Government Gains, Country Loses.

In the backdrop of the windfall gains from the Coal block auctions claimed by the Modi Government, and no less than Shri Narendra Modi himself, former Union Cabinet Minister, Kapil Sibal writes that the Government may gain a windfall from these auctions, but in the long run, it is the people of India who will pay the price.

Pointing out the basic nature of economic dynamics and market forces, he cautions that the auction of natural resources such as coal have to be done carefully. Businesses that pay huge sums of money to win these bids, will pass burden on to their consumer, which is eventually the “aam aadmi” who buys goods and services who’s prices are directly or indirectly influenced by the selling price of coal.

Sibal also points out, that the purpose of auctions should go beyond earning revenue for the government, and also try to energize and encourage the industry.

Here are some excerpts, followed by a link to the original article that appeared in The Indian Express.

“Natural resources must be so distributed, by way of auction or otherwise, that they serve a larger public purpose. The optimal use of natural resources can be made only if there is a well-thought-out policy framework for their exploitation towards a particular end use.”

“Experience has shown that the payment of high auction prices may serve the government well but seldom serves the public good. In the telecom sector, the government fetched almost Rs 1 lakh crore in the auction of 3G spectrum. But the sector did not have the capacity to invest in infrastructure to provide 3G services to the common citizen. The government earned, but the “aam aadmi” lost.”

“Most of the coal blocks have been won by industry that produces neither steel nor cement or power. The most successful bidders in the auction manufacture aluminium. The result is that the share of the steel sector, which was allocated 65 per cent of the coal blocks before the auction, has been reduced to 25 per cent after the auction. The aluminium industry, which had been allocated 2 per cent of the coal blocks, has increased its share to 45 per cent. The very purpose for which the ordinance was promulgated has been defeated. Manufacturers of aluminium have benefited. The steel, cement and power sectors have lost out.”

To read the complete article, please click here.

By | 2017-07-06T12:30:27+00:00 March 11th, 2015|Perspectives|0 Comments