Not just in RBI, across sectors a reversal of reform

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SummaryFinance Minister P Chidambaram's attempts to talk up the rupee today after it slid to a record low.

Finance Minister P Chidambaram’s attempts to talk up the rupee today after it slid to a record low that forced the benchmark stock market indices down by about 4 per cent may not be enough to assuage investors’ fears.

For, their confidence has been undermined as much by the Reserve Bank of India’s panic late on Wednesday to clamp down on how much Indian nationals and domestic companies can invest abroad as by the long list of administrative clampdown and policy inaction across sectors in this government.

A recent Crisil Research report shows that in January 2008, investment-linked sectors such as materials, industrials, energy, utilities and telecom dominated the CNX Nifty with a weightage of 66 per cent. As these sectors wobbled, that cumulative weightage dipped to 31 per cent by July 2013.

Comparable to the impact of the RBI step is that of pooling of coal price. Instead of letting markets set prices of domestic and imported coal, the Ministry of Coal has tried to develop a pan-national price-pooling mechanism which has been panned by the markets.

Public sector Coal India, mandated to do the import and selling of coal to power plants, has lost a market cap of Rs 56,878 crore (since January 1, 2013) while the largest buyer, another public sector NTPC Ltd, too, has lost Rs 10,224 crore in the same period.

Thare’s a parallel to this in the power sector. The latest set of standard bidding documents for award of new generation power projects under the Case II route (where land and fuel source are prespecified) stipulates the appointment of an independent engineer by state electricity boards (or the utility buying power from the project).

This is tantamount to creating an independent authority not envisaged under the Electricity Act, 2003. Private project developers and lenders have termed the plan intrusive and unworkable. But the proposed norms, floated by the Power Ministry in consultation with the Planning Commission, have found their way into the final version of the bidding documents.

Result: the entire process of unbundling of state electricity boards initiated in the early part of the last decade is now coming unstuck.

Companies can still set up a power plant and run it but will have to hand it back to the distribution utility that had invited bids for the project after a period. So distribution companies will become power producers in another two decades — a throwback

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