Indian Economy: News and Discussion (Apr 1 2011)

[vina]

All natural resources belong to the people, or the state...Private companies helping in its exploitation can have part of the profits from its exploitation, but the primary beenficiary has to be society at large..


For oil/gas (and also for other minerals) that is the basic principle accepted globally - from Europe to Middle East to Australia (maybe not in Russia!)..

Please do enlighten me in which country /region you quoted, where it is for the society "at large".Europe, ME, Australia et al, the Oil & Gas price is set not by the market, but babu sitting in EU, ME, Australia? And btw, how is oil any different from any other natural resource such as coal, iron ore etc. which too must "belong to the society at large"?.

India's oil policy is structured similarly..the private company is allowed to make a certain ROI on his capital invested, and the balance is paid as "profit petroleum"

Not true. This "ROI" business is a uniquely India business like the "NOC" thing. What they would put in the contract is "profit petroleum" and the value of that would depend on market prices! Here in India, you want to control the price and do heavy handed "socialist"/"babu weaving hands like King Canute" kind of intervention, hence "ROI" so that you do some "ROI" spreadsheet hurdle rate to clear the invest/don't invest kind of elementary 101 PissNess karporate decision making.

Surely, when BP/Shell/Exxon, other guys make windfall profits out of the oil @ $120 per barrel and their shareholders benefit, you seem to suggest that their ROI during these times remained the same as ROI when oil was @18 per barrel , from a field that has been in production since atleast 1998 ! Why the commies and other socialist dingbats , both in India and other places went to town on imposing "windfall profits" on these guys.. Well, it seems that the "windfall profit" did get imposed on the E&P guys here in India by being made to share an enhanced subsidy burden.

Problem is, that kind of mai baap works,when the entire sector is fully owned by the govt. But when there are private guys involved, they will cheat and when the PSUs are listed, their shares will get hammered in the market (like recently) and then the management will whine on "clarity required on subsidy sharing mechanism.. ha. haa.." kind of Pakiness, becuase they know that the FPO and any future capital raising will be simply murdered.

.In short, more the production for a given level of investment, more share of govt in the revenue...Hence, operators try to "show" higher investments....Which is precisely what RIL tried to do on the garb of increasing production, especially when it was trying to cock a snook at Anil Ambani and its power plans...

Typical unworkable Babu make believe.. Why does investment business come in to the picture at all, unless it is ROI based rubbish. Just put in a percentage share of output and collect that based on market price!. Oh, no Jose. But how do you control prices to dole out "welfare" eh?

..Nothing "anti market" in the equation...

Indeed, it is. Those contracts are linked to global price benchmarks and subject to revision. Here the benchmarks in India are babu prices. Hence the takleef! Link the gas contracts to WTI/Brent /Dubai/Spot LNG/ whatever, that is taken care of.

the govt as a custodian of natural resources is trying to max its own returns..On natural resoruces, it is absolutely critical that we do not have pvt sector super normal profits for essentially an extinguishing resource - basic formula world over...

Harrummpppph .. Typical commie JNU ding dong kind of self righteous sloganeering with nuttiness like "Super Normal Profits" (and hence "Windfall Taxes" to follow).

But its much easier to simply take off with abuses without either data or knowledge of the markets or basic economics, isnt it? Its standard fare for certain people..

Well, you live in make believe world, someone has to shine the light I guess!

[somnath]

Please do enlighten me in which country /region you quoted, where it is for the society "at large".Europe, ME, Australia et al, the Oil & Gas price is set not by the market, but babu sitting in EU, ME, Australia? And btw, how is oil any different from any other natural resource such as coal, iron ore etc. which too must "belong to the society at large"?.

Vina-ji, you might want to enlighten yourself on the commodities market policy a little more before commenting...First, "price setting" of a commodity is a very different concept to royalties (or profit petroleum, or any other terminology for a "resource tax") imposed on extraction of minerals...And that is de rigeur EVERYWHERE in the civilised world..Where do you think the money for Norway's sovereign wealth fund comes from, just as a random example? And yes, the same concept applies to all minerals, which is why we have royalties for them - just that the policy for non-oil/gas is quite screwed up...

Profit petroleum is not "price setting" at all - what is defined is the following..Till X cubic metres of gas, GOI would get revenues of (say) 10% of the gas sold..Above that, for Y cu metres, 15%...Once the operator has fully recovered his stated investment, that proportion hits a high number like 60 or 70%..Its not a fixed USD amount, but % of production...

Not true. This "ROI" business is a uniquely India business like the "NOC" thing. What they would put in the contract is "profit petroleum" and the value of that would depend on market prices! Here in India, you want to control the price and do heavy handed "socialist"/"babu weaving hands like King Canute" kind of intervention, hence "ROI" so that you do some "ROI" spreadsheet hurdle rate to clear the invest/don't invest kind of elementary 101 PissNess karporate decision making

Again, ignorance hidden behind sarcasm...as explained above, the bolded section is exactly what the policy does! Second, there is no "price determination" by babus..In case you didnt read the earlier post, the price ws determined through an auction process when RIL declared the oil find..that is exactly how bulk of the gas globally is traded..Including as I said before, the India-Rasgas deal, where we are getting at 2006 prices even today...What RIL is trying to do is to wriggle out of some of the commitments there through the RNRL loophole, which was self-created...the govt is only trying to enforce the sanctity of the contrat entered into originally, which is absolutely the govt's job anywhere in the world..

The ROI thing too is pretty standard - its transparent and based on actual costs of development...Which is precisely what oil regulators all across the world do - assess investments (and these days, environment impact)...

Surely, when BP/Shell/Exxon, other guys make windfall profits out of the oil @ $120 per barrel and their shareholders benefit, you seem to suggest that their ROI during these times remained the same as ROI when oil was @18 per barrel , from a field that has been in production since atleast 1998 !

Not at all..Depends on the oilfield that they are exploiting, and the concession agreements...BP/Exxon etc have large legacy concessions in various places where the terms are much more benign for them (many of them entered into when price of oil was 10 dollars)...Terms of concenssion agreements have been tighted significantly in the last 10-15 years everywhere, including in India...

Typical unworkable Babu make believe.. Why does investment business come in to the picture at all, unless it is ROI based rubbish. Just put in a percentage share of output and collect that based on market price!.

some more ignorance regurgitated as sarcasm..the govt isnt setting the price, it is only trying to enforce the contract of a price arrived at through an open market auction process...And the govt does nothing but collect a % of the produciton ona graded basis, based on levels of investment made...Standard protocol anywhere today...

RIL had in fact given the same set of arguments (oil is a natural resource, doesnt belong to a company etc) when it was fighting to deny gas to Anil Ambani Dadri Power project..Now that the matter is resolved within the family, the shoe is obvoulsy on the other foot...Arguments have therefore changed...

There is no PSU/pvt sector argument here at all..Contracted consumers of D6 include the pvt sector, including a bunch of fertiliser companies and LNG fuel companies (and earlier, Anil Ambani!)...Its a case of policy making and enforcing...

Well, you live in make believe world, someone has to shine the light I guess

Once you have data, there will be light..If you only give credence to dogma, you only have that!

[vina]

Back dated article on root cause of why folks are reluctant to produce (Babus fixing prices).. and by the admission of ONGC itself, the current prices are uneconomic.

Gas Production from KG basin economical @ $4.2mmbtu - ONGC

Fix the price appropriately to LNG benchmarks (with suitable discount to LNG to account for the fact that LNG has higher Option value and is more trade able) and put the babus in the Petroluem ministry out to pasture. Err.. but where does that leave out the "doling welfare and collective guardian of the natural assets" part eh.. (well, the gas will remain under the KG basin for kingdom come if such idiotic policies are followed).

[vina]

Vina-ji, you might want to enlighten yourself on the commodities market policy a little more before commenting...First, "price setting" ...

Profit petroleum is not "price setting"...

I ask you a question in simple INglees on which babu in Norway, Australia , ME and other parts of "civilized world" were a babu sits and sets prices and we have long winding gibberish on what "price setting" is.., and how "profit petroleum" is actually share of production etc, etc..

