A day after it rolled back a fare hike for suburban trains, the government on Wednesday failed to take a decision on the contentious gas price hike. A decision on gas prices is critical since $8-10 billion of investments from explorers such as Reliance Industries (RIL) are riding on it.
The UPA government had kept its January 10 notification to raise the price from $4.2 to around $8 per million British thermal units, based on the Rangarajan formula, in abeyance to comply with the electoral code on conduct (at the current level of formula benchmark prices, the new price could be lower at around $7/mmBtu).
Wednesday’s Cabinet Committee on Economic Affairs (CCEA) decision to maintain status quo on gas price for another three months has cast doubts, for the first time, on the Narendra Modi government’s ability to take bold steps to reinvigorate the economy.
Sources said many BJP leaders have reservations in implementing the formula worked out by former chief of the Prime Minister’s Economic Advisory Council C Rangarajan, especially after deft use of this issue in the hustings by Aam Aadmi Party leader Arvind Kejriwal.
Power and fertiliser companies say they can’t afford expensive domestic gas, as the price of their end product is not market-linked. Many analysts, however, say this stance defies logic given that the country would have no option but to import even more expensive LNG if the gas pricing regime is not investor-friendly.
Over 40% of India’s gas will need to be met from imports in FY17. The LNG imports tied up by GAIL from the US would cost $11-12/mmBtu, much higher than the Henry hub price that Rangarajan has relied on.
While it chose not to decide on the gas price issue, the government, however, showed its reform impulses by announcing modest hikes of up to 4% in the minimum support prices (MSPs) of summer crops for the current marketing year starting September, even as the country stares at a drought with monsoon rains trailing the benchmark average by 38% so far.
The latest move is in stark contrast to the up to 53% hike in the MSPs of summer crops in just one year (2012-13), and an annual average of 14.8% in the five years through 2014-15, which was blamed for worsening the already sticky food inflation. Even the MSPs of crops such as bajra, maize, groundnut and soyabean (black) were retained at the