| News From CUTS - January, 2006 |
Use
competitive bidding mechanism to procure foodgrains for distribution
through PDS
to rationalise subsidies: CUTS International January 28, 2006, New Delhi, Press Release Procurement of food grains for distribution to the poor through Public Distribution System (PDS) should be separated from the price support to farmers through the minimum support price (MSP) and be done through competitive bidding for delivery at target locations to effect cost rationalisation. In its pre budget memorandum submitted to the Finance Minister, CUTS International, leading international NGO has said that since these food grains are to be distributed to the poor at affordable prices, competitive bidding will minimize the cost of procuring the food grains. "There are distortions and inefficiencies in the way food subsidies are delivered, leading to mounting subsidy bills, without commensurate benefits to target beneficiaries. Whereas the food subsidy bill has gone up by 10.5 times from Rs. 2450 crores in 1990-91 to Rs. 25,800 crores in 2003-04, only 25% of the grains actually reach the poor," Mr Pradeep Mehta, Secretary General, CUTS International said. The government should further take measures to separate the MSP-PDS operations, Mr Mehta suggested. Whereas some states have already taken the initiative, other states should also be encouraged to follow suit so as to provide support to small and marginal farmers and to create buffer stocks with the food grains so procured in order to maintain price stability. The procurement process should be decentralized. CUTS International has also suggested that in order to minimize leakage of food grains, cash transfers through Post Office network should be initiated to provide direct cash support to needy families to cover the subsidy differential. At present, the cost of transferring a rupee to the poor through the PDS is Rs.6.68 as administrative costs account for 85% of the total expenditure. This entails a huge gap between the purchase price and issue price and, consequently, an unintended larger subsidy bill. For further information, please contact: |
E-GOM should decide for inviting fresh bids for Airport Modernisation Project, says CUTS International January 23, 2006, New Delhi, Press Release “If tendering cannot be conducted in an objective manner, the government must call for new bids and start the entire airport modernisation process afresh”. This view emerged from the FunComp Forum, an e-discussion group moderated by CUTS International, a leading research and advocacy Forum. “The present process of tendering for the Mumbai and Delhi airport modernisation projects has been shrouded in doubt and opacity. In this case, each of the two bidders who passed the technical evaluation by AirPlan would win one project each. But there are concerns for healthy competition,” Mr Pradeep Mehta, Secretary General, CUTS said while releasing the outcome of the discussion on ‘AIRPORT MODERNISATION SAGA: WHAT NEXT?’ on the eve of the next meeting of Empowered Group of Ministers (EGoM) set up to decide the fate of the modernisation of the airports. Calling for time bound action plan to be put in place in crucial issues like this, Mr Mehta said that the government must ensure that any infrastructure project tendering process is completed within three months. A rebidding may actually bury the ghosts of subjective evaluation and also may open up the field to many more interested players. Participating in the debate, Ramanujam S R, Head, CRISIL, Infrastructure Advisory said that if the existing bids were not up to the mark, the process needed to be scrapped and another process launched which would be objective and attracts enough participation to ensure competition. So far, the reviews and course correction attempts have focused on merely transparency and bringing in objectivity in a subjective evaluation. The primary interest of competition is still not reflected in any of these reviews, Mr Ramanujam added. Prof Sabarinathan of IIM-Bangalore endorsed the view and suggested that the bids be re-opened because the airport modernisation projects was far too important to the users as well as to other stakeholders and could not be implemented under an atmosphere of doubt. “A project of this kind would be watched by the major players in infrastructure sector and if doubts prevail, then we would be signaling to the world that we work with players who use such methods”, added the Professor. Others participating in the debate included Prof V Ranganathan, IIM-Bangalore, Krishin Keshwani, and K B Kotak, Managing Partner, J M Baxi & Co. For further information, please contact: For posting a message on the FunComp forum: FunCompForum@yahoogroups.com |
Over haul prevailing tax structure to rationalise price on petroleum products: Says CUTS January 21, 2006, New Delhi, Press Release Submitting its pre budget memorandum to Mr P Chidambaram, Finance Minister in the capital today, Consumer Unity and Trust Society (CUTS) called for rationalization of taxes on petroleum products in the forthcoming budget in order to bring down inflation. “Concerns are expressed over inflation, and the impact of rise in petro product prices on prices of other commodities is also acknowledged. More than half of the retail selling price of petrol and one third of the selling price of diesel is made up of central and state duties. Thus, by high imposing taxes and duties on petro products, government is actually fuelling inflation,” Mr Pradeep Mehta, Secretary General, CUTS said. The current ad valorem duty structure on petro products should also be replaced with a specific one. This would remove the cascading effect of a rise in oil prices and contain inflationary pressures, the pre budget memorandum suggests. Pointing out the anomaly in calculating subsidy, the memorandum has stated that the method of calculating subsidies is based on import based parity pricing of petroleum products and not on the basis of unrecovered costs of the oil companies. The subsidy amount is therefore unduly inflated. The government should take immediate measures to directly support the needy rather than canalize subsidies through oil PSUs, which distorts the market process. A Petroleum and Natural Gas Regulatory Board should be established to foster competition and ensure transparency in the determination of petroleum products. CUTS has further demanded creation of a price stabilization fund to check the high volatility of crude prices. The fund may be sourced from the cess collected under the Oil Industry Development Act.