Again I ask you. NAMES and designations of babus in Norway, Australia .. Jan Lungis'son in Norway, John Lungi in Australia who sits and sets prices by fiat. That will suffice.

Again, ignorance hidden behind sarcasm...as explained above, the bolded section is exactly what the policy does! Second, there is no "price determination" by babus..In case you didnt read the earlier post, the price ws determined through an auction process when RIL declared the oil find..

Rubbish. I posted exactly how the babus sit and determine prices in the previous post.

the govt is only trying to enforce the sanctity of the contrat entered into originally, which is absolutely the govt's job anywhere in the world..

. Sanctity of contracts and Govt of India! You are talking of two absolute contradiction in terms.Why with RIL , the govt of India is itself trying to help that company shaft the others it signed contracts to supply gas to by granting it the force majeure to tear up the contracts!

Not at all..Depends on the oilfield that they are exploiting, and the concession agreements...BP/Exxon etc have large legacy concessions in various places where the terms are much more benign for them (many of them entered into when price of oil was 10 dollars)...Terms of concenssion agreements have been tighted significantly in the last 10-15 years everywhere, including in India...

Nice try. But I cant think of any country that does ROI based gibberish formulas where the babus drive prices. No wonder you get abysmal response to any NELP bids!

some more ignorance regurgitated as sarcasm..the govt isnt setting the price, it is only trying to enforce the contract of a price arrived at through an open market auction process.

.
GOI and contracts! In fact RIL and GOI are made for each other. RIL kind of guys are the perfect set of people who can deal with the GOI.

.And the govt does nothing but collect a % of the produciton ona graded basis, based on levels of investment made...Standard protocol anywhere today...

It is not. It is "standard" only if it ROI based. You can simply ignore the investment business if it is purely output share based. Like I said earlier this ROI business is for babu monkeys to set prices , while trying to set an "attractive" rate of return to get some investment in. But all this fails because Babus cant change prices due to political pressure (keep inflation in check, dole out "welfare", cheap fertilizer to farmers.. etc..etc.. )

[vina]

Cross post from PRC ecnonomy thread. Thanks Rama T.

Another example of dysfucntional economy and perverse incentives when Babus monkey around with pricing signals and substitute babudom for markets .. This time from Tarrel Than Mountain fried to the N.East.

Power Vs Profit

Substitute, Electricity Price by Chinese Babus by Gas Price by India Babus and the Chinese Utlities by India EP producers or the Refiners and marketers like BPCL/HPCL/IOC (reliance escapes because it largely exports!) and the financial ruin they face and the hammering their stocks take in the markets and their prospects in raising capital, you have a perfect equal = equal with the dysfunctional nature of babu driven socialism, even if it is far better run with greater fiat power like in China.

[somnath]

I ask you a question in simple INglees on which babu in Norway, Australia , ME and other parts of "civilized world" were a babu sits and sets prices and we have long winding gibberish on what "price setting" is.., and how "profit petroleum" is actually share of production etc, etc..

Again I ask you. NAMES and designations of babus in Norway, Australia .. Jan Lungis'son in Norway, John Lungi in Australia who sits and sets prices by fiat. That will suffice.

Are you talking policy or carrying out an investigation? You make outlandish wrong claims, wihout knowing of what profit petrolum is, or what price setting is, mxing up different concepts, and then when corrected, take recourse to this..you are still harping on "price setting", obviously you dont get the differnece...Whats the point?

Here are some "profit petroleum" norms, and broad principles are similar - but I guess you wont be interested..

Nigeria.
http://aelex.com/files/article_taxation.pdf
Its 67-85% of profits...

UK
http://www.hmrc.gov.uk/international/ns-fiscal2.htm
Upto 75% of profits..Its gone up in the last budget again..

All countries have high punitive taxes on oil, prcisely becaue of the reasons I mentioned..

I can go on - the energy trader should have something in his cheatsheets as well, but unless there is a willingness to learn, its useless..

Rubbish. I posted exactly how the babus sit and determine prices in the previous post

Well, if you really want to know the RIL D6 case, you need to do a bit more than Google search...

Sequence was this -
1. In 2003, NTPC had floated a global tender for a long term (17 year) gas contract..RIL won that @ 2.34 dollars, in a global bidding process..
2.Subsequently, RIL had entered into an in-house sweetheart deal with RNRL @ 2.34 dollars for gas, this was without any bidding or anything...
3. When the borthers fell out, in order to screw Anil, RIL went to court saying (oh gas is a national resource, should not be sold cheap to a single company and so on), and refused the honour the contract @ 2.34...It simultaeneously asked NTPC to take a hike too! Not incidentally, the prices of gas had shot up by then...Both landed up as court cases...
4. RIL then did an auction of the gas with a clutch of power producers, and the price settled @ 4.79 dollars..
5. Everyone cried foul, and therefore the govt had to step in (everyone wanted the govt to clear up the mess), which it did and fixed the price at close to the auction price, @ 4.2 dollars..Everyone, PSU, pvt sector et al, agreed...

Now, RIL wants even more, and hence trying to wriggle out, and the govt is trying to get RIL to honour the contract..

There is no single market determined rate for gas, various Indian producers/distributors/consumers are trading at different contracted level..As I mentioned a few times, Rasgas supplies India @ a price fixed 7-8 years back...

Everyone, GOI included, was learning to deal with "profit gas" pricing, as opposed to "profit oil" pricing done before...There has been no issue with pvt sector oil companies, like Cairns over this, the policy is standard and well set..So obviously nothing wrong in terms of principles...The issue with gas is that it is typically NOT traded in spot, but in long term contracts..Price discovery hence is trickier, espeically if it has multiple claimants...People were learning as they went along, especially policy makers..It is RIL that has been trying to play games to max its own profits...

The issue is actually not about public sector, private sector at all..Its about policymaking, and enforcing contracts..What was salacious in the story was the Anil-Mukesh spats...there are interesting lessons in the episode on the process of policymaking though...But then, it isnt sexy unless you can include some invectives, isnt it?

[vina]

Are you talking policy or carrying out an investigation? You make outlandish wrong claims, wihout knowing of what profit petrolum is, or what price setting is, mxing up different concepts, and then when corrected, take recourse to this..you are still harping on "price setting", obviously you dont get the differnece...Whats the point?

..You come up with a high falutin.. "All natural resources belong to the people, and govt arrrrh.. brhr.... in civilized societies" and I asked you a question in plain Inglees, in which "civilized society" does the Govt babu set prices for "safeguarding the interests of the people because govt .. super profits.. grr.brrrr. arrh etc" and then you do FUD and talk about "profit petroleum" (which I happen to know quite well, thank you and didn't talk about at all) and "price setting" (which is what I asked about.. and how does price setting help in safeguarding the interests of the people at large whom the natural resource belongs ? In fact, from what I remember, the oil producers cartelize to set prices HIGHER via OPEC as it gives larger benefits to it's people, while our babus want to sell our oil cheaply so that it becomes easier to drive obscene gas guzzlers )

Here are some "profit petroleum" norms, and broad principles are similar - but I guess you wont be interested..
...
UK
http://www.hmrc.gov.uk/international/ns-fiscal2.htm
Upto 75% of profits..Its gone up in the last budget again..

Well. you dont seem to read what you post yourself or somehow arrive at opposite conclusions of what you purport to support your position.

For eg, from the link above.
Petroleum Revenue Tax PRT is currently charged at 50 per cent on profits after these allowances. For a limited period safeguard relief then applies to ensure that PRT does not reduce the annual return in the early years of production of a field to below 15 per cent of the historic capital expenditure on the field.

PRT was abolished on 16 March 1993 for all fields given development consent on or after that date. This was part of a package of PRT reforms which also included the reduction of the rate of PRT from 75 per cent to 50 per cent and the abolition of PRT relief for Exploration and Appraisal (E&A) expenditure.

4. Everyone cried foul, and therefore the govt had to step in (everyone wanted the govt to clear up the mess), which it did and fixed the price at close to the auction price, @ 4.2 dollars..Everyone, PSU, pvt sector et al, agreed...

