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PM calls for phased increase in energy prices

Jayalalithaa walks out of the meeting, Modi takes on govt on credibility crisis

Santosh Tiwari  |  New Delhi 

The National Development Council Meeting (NDC) started on Thursday with Prime Minister Manmohan Singh urging the state governments to co-operate with the centre in critical areas to achieve 8 per cent growth in the followed by Tamil Nadu Chief Minister J Jayalalithaa’s walkout after alleged interruptions during her speech.

Coming down heavily on the Centre, Gujarat chief minister Narendra Modi said the central government should resist the temptation to tinker with the federal structure mandated by the Constitution. There is a need to exercise extreme vigilance and caution to ensure that all Constitutional authorities are allowed to carry out their mandated functions and observe the federal dharma at all times.

However, the Prime minister called for phased adjustments in the energy prices to bring them to the international level. He also pressed for early implementation of the Goods and Services Tax (GST) and urged the states to co-operate on these critical issues for achieving high GDP growth. Singh said that high growth was essential for inclusive growth. The Prime Minister also urged all the state chief ministers to address the issue of women’s safety in their respective states.

Here’s a quick recap of the Prime Minister’s speech

Areas of strength

As we begin our journey, it is worth noting that we do so with an economy that has shown many areas of strength.

We achieved an average of 7.9 per cent growth in the 11th Plan period, despite the fact that there were two global crises in this period. This growth has also been much more inclusive than in the past.

The percentage of the population below the official poverty line declined by about 2 percentage points per year after 2004-05, which is two and a half times faster than the rate of decline between 1993-94 and 2004-05.

This basic finding that poverty declined faster would hold even if the poverty line is revised.

Agriculture growth accelerated from 2.4 per cent in the 10th Plan to 3.3 per cent in the 11th Plan. Real wages in agriculture have grown at 6.8 per cent per year in recent years, compared with only 1.1 per cent per year in the period before 2004-05. Better agricultural performance is an important reason why poverty declined faster.

States that used to grow slowly in earlier periods have grown much faster. The average growth rate of the five poorest states exceeds the national average for the first time in any Plan. I think we may be reaching the stage when the term “BIMARU States” can be relegated to history.


The continuing crisis in the global economy has reduced growth everywhere. It is expected to be zero in the Eurozone and Japan and emerging market countries have also slowed down.

The global slowdown, combined with some domestic constraints, has meant that our growth has also slowed down.

The most immediate problems we need to tackle are the implementation problems affecting large projects, including especially power projects, which are stuck because of delays in getting clearances and fuel supply agreements. We have taken a number of steps to deal with this problem, including the establishment of a new Cabinet Committee on Investment under my Chairmanship.

I am confident these steps will have a positive effect, but their full impact will take time.

Growth  target

The overall for the Twelfth Plan is being set at 8 per cent. This is a reasonable modification but I must emphasise that achieving an average of 8 per cent growth, following less than 6 per cent in the first year, is still an ambitious target.

As the Plan document makes clear, the high growth scenario will definitely not materialise if we follow a “business as usual” policy. The Plan identifies a number of areas where new initiatives and policy innovations are needed. Many of these are areas where the principal responsibility is that of the States.

Inclusive growth

There are two reasons why rapid growth is necessary to achieve inclusiveness. First, it is necessary to generate the revenues to finance our many programmes of inclusiveness. If growth slows down, neither the States nor the Centre will have the resources needed to implement inclusiveness programmes. We will either be forced to cut these programmes, or be pushed into tolerating a higher fiscal deficit, which will have other negative consequences.

Safety of women

I have in mind the brutal attack on a young woman only a few days ago in the capital and other such reprehensible incidents. We must reflect on this problem, which occurs in all states and regions of the country, and which requires greater attention by both the Centre and the States.

In this particular case, the culprits have been apprehended, and the law will deal with them expeditiously. Government has decided to review the present laws and examine the levels of punishments in cases of aggravated sexual assault. A committee of eminent jurists, headed by the former Chief Justice of India, Justice J.S. Verma, has been constituted for this purpose. Let me state categorically that the issue of safety and security of women is of the highest concern to our Government. A Commission of Inquiry is being set up to look into precisely these issues in the Capital. There can be no meaningful development without the active participation of half the population and this participation simply cannot take place if their security and safety is not assured.  I urge all Chief Ministers to pay special attention to this critical area in their states.

