he crossed swords with Mr Moily in the run-up to the government’s decision to hike gas prices, namely, that this was a “gigantic scam”. Even the Bharatiya Janata Party, which, like the Congress, favours “market friendly” policies, agreed with the Left on this specific issue. Not just the BJP, Tamil Nadu chief minister J. Jayalalithaa has also opposed the gas price hike.
The government’s decision is not only against the interests of consumers of power and fertilisers (that is, farmers). Since the new gas price will come into effect from All Fool’s Day 2014, the day after the old pricing agreement with RIL expires, it will effectively bind the new government that will come to power after the 16th general elections to the new price regime. There is another take-away from this episode. Should not ministers like Mr Moily be asked to explain why they over-rule their own bureaucrats while taking particular decisions? Finally, should not the Right to Information Act be made applicable to Cabinet proceedings?

The writer is an educator and commentator