.. So game set and match to me ?

Everyone agreed because it was the price back then. But now it is nearly a decade hence and a different world. And that is precisely the problem with arbitrary babu pricing! RIL will want different! What preventet the babus from fixing the gas price to LNG benchmarks like they did with oil ?

Everyone, GOI included, was learning to deal with "profit gas" pricing, as opposed to "profit oil" pricing done before...There has been no issue with pvt sector oil companies, like Cairns over this, the policy is standard and well set..So obviously nothing wrong in terms of principles...

Ah. NOW you are talking finally.It has nothing to do with "production share" which is the "profit oil" part ,but actually all about pricing. So what is the difference, why does what work for Oil not work for Gas ? Reason, oil prices are set to import parity, that is why . It is linked to global market (or rather OPEC Cartel, that is another story) while gas is not and subject to babu whims.

Its about policy, and enforcing contracts..What was salacious in the story was the Anil-Mukesh spats...But then, it isnt sexy unless you can include some invectives, isnt it?

That Anil-Mukesh contract was not worth the paper it was written on and I frankly am loath to believe that Mukesh Bhai even had the faintest desire to honor it.

Problem is GOI is not a neutral party by any means. It is as much a sinner as anyone and is working to drive it's agenda by creating conditions for Mukesh Bhai to tear up contracts using force majeure (with GOI consent of course).

[somnath]

you do FUD and talk about "profit petroleum" (which I happen to know quite well, thank you and didn't talk about at all) and "price setting" (which is what I asked about.. and how does price setting help in safeguarding the interests of the people at large whom the natural resource belongs

Well, most concepts seem to be clear to you once explained..Wonder why you keep deriving strange linkages then...You started off by saying that the "ROI concept is unique to India" and we should have done "profit petroleum" instead of "price setting"..when pointed out what those concepts actually mean and linked and how they are applied (and not applied) in India, you turn around and repeat the same thing..

Anyways..

Well. you dont seem to read what you post yourself or somehow arrive at opposite conclusions of what you purport to support your position.

When given examples of policy papers, you pluck out a section out of context and come at an eggegious conclusion..Did you go though that docment? Did you see how much is the combined total marginal tax on petroleum production? Its 75%..and this is a 2008 report, when the basic tax was 50%..If you even knew about the comodities market perfunctorily, you would know that the basic tax in UK has been raised to 62% by George Osborne this year..

But go and read this (and the Nigerian policy) again...You would realise a bit more about how all countries treat national resources as "national" resources...

So game set and match to me ?

Everyone agreed because it was the price back then. But now it is nearly a decade hence and a different world. And that is precisely the problem with arbitrary babu pricing! RIL will want different! What preventet the babus from fixing the gas price to LNG benchmarks like they did with oil

Game, set and match to an uniformed point scoring based on pluicked out semantics? Maybe, I dont know...But not only are you ignorant of the natgas market, you seem to have not dealt with any commercial contract in your life..Every contract has provisions on arbitration, to be done by a mutually agreed arbitrator..In this case, two parties (in fact three) with different commercial contracts had come to blows, and they asked GOI to be the arbitrator...The "price fixing" was the result of that arbitration..Not remotely anything like an APM-style price fixing...Both commercial contracts under dispute were commercial, "open market" contracts...

Yes, about natgas prices..I mentioned this several times now, seemed to have passed you by..Unlike oil, overwhelming majority of natgas is traded on long term contracts...In India, various consumers pay anything between 2 dollars and 10 dollars for it...Ditto for the rest of the world - the Rasgas contract is a good example...Depending on market conditions, the pricing might be fixed or linked to an index...In this specific case, the contract with NTPC was done at a time when oil prices were low, and so were natgas prices..Hence a fixed price of 2.34 for 17 years was attarctive in a bidding process...The RNRL deal was anyway swetheart stuff...This was laissez faire in extreme if anything - the govt earns more money if prices are contracted higher..If anything, they should have stepped in with a minimum floor price...

It has nothing to do with "production share" which is the "profit oil" part ,but actually all about pricing. So what is the difference, why does what work for Oil not work for Gas ? Reason, oil prices are set to import parity, that is why . It is linked to global market (or rather OPEC Cartel, that is another story) while gas is not and subject to babu whims

Again, you dont seem to understand the concept of profit petroleum at all..Higher the price, higher is the govt's share of profits! If anything its in GOI's vested interest to keep prices high...But initially, GOI let the "market" determine it completely...It stepped in only when all parties screwed each other and asked for arbiteration...And yes, why not import parity like oil etc - refer to the section above on the differnece betwen oil and natgas...If pvt parties want, they can well use something similar in commercial terms...

That Anil-Mukesh contract was not worth the paper it was written on and I frankly am loath to believe that Mukesh Bhai even had the faintest desire to honor it

That is besides the point..Each party does its own lobbying I am sure with varied influences...The point is that GOI has a fiduciary responsibility as the custodian of natural resources to ensure that the state gets maximum benefits out of minral extraction businesses...And it needs to enforce contracts...In fits and starts, that is exactly what its trying to do, with the usual pulls and pressures of a democracy with high corproate influence...

Its standard energy econimics stuff - including the "rightest" of right wings..You can refer to this (old) paper, but the lierature is heavy on the topic..
http://www.ebrd.com/downloads/research/ ... s/auty.pdf

So in case you are looking to score points, go ahead..But you might find it more value adding to educate yourself on the fundamentals...Else, there is always voodoo economics of trickle down, or even more wealth to create GDP growth numbers to go by

[vina]

Again, you dont seem to understand the concept of profit petroleum at all..Higher the price, higher is the govt's share of profits

Now that is amazing.

With $100 worth of crude say, and the EP operators share at 60%(say) and the Govts 40% , and if the price went from X to X+10%, why dont you do a basic math and show me how the statemet "Higher the Price, higher the govt's SHARE of profits" works (ignoring corp and other taxes on the EP operator and unless the contract was signed with a sliding payoff, which is specific instance and not a generic case)!

[vina]

Well, most concepts seem to be clear to you once explained..[Wonder why you keep deriving strange linkages then...You started off by saying that the "ROI concept is unique to India" and we should have done "profit petroleum" instead of "price setting".

Are you hallucinating? I asked a simple question on why babus set price, you start talking about "Profit Petroleum" and then go on and on.. Time to come back to earth dont you think?

When given examples of policy papers, you pluck out a section out of context and come at an eggegious conclusion..Did you go though that docment?Did you see how much is the combined total marginal tax on petroleum production? Its 75%..and this is a 2008 report

Ah.. now more FUD. Actually, I did. You posted 75% as not the marginal tax, but as PROFIT PETROLEUM (see, your words, not mine) and I pointed out that PAT in UK was abolished basically after 1993 or whenever per that link.

Game, set and match to an uniformed point scoring based on pluicked out semantics? Maybe, I dont know...But not only are you ignorant of the natgas market, you seem to have not dealt with any commercial contract in your life..

Yawn.. Thanks. For someone whose career was in Stratejee..(Corp Dev, PissDev, Yumm & Yea, ityadi), I do think I know commerical and other contracts decently, including arbitrations.

asked GOI to be the arbitrator..

Nice.. Since when did GOI become a registered arbitrator, and most specifically the Petroluem minsitry, which anyways, the Attonrey general /law minsitry would have been better fits.. But very interesting that petroluem minstry does "Panchayat"

[somnath]

With $100 worth of crude say, and the EP operators share at 60%(say) and the Govts 40% , and if the price went from X to X+10%, why dont you do a basic math and show me how the statemet "Higher the Price, higher the govt's SHARE of profits" works (ignoring corp and other taxes on the EP operator and unless the contract was signed with a sliding payoff, which is specific instance and not a generic case

Thats why I say you shoot off without understanding the basic concept...

