The courts have let the cat out in their admonition that pricing a natural asset needs explicit processes. Montek is quite right in saying that the current formulations and referrals to various committees don?t seem to follow a logical process. It wasn?t always so. Raja Chelliah, when he was a colleague of mine in the Planning Commission, wrote a paper showing that in the second half of the 1980s around two-thirds of Indian industry was deregulated. In almost all cases large industries in those days were growing fast (around 8-10% annually), rather than the stagnation we see now, as Martin Wolf has hinted as a friend of India. The strategy we followed, as in the Narasimhan Committee of which I was a member and for which I wrote on capital goods pricing, was to bring industry out of physical controls and into a regime that was market-based but used tariff policies, excise rates or dual pricing to offer the units a long-range marginal cost price so that efficient units would expand or build new capacities and the inefficient ones would shape up or close down. In hindsight, it was an effective transition strategy and worked, much to the chagrin of the Bretton Woods crowd that wanted big bang reforms, which led to a lost generation in Latin America. There was much churning around and many units adjusted or closed down, and the growth rate remained high.
But the argument now is slightly different. In those days we had to work on a ?desirable? price. This was the efficiency long-range marginal cost of additional output creation in an economy in transition. We did it in industry after industry. The process was open and transparent. I was surprised when economists in government, who make a fetish of criticising the 1980s, talk of that not being a rule-based system, and of cosy relationships between business and government. Most of the analysis and reports used for decisions then are published, unlike now, but the critics don?t have the patience to read them. Given the work done, the courts never questioned the findings. Interestingly, the doyens of policy and industry today cut their empirical work teeth in preparing reports for public scrutiny. And I am always tickled pink when I get a Google Alert on big name economists declaring in their CVs that they worked as consultants to the Alagh bureau of industrial costs and pricing, since India?s highest court has made the point of pricing a natural asset in an open and transparent manner, let?s take the case of coal, the pricing of which may open up another set of problems.
In a Teri seminar on water, energy and food security in a sustainable scenario, a senior advisor to the government outlined various approaches being suggested for coal pricing. He was legitimately critical of some naive ideas floating around, like border pricing and calorific value parities with alternative fuels, pointing out the volatility of fuel prices on a global plane, the fact that coal pricing involved important sustainability issues for we had lots of coal but most would cost heavily to take out and a lot of it was bad coal, for the world and our lungs. I suggested to him that decades ago, based on a model developed by a mining economist, sustainable efficiency cost models had been built up which took into account seam thickness, depth gradient, haulage and so on and also factors like gassiness. Such models were now more developed and it was not necessary to ignore the fact that while some coal will be available on the surface, at the margin we will go down, and environmental and real resource costs don?t have to be ignored. His answer was chillingly direct. Nobody is willing to do that much of work any more.
This laidback approach is surely unacceptable. Where markets don?t work well, the courts want the state to define its sovereign role in concrete rule-based terms. Inefficiency and cronyism are unacceptable. The health of society today and of its future generations is not negotiable. All of this can be put in rupee and paise terms. Expertise and hard work can be used and EGoMs are not the answer. When the organisation man Arun Maira was remodelling the Planning Commission, I told him that that august body has a lot of talent and resources available outside government, but it is true that a lot of expertise is needed to use experts. I am sure we will learn a lot when his report gets in the public domain.
The author is a former Union minister