Concern areas

A) Agriculture

Although the share of agriculture in GDP has fallen to only 15 per cent, about half of the population still relies on agriculture as its principal income source. What happens in agriculture is therefore critical for inclusiveness.

Agriculture is a state subject and most of the policy initiatives needed are in the realm of State Governments. Agriculture Minister Sharad Pawar will be dealing with these issues in some detail and I look forward to the reaction of Chief Ministers on this important subject.

B) Manufacturing

Growth in manufacturing should be at double digit levels, but this has yet to happen. The Plan mentions many new initiatives aimed at strengthening performance in the manufacturing sector. Small and medium industries are especially important as they generate more employment. Both the Centre and the States must give priority attention to creating an eco-system in which these industries can grow and flourish.

C) Infrastructure

Better infrastructure is the best guarantee for rapid growth of the economy. Infrastructure development is heavily capital intensive and both the Centre and the States are severely constrained by resource availability. The central government, and many state governments, have been successful in promoting infrastructure development through PPPs. India has the second largest number of PPP projects in infrastructure in the world. It will be necessary to continue this thrust in the

D) Resource constraints and GST

I have mentioned that both the Centre and the States face resource constraints. Both therefore have to make determined efforts to mobilise resources to fund the Plan. The Plan document points out that we need to increase the tax ratio as a percent of GDP through a combination of tax reforms and better tax administration. Early implementation of the Goods and Services Tax (GST) is critical in this context. I hope we will have the co-operation of the States to introduce the as quickly as possible.

E) Controlling subsidies

Some subsidies are a normal and indeed essential part of any socially just system, but subsidies should be well designed and effectively targeted and the total volume must be kept within limits of fiscal sustainability. Failure to control subsidies within these limits only means that other plan expenditures have to be cut or the fiscal deficit target exceeded. The Finance Minister will be addressing these issues in his intervention.

F) Aadhaar-based cash transfer

A common complaint against government programmes is that they suffer from leakages, corruption, delays and poor targeting. The Central Government is taking a major step to deal with this problem by shifting several beneficiary oriented schemes to a direct transfer mode, using the Aadhaar platform. This will begin to roll out for selected schemes in selected districts in the course of January 2013. In due course, a wide range of benefits like scholarships for students, pensions for the elderly, health benefits, MNREGA wages and many other benefits will migrate to direct transfer into bank accounts using Aadhaar as a bridge. This is an innovative step which will be watched by the entire global development community. The Central and State Governments must work together to make this a success.

Major challenges ahead us

I) Energy pricing

Unfortunately, energy is underpriced in our country. Our coal, petroleum products and natural gas are all priced well below international prices. This also means that electricity is effectively underpriced, especially for some consumers. Immediate adjustment of prices to close the gap is not feasible, I realise this, but some phased price adjustment is necessary. Energy experts are unanimous that we cannot expect to achieve rapid, inclusive and sustainable growth if we are not willing to undertake a phased adjustment in energy prices to bring them in line with world prices. The Central Government and the states must work together to create awareness in the public that we must limit the extent of energy subsidies.

II) Management of water resources

We are rapidly approaching the position where the total demand for water in the country simply cannot be met by available supply. As with energy, we have to respond by increasing water use efficiency and also by expanding supply in a sustainable manner.

The Plan document outlines a comprehensive strategy for dealing with this problem, starting with a serious effort to map available ground water supplies aquifer by aquifer. Available water also needs to be allocated to different uses through a Water Regulatory Authority. This is an area where action lies largely in the domain of State Governments.

Meanwhile, the Gujarat chief minister said that there is a credibility crisis in the country today and the confidence of people in governance has been shaken by several scams and scandals in recent times. The Comptroller and Auditor General of India, civil society organizations and the country's judicial system have all been drawn in some manner or the other in grappling with the issue of lack of probity in public life. Production of voluminous reports to reform governance is not sufficient. Transparency and fairness have to be clearly demonstrated to change the public perception.