I can explain in detail - but just go through the primary doc!
http://petroleum.nic.in/nelp1.pdf

Go through the sections on fiscal package, profit petroleum etc...In fact the entire bidding on NELP is based on profit petroleum! The share of GOI in revenues go up as the operator starts getting a higher multiple on his investment..Hence, higher the unit price, quicker are the hurdles reached and hence higher share for GOI...

Well, I see you come out with more ignorant rants..

I asked a simple question on why babus set price

Again, is this so difficult? How did babus set the price? Two commecial contracts went caput, the parties asked GOI to settle the issue as arbitrator, GOI does so - ergo babus set the price!

You posted 75% as not the marginal tax, but as PROFIT PETROLEUM

Doesnt matter what its called (various terms are used, I mentioned earlier as well), at the end its only about the fiscal rent extracted..

Thanks. For someone whose career was in Stratejee..(Corp Dev, PissDev, Yumm & Yea, ityadi), I do think I know commerical and other contracts decently, including arbitrations

Since when did GOI become a registered arbitrator, and most specifically the Petroluem minsitry, which anyways, the Attonrey general /law minsitry would have been better fits

Wow, for someone who claims to know commercial contracts, this is a fantastic statement to make...By mutual agreemetn, anyone can be appiointed arbitrator, registered or otherswise, unless defined speficically in the contract...Anyone with passing knowledge of contracts should know this...AG is the law officer of the govt, he can only be appointed by the govt, not by random pvt parties...So if pvt companies go in for arbitration by the govt, GOI has the right to appoint AG as well...In this case, it was an eGOM (not Ministry of Petroleum)...

So you see, too many errors of facts, data, policy framework and theoretical constructs in your rants..First educate yourself on the Indian policy, and global for that matter, and the realities of the natgas market, and then maybe you can comment/rant with some credibility...

[vina]

It is going to be a busy day today, so I wont indulge you much. But however, let me put one last post

Go through the sections on fiscal package, profit petroleum etc...In fact the entire bidding on NELP is based on profit petroleum! The share of GOI in revenues go up as the operator starts getting a higher multiple on his investment..Hence, higher the unit price, quicker are the hurdles reached and hence higher share for GOI...

Dude. Get a grip. I knew earlier before you posted the link that the NELP bids called for a schedule of profit petroleum based on ROI generated. However, like I mentioned in my previous post, the SHARE for GOI or anyone will change only if the bidders put in a sliding payoff kind of scheme there.

Now that has serious Option Value. No sane bidder will commit to anything which gives up production share based on increasing ROI and that is precisely because it will seriously cap upside. It is analogous to a bond/warrant holder buying a callable bond/warrant rather than a plain vanilla one , which leaves a call option in the hands of the issuer and hence lot less valuable for the buyer. Doing a sliding payoff will leave huge option value in the hands of GOI and I dare say even the winning bidders if any would have given up little upside beyond their cost of capital in a sliding pay off schedule even if they committed to one.

What you are assuming is that that is how the contracts got signed, with a increasing profit petroleum with ROI . The reality is each bidder could have bid in myriad ways and the way you postulate is simply not how the industry has signed contracts historically and frankly it makes no sense, in a regime where cash flows are highly uncertain and India is really not the sweet spot wrt hydrocarbons etc and giving up huge upside

Well, I see you come out with more ignorant rants..

Well, I see, huge amount of FUD and noise to cover for make believe and alternate reality.

Again, is this so difficult? How did babus set the price? Two commecial contracts went caput, the parties asked GOI to settle the issue as arbitrator, GOI does so - ergo babus set the price!

Well, I live in India and followed that case and unlike your make believe story, that was not how it worked. The GOI injected itself in the Ambani brothers case before the supreme court saying that a natural resource cannot be the subjected to a whimiscal or otherwise private settlement and there are broader national interests and the supreme court agreed and Anil Bhai lost ! That is how the GOI got involved and IIRC (not sure), the "Petroleum and Nat Gas regulator" was asked to set an "equitable price".

GOI is and was NOT an arbitrator, and cannot be because it is an interested/aggrieved party! It has interests in that case.

Well, it then went into the usual balderdash of "Priority Sector " (fertilizer, power etc, primarily benefiting NTPC and the PSU Fertilizer cos, which are subject to price control) and how they should get the gas on a "priority basis" at preferential prices and how the "surplus" can be sold at private contract prices! Well, that was assuming 60 whatever units, and production never came anywhere near that level and that is the root cause of the whole thing.

Now, for someone who claims to know commercial contracts, this is a fantastic statement to make...By mutual agreemetn, anyone can be appiointed arbitrator, registered or otherswise, unless defined speficically in the contract...Anyone with passing knowledge of contracts should know this...

What a blooper! GOI is an interested party ,why would anyone agree to GOI as an arbitrator ? Also in an arbitration proceeding you want to have specialized arbitrators with deep experience usually and you never appoint "anyone as an arbitrator" ,there are designated regiestered arbitrators with relevant expertise and not some random babu in the GOI who warms a chair for a year in the Petroleum Minsitry!

In this case, it was an eGOM (not Ministry of Petroleum)...

Nice! e-GOM as arbitrator? That is ridiculous. Even those guys dont see themselves as an arbitrator in any sense. At best they could have set the price of the gas (if the petrol and nat gas regulator didnt). But that comes to the core point of babus/ e-Gom stamping babus setting prices and mucking around with market signals.

End result,there is huge amount of gas in the ground and they will remain there for kingdom come until the hare brained socialist policies of trying to control prices and "managing" by babudom instead of market continues. Unless this entire thing is dismantled, you will continue to see severe gas and energy shortages. This is classic corollary of a command model, sort of like empty shelves in GUM stores in the Soviet Union.

.First educate yourself on the Indian policy, and global for that matter, and the realities of the natgas market, and then maybe you can comment/rant with some credibility...

Ah.. for someone living in alternate reality that is quite rich.

[somnath]

Dude. Get a grip. I knew earlier before you posted the link that the NELP bids called for a schedule of profit petroleum based on ROI generated. However, like I mentioned in my previous post, the SHARE for GOI or anyone will change only if the bidders put in a sliding payoff kind of scheme there

You have this strange tendency of shooting off on stuff that you dont know of, and then when explained, come back with "oh I of course knew, but the interpretation is different"...

So according to you, auction of public assets, to be done along a documented, publicly available format, is NOT ACTUALLY carried out in the fashion documented...But private parties get into "myriad ways" of winning bespoke concessions...Now that is something really bizarre...Even Raja didnt try that while auctioning spectrum...why dont you post some evidence of the various "myriad different" ways oil companies won oil blocks, in complete variance to NELP agreements?

Well, I live in India and followed that case and unlike your make believe story, that was not how it worked. The GOI injected itself in the Ambani brothers case before the supreme court saying that a natural resource cannot be the subjected to a whimiscal or otherwise private settlement and there are broader national interests and the supreme court agreed and Anil Bhai lost ! That is how the GOI got involved and IIRC (not sure), the "Petroleum and Nat Gas regulator" was asked to set an "equitable price".

GOI is and was NOT an arbitrator, and cannot be because it is an interested/aggrieved party! It has interests in that case.

Well, it then went into the usual balderdash of "Priority Sector " (fertilizer, power etc, primarily benefiting NTPC and the PSU Fertilizer cos, which are subject to price control) and how they should get the gas on a "priority basis" at preferential prices and how the "surplus" can be sold at private contract prices! Well, that was assuming 60 whatever units, and production never came anywhere near that level and that is the root cause of the whole thing

Well, given that your opinion is based on stuff like "60 whatever units", and "Petroleum and Natgas Rgulator (I am not sure)" et al - not sure how your residence in India is any more germane than the fact that you might read a few more Indian tabloids for your info...

Lots of basic mistakes (for example, the regulator is called the Directorate General Hydrocarbons), but I would only reiterate the basic point - whether govt was "setting" prices, as alleged by you..

The NTPC-RIL contract was a commercial contract..RNRL-RIL contract too was a commercial contract...Three parties went to court on the issue..the govt is a natural "party" to the dispute, being both the concession-giver as well as the regulator of the sector...All 4 parties - RIL, NTPC, RNRL and the court - asked GOI to step in and resolve the mess...

