Rangarajan for transparency in natural resources pricing

Last year, Rangarajan-led panel had mooted price of domestic natural gas as average of global hub prices and cost of imported LNG

The government must carry out reforms for a transparent mechanism to fix the prices of natural resources, said C Rangarajan, head of the prime minister’s economic advisory council, whose recommendations on natural gas pricing have been criticised.

“Pricing of natural resources has become an issue. Transparent mechanism for fixing prices must be followed which will be fair to producers and end-users,” he said while delivering the foundation day lecture of National Aluminium Company (Nalco) here.

In its recommendation last year, a panel headed by Rangarajan had suggested arriving at price of domestically produced natural gas by taking an average of global hub prices and cost of imported LNG instead of existing mechanism.

The new prices were supposed to be effective from August 14, when contracts with Reliance Industries for KG Basin gas block expires. As per current practices, natural gas rates in India is determined through market bids invited from potential users.

According to the Rangarjan pricing formula, the prices will be revised quarterly. In each quarter, the prices will be decided on the basis of 12-month trailing average without taking into account the rate of the preceding quarter (i.e. price for January to March 2014 will be calculated based on the average for 12 months ended September, 2013). Using the approved formula, gas price in January-March can rise nearly twice from current rate of $4.20 per mmBtu.

The suggestion made by Rangarajan committee came under severe attack from industry users and opposition political parties. A Parliament panel headed by Bharatiya Janata Party (BJP) leader Yashwant Sinha had called for review of the committee’s suggestions, alleging that the new proposal on pricing would only benefit the producers. Similarly, some Union ministers had also expressed their dissatisfaction over the pricing method.

While discussing areas of reform, the former Rajya Sabha member said, the government need to look at research in agriculture to drive growth.

“Among the sectors that have remained untouched by reforms, the most important field is agriculture. Even as much remains to be done to improve the productivity of agriculture through scientific research and improved dissemination of knowledge, there are areas like marketing where reforms are badly needed,” he said.

But in the current fiscal, farm income would be a key driver of the economy, which is expected to grow at 5 per cent, he observed.

“Monsoon has been extremely favourable and the result can be a growth close to 5 per cent in agricultural GDP,” he said.

Stressing that farm and power sector could lead to high growth rates, the former Governor of Andhra Pradesh suggested that government need to take faster decision regarding more capacity creation.

“The government is the largest player in production, transmission and distribution of power and high order of government intervention in capacity creation and other supportive components of the electricity business is crucial to sustaining a high growth rate of 8 per cent,” he said.