For
further information, please contact: |
Jet-Air Sahara merger: Appropriate remedies required to allay competition concerns January 20, 2006, New Delhi, Press Release “The acquisition of Air Sahara by Jet Airways would help Jet economise on the existing infrastructure constraints thereby providing more access to passengers to fly by air at potentially lower fares. However, given the emergence of Jet as a dominant enterprise in the aviation sector, appropriate measures need to be built in to pre-empt the potential abuse of dominance”, said Pradeep S Mehta, Secretary General, Consumer Unity and Trust Society (CUTS- International), a leading Pan–India Consumer Voice Forum. Mehta was reacting to the merger that was announced yesterday. With the resulting dominance of Jet in peak hour traffic, the merger may create a possibility where Jet hikes fare during peak hours to further cross subsidise those in non peak hours to out compete other airlines, especially the low cost airlines, Mehta added. The dominance would be more in prime markets such as Mumbai and Delhi that account for over 30 percent of the country’s air traffic revenue. The present state of our aviation infrastructure limits expansion of existing airlines and creates barrier for entry of new airlines, further strengthening Jet’s dominance. The DGCA, therefore, needs to factor these before granting Air Sahara’s domestic and international routes and parking slots to Jet, added Mehta. The combined turnover of Jet and Air Sahara is above Rs.7000 crore, in excess of the threshold provided in the Competition Act 2002. Hence, prima facie the merger should have been scrutinised by the CCI from competition angle. This further calls for speedy passage of the amendments to the Competition Act to ensure CCI is able to perform its task in a timely manner, opined Mehta. Even though other airlines have substantial capacity expansion plans, enough to bring to nought any attempts by Jet Airways to reduce the competitive heat, given the current infrastructure constraints, this is not feasible in the short-run. This calls for urgently improving the aviation infrastructure, to facilitate expansion of existing airlines and encourage entry of new airlines and allay any competition concerns, observed Mehta. For
further information, please contact: |
REGULATORY MECHANISM FOR KEY SECTORS MUST BE PUT IN PLACE AT THE EARLIEST: RANGARAJAN January 19, 2006, New Delhi, Press Release Calling for putting in place a full fledged regulatory mechanism to manage the economy, Mr C Rangarajan, Chairman, Economic Advisory Council to Prime Minister of India, said that for efficient functioning of market driven economy that is fast emerging in India, appropriate Competition Law and Regulatory Mechanism for key sectors has become extremely essential. “For the last four decades, ‘market’ has been a dirty word and the bureaucracy felt that there has to be someone to tell the market what it needs to do and how it should operate. But things are changing and there is a remarkable difference since the liberalisation move that started in 1990s. Competition Law and suitable regulatory mechanism have become imperative because in their absence, mergers and acquisitions can result in monopoly,” Mr Rangarajan said while addressing a Seminar on ‘Capacity Building on Competition Law’ organized by CUTS- Institute of Regulation Competition (CIRC) in the capital. There is considerable knowledge in other countries. We need to learn from their experiences and look at the structure of our future economy to evolve a mechanism that best suits our individual needs and makes us competitive in the global market, Mr Rangarajan said. It is an established fact that competition delivers efficient results. But if we compromise with competition, the economy suffers inefficient outcomes and ultimately the consumer suffers, Mr Rangarajan added. While inaugurating the CIRC website on the occasion, Mr Rangarajan said that lack of regulatory experience in the country needs to be filled in with suitable capacity building institutes. CIRC, as a pioneer institute in this field, would go a long way in filling this gap. Speaking on the occasion, Prof. Eleanor M Fox of New York University of Law and world renowned expert on the subject, said that India should have effective Competition Law in place as an important ingredient of reforms process, to avoid any abuse of dominance. This should be backed by suitable regulatory mechanism that provides the will and ability to protect competition and stand up to pressures including political and thus help the country in participating as a big player in the world market. Non intervention of government in competition is the most accepted norm across the globe so long as consumer interest is preserved, Ms Fox said. There are indications that even European Union is fast moving towards this concept. Price fixing and production limiting cartels are regarded as clear violations of law as competitors join hands to rule the market. This must be stopped. Talking about India, Ms Fox said that one observes that there are a lot of price fixing agreements that come into force because various companies come together toe segment the market. Choices must be made carefully to identify such cartels and take action against them. Earlier, in his welcome remarks, Mr Pradeep S Mehta, Secretary General, CUTS stressed on the importance of competition policy and mechanism being put in place so that the economy can derive efficiency gains of the ongoing reforms process. While the government has been setting up regulatory authorities, there is a clear recognition of lack of experience in competition and regulatory issues in India. CUTS has established CIRC primarily to bridge this gap and for enhancing knowledge and strengthening capacity in this critical area, Mr Mehta added. For further information, please contact:
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| January 12, 2006, New Delhi, Press Release The government is tinkering with issue price and quantity of foodgrains in order to reduce its food subsidy bill, rather than address the systemic distortions that exist in the operation of food subsidy policy, observed Pradeep S Mehta, Secretary General, CUTS International. Presently, the food subsidy policy uses the MSP-PDS operations to serve the ‘conflicting’ objectives of ensuring remunerative price to farmers and providing the foodgrains so procured, to the poor at affordable prices. By implication, this entails a huge gap between the purchase price and issue price, and consequently a larger subsidy bill! The need of the hour is to separate the procurement of foodgrains through MSP mechanism, from the PDS operations, observed Mehta. MSP operations should be undertaken to provide support to small and marginal farmers and the foodgrains so procured should be used to maintain buffer stock to ensure price stability. The Food Corporation of India (FCI) should act as the main coordinating agency, suggested Mehta. On the other hand, procurement of foodgrains for distribution to poor through PDS should be done through competitive bidding. Since these foodgrains are to be distributed to poor at affordable price, competitive bidding will minimise the cost of procuring of foodgrains. The management and coordination of this system should be done by a state level agency, and not the FCI. It is unfortunate that the allies of the UPA government are debating over the issue price and quantity off-take from ration shops rather than address this systemic distortion, opined Mehta. For further information, please contact: |
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