GOI's role wasnt exemplary at all, but not in the "priority sector etc" sensitivities that you accuse it of...On the other hand, in a manner fully symptomatic of crony capitalism India style, various ministers pulled in various directions to favour one corporate lobby or the other - Murli Deora being the most obvious culprit...

GOI is an interested party ,why would anyone agree to GOI as an arbitrator ? Also in an arbitration proceeding you want to have specialized arbitrators with deep experience usually and you never appoint "anyone as an arbitrator" ,there are designated regiestered arbitrators with relevant expertise and not some random babu in the GOI who warms a chair for a year in the Petroleum Minsitry

Again, you let your views come in the way of facts..there is no question of "why anyone would agree to GOI as arbitrator"..EVeryone asked GOI to step in and clear the mess - Mukesh, Anil, NTPC and the court..Given your deep knowledge of Indian public affairs ("it was a Petroleum Ministry babu" etc), you obviously dont know what an eGOM is - it has ministers from Pertoleum, finance, Law and whichever ministry is involved - it represents the collective "expertise" of the public policy system available on that specific issue...

And yes, if you had ever gone through a simple commercial contract, you would know about arbitration clauses, and how "registration" is neither standard nor sine qua non...(BTW, you said you have huge experience in M&A - is gurumurthy "registered" as an arbitrator?)...

anyhow, so the govt in its wisdom, when approached by all parties, appointed the eGOM, which delivered a settlement...

the lesson from the entire exercise was not about all the uneducated rubbish of priority sector, welfare etc you keep harping on, but on how to make policy (or not make one)...In essence, on how to make policy that can divorce itself from cronyism inbuilt into the system...

It is going to be a busy day today, so I wont indulge you much. But however, let me put one last post

I am on leave , but please dont - get some knowledge first of the topic (eg, differences between crude oil and natgas markets - you wont make statements like "why dont they treat natgas like they do for crude")....Till then, my last post on education on natgas and policy!

[somnath]

Nice article by one of my favourite economists, YK alagh..

http://www.indianexpress.com/news/with- ... n/795970/0

For all those who believe that state action isnt required, and markets only can deliver growth - Gujarat is a good case...Narmada/SSP water, coupled with approrpiate markets deliver results..

The only surprising thing is the prescience of the planner - seems it was predicted to be likewise in 1985!

[somnath]

A great article in defence of "unconditional cash transfers", by someone who worked closely with Brazil, the posterchild of cash transfer experiment..

http://www.indianexpress.com/news/give- ... t/796426/0

Basically, he is arguing for "unconditional universal cash transfer" to the "identified poor"...there are some evident dichotomies in his thesis, for example, how do you "identify" a poor (or deservign) chap while claiming to be "universal"?

He criticizes Jean Dreze's thesis (in an earlier article - posted here as well) supporting an efficient PDS to a cash transfer..

But then, he ends with this...

Cash transfers are not a substitute for public services. But they could be a base of economic security

anyways, fundamentally mroe and more evidence from around the world on the importance of direct state intervention on welfare - especially income support, instead of depending on trickle down nonsense...Key take-away there is the requirement for the state to create both affordability AND access...

[abhischekcc]

somnath,

Regarding NREGS, which is a cash transfer mechanism when you really look at it. more and more reports are emerging that say that NREGS is harming the local economies in India. When labourers are assured of a minimal income, they tend to stop looking for work. A lot of labor intensive sectors (agri, textiles) are in trouble because they cannot find enought laborers, and raising wages is not really an option. SSEs are hit more.

Economists assume that if the world fits their equations then everything is all right, but they fail to see the hidden connections and how monotheistic focus on one aspect of life (in this case, raising the income of the poor by hook or by crook) ultimately disturbs the entire society.

While nobody denies that the state has a role to play in protecting the more vulnerable sections of society, the NREGS/cash transfer policy is extended to people who do not need them. As you yourself mention, identifying the 'poor' is the key to success. As far as I see, neither NREGS nor any other scheme actually discusses this crucial aspect in depth. All that we have is an unbecoming push to expand a scheme whose success has not been measured.

But if we do identify the 'needy' properly, then even the PDS will work just fine.

[somnath]

Regarding NREGS, which is a cash transfer mechanism when you really look at it. more and more reports are emerging that say that NREGS is harming the local economies in India. When labourers are assured of a minimal income, they tend to stop looking for work. A lot of labor intensive sectors (agri, textiles) are in trouble because they cannot find enought laborers, and raising wages is not really an option. SSEs are hit more

Abhikesh-ji, its an argument often made these days, but people obvioulsy dont see the dichotomy...What you are essentially saying is that absent-NREGS, there was enough farm labour available at "reasonable" prices......In other words, 9% growth was (in some ways) predicated on destitution of a section of Indians...Come NREGS, somehow labour costs have gone up...

Now if that were to be true, in case there is now a hardening of labour wages, all it means is that NREGS is successful! You cant say that NREGS is driving up labour wages AND say that NREGS is not delivering! If it is inefficient, prone to leakages etc, there wont be any hardening of wages, isnt it?

While nobody denies that the state has a role to play in protecting the more vulnerable sections of society, the NREGS/cash transfer policy is extended to people who do not need them. As you yourself mention, identifying the 'poor' is the key to success. As far as I see, neither NREGS nor any other scheme actually discusses this crucial aspect in depth

Oh absolutely, identification is the single biggest variable, along with fudning and execution..NREGS, in that sense, is a "self opting" programme - the manual labour involved means that only people who have no better job will opt for it..Automatically minimises leakage...In absence of UID/bank account et al yet, its an elegant solution, even though not a perfect one...The challenge is to find similar algos for other programmes, like PDS (in the case of PDS, universalisation is generally accepted to be the best solution - I wrote about that earlier)..

All that we have is an unbecoming push to expand a scheme whose success has not been measured.

Well, if you believe, wage rates across the country have gone up because of the programme, it is already successful! We dont need to refer to the numerous WB/ADB reports that laud the programme...

[a_bharat]

Somnath ji,

The net effect of NREGS is making people lazy and creating artificial labour shortage for the farm sector. It is misleading to say it is "self opting" programme that only people who have no better job will opt for it. I don't know if you are in touch with the reality on the ground or not; people are opting for it even when significantly higher wages are available in the farms because they don't have to do much work (in many cases, any work at all) when they opt for NREGS work. They are happy with Rs. 110 that they get under NREGS for almost no work (and subsidized food grains in many states), as they don't think beyond today. The farmers are getting crushed by high labour wages, market manipulation and stupid legislations like APMC in addition to all other agri-related risks like unseasonal rains, pests, viruses, etc. Perhaps a pure cash transfer would be a better scheme as it will take lesser number of workers out of the labour pool. The NREGS, IMO, has a highly negative impact on the farmers; this scheme must be scrapped, or at least made productive by choosing right works, requiring honest labour and give better wages (I say more than what they currently give).

[abhischekcc]

Regarding NREGS, which is a cash transfer mechanism when you really look at it. more and more reports are emerging that say that NREGS is harming the local economies in India. When labourers are assured of a minimal income, they tend to stop looking for work. A lot of labor intensive sectors (agri, textiles) are in trouble because they cannot find enought laborers, and raising wages is not really an option. SSEs are hit more

Abhikesh-ji, its an argument often made these days, but people obvioulsy dont see the dichotomy...What you are essentially saying is that absent-NREGS, there was enough farm labour available at "reasonable" prices......In other words, 9% growth was (in some ways) predicated on destitution of a section of Indians...Come NREGS, somehow labour costs have gone up...

Now if that were to be true, in case there is now a hardening of labour wages, all it means is that NREGS is successful! You cant say that NREGS is driving up labour wages AND say that NREGS is not delivering! If it is inefficient, prone to leakages etc, there wont be any hardening of wages, isnt it?

