India Inc prods govt to seize policy paralysis, PM sets the agenda to revive growth story

Around mid-January, Prime Minister Manmohan Sing h met a battery of power sector industrialists and told them categorically, “Your problems are a national problem, they will be given priority.” India’s elite power club included some of the biggest names in business – Ratan Tata and Cyrus Mistry, Anil Agarwal, Anil Ambani, Gautam Adani, Sashi and Prashant Ruia, Torrent’s Sudhir Mehta, Sajjan Jindal, Navin Jindal, Sameer Gehlaut of Indiabulls, Ashok Hinduja, G.M. Rao, Madhusudan Rao and Andrew Brandler, CEO, China Light & Power. The common refrain from the industry pressure group was that generating and supplying power was becoming unviable and more difficult with the passing of each day.

Given the stagnation in coal output from the state-run monopoly Coal India Limited (CIL) and importing coal from Indonesia and Australia becoming costlier, the power sector is caught between a rock and a hard place. The industrialists grouched about a cascading effect from domestic shortages, expensive freight and tough banks unwilling to cough up more as companies were failing to meet contractual obligations. Under the cosh, the government drew fire on the maze of environmental clearances, land acquisition, and relief and rehabilitation measures. The PM assuaged their hurt by calling their problems a ‘national problem’, but he was unable to do very much thereafter.

One of the industrialists present at the meeting with the PM said, “The patient (power sector) is in the ICCU and there is only one place where he is headed – the morgue.” Another top industrialist added they had been assured that within the next 90 days some relief would be worked out. He now says, “We are still awaiting.” The slow pace of development across the infrastructure sector, though worrying, has failed to galvanise the PM over the last three years. Sustained pressure from the power industry and the possibility of darkness setting in across the country has not moved him and his team into taking any concerted action on the power front. Realising that fixing the power sector was crucial to India’s big manufacturing push, he has attempted to crack the riddle of infrastructure deficit wide open. Power and coal are vital for this big move, but a lot needs to be done to bridge the policy chasm that exists in these umbilically linked two sectors.

Around late February, another delegation of high-powered industrialists – notably Cyrus Mistry, Anil Ambani, Ashok Hinduja, Gautam Adani, Sameer Gehlaut and G.M. Rao – met Pulok Chatterji, Principal Secretary, PMO, to demand higher tariff for their power plants as they feared that coal imports by CIL would substantially raise their costs of production. In their earlier interaction, they had managed to convince the PMO to direct CIl to deliver at least 80 per cent of the committed supplies to ease fuel scarcity.

All this moved the PM into acting with alacrity. With top industrialists making the convergence of power, steel and coal the focal point of their interaction, the government was suddenly prodded into action. Chatterji became the point man for this exercise of alleviating the woes of these three sectors. Coal shortage was the centrifuge of this debate, for without coal there was no power, and without power there was gloom and doom looming large. In a nation deficient in capital, infrastructure, energy and power, coal has become not just the new lifeline but the new mantra.

When notes and suggestions were put together on the drawing board, the clarion call was given from deep within the PMO that infrastructure needed to be given a push to arrest the decline in economic growth and send out a message to global investors that India was still an investment destination. Though it took as many as five months to fine-tune the strategy, the finance ministry, significantly, was not involved in this new thought process at all. The PM and his principal secretary drew vital inputs from different sources. From the respected C. Rangarajan, Chairman, PM’s Economic Advisory Council, who has the PM’s ear on all matters economic, to the Planning Commission Deputy Chairman Montek Singh Ahluwalia, the tent poles of a new calibrated response to India’s infrastructure inadequacies were drawn up.

Five of the ministries involved in this mega push were lined up – G.K. Vasan for shipping, Sriprakash Jaiswal for coal, Sushil Kumar Shinde for power, C.P. Joshi for roads and surface transport, Ajit Singh for civil aviation and Mukul Roy for railways. When it was found that Roy of the Trinamool Congress was not showing any inclination or interest, he was dumped. He had no time for Delhi, so the Railway Board Chairman, Vinay Mittal, was brought on board. With the PM finding that the Railways was a serious laggard, Mittal was a key constituent of this new agenda. In fact, at the crucial review meeting chaired by the PM, Mittal made a longish presentation on improving efficiencies. Chatterji was made the coordinating authority of this A-team, his job not just to review but to ensure that the stiff targets were met.

Even as inputs came from Rangarajan and Ahluwalia, the PM spoke regularly with both US based academic and former IMF chief economist Raghuram Rajan and Nobel laureate Amartya Sen, drawing from their experiences, perspectives and ideation. The meetings with industrialists had in many ways spooked the PM and his team. After inaction over the last couple of years, he realised the gravity of the situation. The gravity accentuated with coal shortages and linkages to coal-fired power plants. Some of the immediate action was the hike in import of coal from 85 million to 110 million tons. Jaiswal was of the view that to bridge the shortfall, a mix of imported and Indian coal could be offered to power plants. A similar sense of urgency was only was show on the fuel supply agreement (FSA) between CIL and National Thermal Power Corporation. The FSA is yet to be sealed because of contentious new clauses, the government directed CIL in April to commit itself to supplying a minimum of 80 per cent of the fuel requirements of power producers, failing which it would attract penalty.

Ditto for Roads and Surface Transport Minister C.P. Joshi, who has been told categorically that he has to work his way around environmental and forest clearance issues, his target has been revised to rolling out 9,500km of new roads this year. The agenda has been set, the great infrastructure push is upon us, now the big question is: Do we have the appetite to implement? And implement rapidly, for time is of the essence. Or will the wheels continue to move slowly?


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