The meeting of the Union Cabinet on Thursday was, in some ways, one of the more productive that it has had in recent years. Not all the decisions are to be welcomed - arguably the most important one was on gas pricing, in which the formula that the Rangarajan Committee set out for pricing domestic natural gas output was accepted, in spite of the fact that it has little economic logic and will amount to a windfall gain for gas producers, particularly Reliance and BP, at the cost of the final consumers of fertilisers and electricity, produced from gas-fired plants. The United Progressive Alliance (UPA) government continues to invite accusations of pandering to business interests that it can ill afford. Worse, there are hints of a complex price structure for gas when it is supplied as input to producers of fertilisers and power, which is likely to give rise to a new and even more complex subsidy regime.
On the other hand, the decision to accept a ministerial panel's recommendations on reform of the Central Bureau of Investigation (CBI) is sensible. The Cabinet decided that exclusive control by the government of the appointment of the CBI director will end, and henceforth the appointment would be made by a collegium consisting of the prime minister, the leader of the Opposition in the Lok Sabha and the Chief Justice of India. In addition, an oversight panel composed of three retired judges is to watch over the progress of investigations, and act as a check against excessive interference by the governing dispensation. In addition, in order to get highway building moving again, the Cabinet revised the minimum length of road-widening projects that require environmental approval upwards from 30 km to 100 km. And welfare spending is also being given an essential second look, with the plethora of centrally sponsored schemes being whittled down in number from 147 to 66. In an important reform, states have been given greater flexibility over how the money granted under the schemes will be spent.
These administrative tweaks by the government could be seen by optimists as forming part of a recent pattern of activity. On Saturday, the income tax department amended two circulars issued in March of this year that had led to further confusion about the guidelines ruling the taxation of transfer pricing, affecting, in particular, companies in the information technology and pharmaceutical industries. The government is embroiled in much painful tax litigation, and some debatable transfer-pricing tax demands over the past few years have led some investors to express doubts about India's seriousness about attracting investment. Reversing that trend was overdue. And, also on Saturday, the prime minister announced an ambitious new target for investment in building road, rail, ports, power and aviation infrastructure over the next six months: Rs 1.5 lakh crore, including in 51 new low-cost airports across the country.
UPA-II's years in office have seen many false starts, and observers are reluctant to credit this tired government with sufficient energy to turn any of those into real starts. However, it is safe to say that, at long last, some decisions are being made. Not all are the right ones - gas pricing in particular. Others, like the decision to empower a coal regulator, are important and yet do not go far enough; the coal regulator should have greater power over pricing of the resource than has been allowed. But overall, if the UPA can follow up on this recent spurt of energy, it might well be able to recover some of the mess it has made of its second term in office.