While nobody denies that the state has a role to play in protecting the more vulnerable sections of society, the NREGS/cash transfer policy is extended to people who do not need them. As you yourself mention, identifying the 'poor' is the key to success. As far as I see, neither NREGS nor any other scheme actually discusses this crucial aspect in depth

Oh absolutely, identification is the single biggest variable, along with fudning and execution..NREGS, in that sense, is a "self opting" programme - the manual labour involved means that only people who have no better job will opt for it..Automatically minimises leakage...In absence of UID/bank account et al yet, its an elegant solution, even though not a perfect one...The challenge is to find similar algos for other programmes, like PDS (in the case of PDS, universalisation is generally accepted to be the best solution - I wrote about that earlier)..

All that we have is an unbecoming push to expand a scheme whose success has not been measured.

Well, if you believe, wage rates across the country have gone up because of the programme, it is already successful! We dont need to refer to the numerous WB/ADB reports that laud the programme...

Somnath,
If you measure the success of NREGS only with wage rates, then yes, it has been successful. But what about productivity? Is a person digging ditches more productive than a textile worker?

For example, if NREGS raises farm wages, then food prices go up, which effects everybody erybxcept the super rich like Ambanis and Gandhis and Abdullahs. So if NREGS reduces labor availability, it makes everybody poorer. You worried about 9% growth coming at the cost of the destitution of a section of Indians, but do not seem worried about the destitution of all Indians . Typical socialist myopia.

Socialists forget that wealth has to be created *before* it can be distributed.

There is a reason why I called the push for NREGS as 'monotheism' - it focusses solely on creating vapour wealth for the poor at the cost of creating genuine assets for all classes of the country.

---------

We are in favour of raising wages for the poor, but it has to be done in a sustainable manner, otherwise the middle class will again be left holding the bill, as in the glorious socialist days of license raj and black marketing. The only way to raise wages is by raising productivity and passing on a higher share of the profit (even 100%) with the poor. Do you have any data that measures the increase in productivity, types of work done under NREGS, etc etc. that can tell us what exactly (or even approximately) is being created under the various schemes.

Otherwise, all such programs will be accounting frauds in which money from one section of the society (middle class- my group) will be transferred to another. For no good reason except that a political class (civil society types - political intellectual mafia) wants to siphon off the wealth of the middle class in the name of the poor (who see a very small fraction of that wealth). And, I am sorry to be the one point this out - you seem to belong to the civil society group.

The discussion that you have with the many members of BR is really a class conflict. Which is the reason why so many people react so vehemently against your posts. They have an instinctual understanding that your position is harmful to their interests.

[somnath]

If you measure the success of NREGS only with wage rates, then yes, it has been successful. But what about productivity

You yourself started off by describing NREGS as a "cash transfer" scheme..an unconditional (which NREGS is) cash transfer scheme isnt a vehicle for direct productivity enhancement, it is a vehicle for income support...the reason we have it in the current "works programme" format is to ensure efficient self selection/opt out...

however, income support programmes do have indirect productivity benefits..Its only when a chap can aford it will he send his daughter to school, and feed to family better quality food, and get them decent healthcare...Without affordability (and acces, whcih is a different issue), productivity building suffers...Tautological, almost...

For example, if NREGS raises farm wages, then food prices go up, which effects everybody erybxcept the super rich like Ambanis and Gandhis and Abdullahs. So if NREGS reduces labor availability, it makes everybody poorer. You worried about 9% growth coming at the cost of the destitution of a section of Indians, but do not seem worried about the destitution of all Indians . Typical socialist myopia

Again, the dichotomy of simple economic logic seem to have escaped the argument...Prices are determined by demand and supply...Inflation will result if either demand goes up, or supply fails to match demand...If you are saying that NREGS is making "everyone destitute", then demand should be falling..On the other hand, if demand is not falling (but growing apace) and its supply side bottlenecks that are the issue (which is what RBI and almost everyone else have been talking about), then the assumption that "everyone is becoming destitute" doesnt hold!? There is a "cost push" aspect to inflation as well, but such cost push factors should have dampened demand at some stage? Do you see evidence of that? Not just of inferior/giffen goods (basically basic foodgrain), but across the board of superior consumer goods?

Net net, you cant argue both ways...Either NREGS gives income support and therefore boosts demand (which can cause inflation), or it only pushes up cost (causing inflation) which should depress demand...Socialist or othewise, basic logic cant change, no?

Actually, while the spectre of increased farmm wages is a reality, something even Prof Gulati of the Agri Costs commission talked about, in a labour surplus economy like India, it largely means a macro-level increase in demand, rather than a massive upsize of costs..Our problems are on supply side bottlenecks, primarily infra...

Do you have any data that measures the increase in productivity, types of work done under NREGS, etc etc. that can tell us what exactly (or even approximately) is being created under the various schemes.

Otherwise, all such programs will be accounting frauds in which money from one section of the society (middle class- my group) will be transferred to another. For no good reason except that a political class (civil society types - political intellectual mafia) wants to siphon off the wealth of the middle class in the name of the poor (who see a very small fraction of that wealth). And, I am sorry to be the one point this out - you seem to belong to the civil society group.

Productivity - I have addressed...About bearign of the "cost" of these programmes...I have quoted this example many many times before - add up the costs of all such welfare programmes, incl subsidies...Compare that with the amount of revenue foregone every year on tax exemptions (exemptions, not reductions in rates) and subsidies for the rich and middle class - the numbers will reveal their own story.....You shuld get different perspective of wqhere the taxpayer's money (both rich and poor) are really going...

Bracketing is quite easy - but unfortunately incresingly sloganeering becomes a substitute for substantive policy debates, holds true for the general media as well...On the other hand, mainstream policymakers are increasingly in favour of direct state interventions in welfare - incl the Washington consensus wallahs - just read Kaushik Basu's new book!

They are happy with Rs. 110 that they get under NREGS for almost no work (and subsidized food grains in many states), as they don't think beyond today. The farmers are getting crushed by high labour wages, market manipulation and stupid legislations like APMC

abharat-ji, completely agree with you on the stupidity around APMC..But about the rest - so are we saying that the poor are so irrational that they give up a higher paying job for a lower paying NREGS as they dont have to work? Empirical studies do not show suh irrational behaviour on the part of the poor though..

[sugriva]

Those who talk of NREGS having increased rural wages fail to see that in many places the NREGS wage is well below the legislated minimum wage rate !!!! So now go figure .....
Also one can't argue that because of NREGS scheme people are leaving well paying jobs and then in the same line argue that they be given cash transfers !!!! By that token of logic with direct cash transfers more people will opt not to work !!!!

[sugriva]

Did you just wake up with a nice dream / walk out of a socialist propaganda film of glorious patriotic PSUs running "commanding heights" and developing the nation kind of thing.. AFAIK, ONGC has not produced a single foot of gas yet from KG basin!

As a matter of fact yes... Script writer of said movie was M. Karunanidhi. The two heroes were portly mustachioed men named NT Rama Rao and MG Ramachandran. There was also a heroine called J Jayalalitha. NT Rama Rao said "Rice at 2 Rs/kg" to which MG Ramachandran promised to give out midday meals. Jayalalitha would have nothing but "free TV sets". However none of the above were in the script. The script had something about mixer grinders.

{Deleted}

[a_bharat]

Those who talk of NREGS having increased rural wages fail to see that in many places the NREGS wage is well below the legislated minimum wage rate !!!! So now go figure .....
Also one can't argue that because of NREGS scheme people are leaving well paying jobs and then in the same line argue that they be given cash transfers !!!! By that token of logic with direct cash transfers more people will opt not to work !!!!

NREGS wage is well below the wage farmers are now paying, yet, we see people going for NREGS works and farmers not being able to hire labour and turning to machines. Now the machine operators too are taking the farmers for a ride by substantially hiking the charges.

A pure cash transfer scheme is preferable to the current NREGS. If you can't get any productive work done, at least don't suck out the labour from the available pool. With the NREGS scheme, the workers are either pretending to work, or they are doing useless work. If it is a pure cash transfer scheme, at least some of the beneficiaries will go and do the real work.

[Theo_Fidel]

WRT NREGA lets keep in mind that only able bodied people can benefit. The weak, the sick, the old and the destitute (read no fixed address) can not by definition benefit. The program has been running for 7 years+ in some areas now. Poverty reduction has been zero as GOI's own statistics show.

Manual labor can only guarantee grinding poverty. Once you get into the manual labor trap it is impossible to get out. No factory will hire you, you develop no contacts to get he next job, your skills are deteriorating and your health takes a horrendous beating. It is not just a question of pay. Most people would find it impossible to do more than 3 consecutive days of such brutal work.

Personally I'm not going to plant rice this year. I know around me about 30% of the land is no longer planted for rice. In a few more year it will be 50% plus.

The real factor is that farmers are not a dependent on farm income any more. Large numbers have jobs elsewhere. This means they can choose not to plant. All these ivory tower economists think that by digging holes and filling holes they are increasing the manual labor income. The truth is that the farm sector has cut and reduced labor enough to more than compensate for this. So we are back were we started.

[RamaY]

Theo ji, that is the problem with superficial economic approaches. They are like CEOs focussing more on next quarterly update (as it determines the stock values, often determining the life of the corporation itself) than the long term interests of the corporation.

Too much focus on GDP growth this year (or next five years) can destroy the longterm survivability of the underlying society itself.

This is what happens when financial tools (meant to measure the indicators) become strategies.

[vera_k]

Modi wants an urban NREGS

So change is being proposed by pointing to the "secular" need. Lets see if the program can be updated to be more effective by promoting urbanisation and building skills that'd be useful in moving the workforce away from farming in the rural areas.

Ahmedabad and Surat have large slums, mostly inhabited by Muslims. It is this "risk of urban decay" and "low quality of life" the state wants to correct through the job scheme.

[Theo_Fidel]

Yes!!!

Monsoon has set in. Kerala is getting clobbered right now.

[krisna]

Yes!!!

Monsoon has set in. Kerala is getting clobbered right now.

God's own country getting clobbered after the godless party lost the elections.

what an irony. God behaves strangely.

[somnath]

Modi wants an urban NREGS

So even "non JNU, non-snake, muscular nationalist" types are seeing merits in NREGS-type programmes! Not surprising, most "efficeintly" governed states have seen merits in NREGS, including Gujarat...Add to this Raman Singh's enthusiastic championing of the PDS - what is the world coming to?

An NREGS-type programme for the uban poor was on the agenda of the NAC-types as well..It didnt take off because the govt wasnt sure that there would be enough resources available...Some creative pooling of resources is required to pull this off - maybe Gujarat can show the way...

Too much focus on GDP growth this year (or next five years) can destroy the longterm survivability of the underlying society itself

RamaY-ji, so what should we be focusing on for our "long term survivability"?

[Suraj]

Difference being that someone like Modi will actually put any central welfare allocations to proper use, with an efficient administration already in place to obtain proper outcomes. It's in his interest to ask and propose schemes on his terms. That he can accomplish it doesn't mean any state government can. Just goes to show that the primary factor in getting anything done is efficiency at the government level. Any program will be a success if there's efficiency and good governance. Folks like Dreze will of course parrot it as proof that NREGS works, and naturally avoid any politically inconvenient mention of Modi himself.

[somnath]

That efficient state govt execution is required is ad oculos...Central govt has no virtually ability/infrastructure to execute anything beyond funding...The central govt' part of the mandate is to organise funding, setup appropriate structures and assist in outcome monitoring...The state govts need to execute, and the less efficient ones will be punished by the electorate...

Which is what has been happening in state after state...

Whether Jean Dreze will praise Modi or not is irrelevant (neither Dreze nor Modi would be too concerned about that) - though he went public with his praise for C'garh's execution on PDS..

But at the basis, folks crying "ahh, spending on welfare is money down the drain", or "just let the GDP grow, everything else will take care of itself" need to pay heed - their economic rationale as anyway absent, the political rationale (of leftism, snake et al) lies on shaky ground..

NREGS wage is well below the wage farmers are now paying, yet, we see people going for NREGS works and farmers not being able to hire labour and turning to machines

Its often articulated among certain circles that the poor is incapable of making rational choices...the whole concept of "rational choices" is a wide body of liertature, and behavioral economics stands on the bedrock of the fact that people do not always make fully rational choices..At the same time, there is little evidence that the poor make stupid decisiosns with money given, they tend to make quite rational decisions..

Here is one such..
http://www.chronicpoverty.org/uploads/p ... B%2022.pdf

To be sure, cash transfers are a beter, more elegant alternative..the issue is of selection...But to conclude that a labourer ditches a 200 rupee/day job in favour of "not working" in an NREGS site for 100, well, maybe anecdotaly true, isnt empirically right.

[vera_k]

A fundamental difference between Modi's proposal and the rural NREGA program is that it proposes to use the funds towards projects that promise to survive long term and support the move towards an industrial society. Most of the NREGA criticism I've seen is directed towards this aspect, where the funds are spent "digging ditches" that don't last very long. What's the rationale behind persisting with zero skill type work in the current program?

[somnath]

^^We dont know enough about the Gujarat proposal, but fundamentally, full scale infrastructure projects cannot be a proxy for cash trasnfer schemes...Typically, in a real estate (residential/commercial) project, the % of outlay devoted to wages would be very small -10-15%...Cash transfer schemes like NREGS aim to give out 60-70% of the outlay as wages..In terms of absolute amounts of money, NREGS today has a budget of 40k crores - aiming to give (say) 25k crores in cash transfers...To have the same cash tranfer effect over "normal" infra projects, the outlay needs to be 2.5 lac crores! Even assuming that the money was available (it just isnt), are their that many incremental bankable infra projects in India?

The "hole digging" business is simply a selection mechanism...

[RamaY]

Somnathji, I have put forward my thoughts a long time ago.

My observation is that the urbanization forces the rural family with say Rs 2000 monthly income (let's say BPL is Rs 5000 per month) to near by city offering say Rs 6000 monthly income, where as the urban BPL is much higher than Rs 6000 monthly income. I would rather take the technology and employment opportunities to the rural areas so the family can come above BPL easily. I have seen many families from my village falling in to this trap.

***

Boy, this NM gave fresh winds to the NREGS sails huh...

It doesn't make that program any better or desirable in the long-term. We need a program that offers temporary financial relief whil creating long-term employment opportunities. That is exactly what I have proposed in my "alternative budget scenarios thread". My ideas too offered crop insurance programs that are close to NREGS structures. The major difference is that my ideas offer permanent income structures.

Pls go and read if you are interested and comment.

[Suraj]

Further, any urban program isn't going to be on the lines of the NREGA mandate of trying to target the the most abjectly poor. Within urban areas, most people have access a broad range of goods and services, as well as means of employment.

For all the talk about outcome monitoring, GoI has been far behind the curve in either monitoring outcomes or integrating NREGS with other productive rural asset creation programs where the monies would actually be put to productive use.

Rather than misconstrue criticism in such broad sweeping terms, it would be better to acknowledge, as the 2010 NREGS review itself does, that it could and should have been integrated with programs that actually create assets and infrastructure in rural areas, and it should have been done before $40-60 billion was spent on the program over half a decade. Turning around and pointing fingers at one's favourite evil businessman (KP Singh or Ambani) is just rhetoric that serves no constructive debating purpose; just as you might support a program, others would oppose it, both for very good reasons from their own perspectives.

This whole self-selection via manual labour is wrongheaded nonsense - it generates no viable fixed assets, does not educate these rural labourers in vocational skills. If it was merely a means of targeting people, it could have been accomplished with far less waste of money by implementing an ID card based targeting system.

The most abjectly poor are cut off from the larger society and economy - their isolation, lack of integration with any progressive economic activity or social knowledge is the primary contributor to their sustained poverty. Theo and a few others have written about this at length, based on personal experience rather than assorted googled UNDP reports and statements from Dreze et al, both of which have motives to come in support of the program anyway.

[Suraj]

Moderator Note

This thread has been receiving a bunch of post reports lately. The debate has certainly been spirited, and I think it's in the interest of this thread to have several motivated participants with diverse views. There's no intention to moderate opinions. However:

There's been an increased tendency to make debating personal. To some degree it cannot be avoided - there are welfarists, laissez-faireists, XYZ school of economics, and whatnot. Please use your better judgement when you classify the other party as such. There's a fine line between making a witty debating point and being crass, and any classification that's repeatedly asserted is the latter - it indicates a preference to pigeonhole the other side than actually debate the topic.

Those who constantly flirt with such a line of debate will have their post examples recorded and will receive less leniency if/when an argument blows up and there's a judgement call to be made on warning someone.

If you have issues with a post, just report it. Hitting back and then using the 'he started it' argument is best left to schoolkids. If both participants have equal history, warnings will either be applied to both, or neither. If one participant is known for repeatedly inflaming arguments, he'll be more likely to be warned.

One last thing - please have some perspective. We all have our convictions, but this is merely an online forum. Sometimes people resort to a level of abrasiveness in this medium that they'd never do in real life...

[somnath]

Further, any urban program isn't going to be on the lines of the NREGA mandate of trying to target the the most abjectly poor. Within urban areas, most people have access a broad range of goods and services, as well as means of employment

Lets see what it does..In urban areas, the biggest hurdle IMO is to generate enough "works" programmes - there simply isnt enough real estate to go around for that..It has to be willy nilly dovetailed with existing public works programmes, which should be substantial in most large cities all the time..

BTW, talking of Gujarat, it has been a very enthusiastic particpant in NREGS, so this urban programme isnt from the top thier hat, but something that they have derived experientally..

as the 2010 NREGS review itself does, that it could and should have been integrated with programs that actually create assets and infrastructure in rural areas, and it should have been done before $40-60 billion was spent on the program over half a decade

Hindsight is always 20:20...But in this case, there is also a question of "projects"...At a single village level, what are the current infra projects underway? What is the outlay on that? What is the expected labour? Can the coverage in terms of labour "supply" be matched to the "demand" generated by the specific project? In some cases, they can be, which is what they are trying to do...But as I showed in the illustration above, there isnt enough projects going around to even merit the sort of cash trasnfers being envisaged under NREGS (should be differnet in cities, where both the numbers of such destitute are low and the number of civic works on at all times is substantial)...Nothing is beyond critique, certainly not a public welfare programme..But the economics of the slogans need to be quantified in the critique...

If it was merely a means of targeting people, it could have been accomplished with far less waste of money by implementing an ID card based targeting system

If you think creating an ID based targeting system was that easy, send in a mail to Nandan Nilekani, with a cc to Pranab Mukherjee...They are spending enormous amounts of time, money and effort trying to put in the building blocs....

The most abjectly poor are cut off from the larger society and economy - their isolation, lack of integration with any progressive economic activity or social knowledge is the primary contributor to their sustained poverty

And as a remark in that report I posted earlier says, you need boots to pull people out of poverty with their bootstraps..Various welfare programmes aim to provide basically income support, in cash or kind...that income support enables, in varying degrees, the individual to improve his life and skills, for which access to services is the other important variable...However, affordability of basic human needs remains the first condition to ameliorate..If it can be done by clubbing it with other initiatives, fine.But where it cant be, or it will simply take too long for the infra to catch up, there has to be direct intervnetion...

Theo and a few others have written about this at length, based on personal experience rather than assorted googled UNDP reports and statements from Dreze et al, both of which have motives to come in support of the program anyway

Unfortunately professionals do not lay nearly as much emphasis on anecdotes as they lay on empirical evidence...Even anecdotes can be useful only on the bedrock of a viable theoretical construct - till now, one has only seen anecdotes on the bedrock of slogans, sometimes partially on voodoo economics (amount of wealth required for GDP to be XXX etc)...UNDP, World Bank (as also Dreze) base their conclusions on empirics, and overlay anecdotes on them..If you have a problem with them, you should provide the alternate data, or theory (something that Surjit Bhalla does so well, which is why he is impossible to ignore)...without that, its just slogans...(BTW, you dont have to "google" for UNDP reports, just go to their website! And presumably UNDP/WB/Dreze have motives, but I guess Raman Singh, Narendra Modi et al share those motives , if economics and politics coincide in motives, maybe its a good idea after all )

Turning around and pointing fingers at one's favourite evil businessman (KP Singh or Ambani) is just rhetoric

simply pointing out the hypocrisy of crying "leakage" for NREGS, but not for tax exemptions for crooks like KP singh, thats all..And comparing the relative amounts, which is not philosophical, but empirical..

[somnath]

My observation is that the urbanization forces the rural family with say Rs 2000 monthly income (let's say BPL is Rs 5000 per month) to near by city offering say Rs 6000 monthly income, where as the urban BPL is much higher than Rs 6000 monthly income. I would rather take the technology and employment opportunities to the rural areas so the family can come above BPL easily.

RamaY-ji, the concept of self sustained "village republics", articluated by Gandhi, is as much a chimera as "all men should be born equal"...Urbanisation is an inevitability for progress...Seen globally, including in our own instance - the Indus Valley civilisation was an urban phenomenon (you should know better than me! )...Economies, industries and markets develop around clusters - you look at the IT cluster in B'lore, the textile one in Tirupur, autos in Gurgaon/Chennai and many others...These clusters genertae employment..Isolated villages cannot partake in the forward movement of these clusters, not with the # of people they have...

While India urbanises, there will be people left behind...for us, unfortunately that number is unconscionably large...Cash transfer is a way of mitigating that...

[Suraj]

What would be the legacy of NREGS if it were to disappear tomorrow ? Just how many people touched by it will be left with viable skills, access to education, nutrition and health, basic utilities, goods and services, modern social knowledge or even integration and access to the rest of society and economy ? There's little inbuilt sustainability, and leaves little by way of a legacy, or widespread rural assets (trained personnel and infrastructure) that can continue to generate wealth. Instead, it exists at the mercy of the current political dispensation.

simply pointing out the hypocrisy of crying "leakage" for NREGS, but not for tax exemptions for crooks like KP singh, thats all..And comparing the relative amounts, which is not philosophical, but empirical..

That's a convenient but double-edged argument - it goes to show you're not actually debating the topic as much as attempting to judge relative hypocrisies. Guess what ? We're all a little hypocritical here, debating poverty alleviation measures from the comfort of our own homes and offices in urban India, Singapore, the US or elsewhere.

From my perspective, I'll a) ignore any hypocrisy implied towards me, or report it for another moderator to address and b) will debate both your supporting and opposing arguments separately, on their own merits. Please, give this line of argument a rest. You're walking a very thin line when you make the argument so personal.

[somnath]

, give this line of argument a rest. You're walking a very thin line when you make the argument so personal

??? I was referring to the hyposrisy of the argument, not of you (or anyone else)as an individual making that argument! I take a lot of care to not make debates personal, and there was none here, not sure which part was..

That's a convenient but double-edged argument - it goes to show you're not actually debating the topic as much as attempting to judge relative hypocrisies

I am not debating "relative hypocirsies", only pointing out "the hypocrisy" of an argument that says "1.5 lac crore to welfare is bad because of leakage", but not acknowledge the "11 lac crore leakage on tax exemptions"...Thats all...

Back to the substantive point..

What would be the legacy of NREGS if it were to disappear tomorrow ? Just how many people touched by it will be left with viable skills, access to education, nutrition and health, basic utilities, goods and services, modern social knowledge or even integration and access to the rest of society and economy ? There's little inbuilt sustainability, and leaves little by way of a legacy, or widespread rural assets (trained personnel and infrastructure) that can continue to generate wealth. Instead, it exists at the mercy of the current political dispensation

The legacy of NREGS wil be the establishmen of a template of direct intervention to address poverty through cash transfer type programmes...India is going to have lots of poor people for a long time unfortunately...Instead of the earlier template of trying to incrementally drip-fund already broken systems and programmes, or trying push thorugh subsidies prone to leakages, NREGS creates a radically new template of affordability creation, backed by adequate funding...Tomorrow, if its called Deen Dayal Updhyay XYZ, it wont mtter....