An exercise in contraction - Sitaram Yechury, M.P.,

             Article by Com.Sitaram Yechury, Polit Bureau Member CPI(M) and Member, Rajya Sabha                                                            

         The Finance Minister presented the first full budget of the Modi government with an air of “illusions of grandeur”. Preparing for the celebrations of the 75th anniversary of our independence in 2022, he listed “targets” that will be achieved by then. This list is a mere reiteration of what is contained in our Constitution’s Directive Principles of State Policy that should have been attained by 1960! Clearly, he has presumed the Modi government’s return in the 2019 general election. The Modi anti-incumbency wave in Delhi election has, thus, become a victim of the BJP’s “selective amnesia”.

        Shorn of all its rhetoric, what does the budget mean for the people? Instead of expanding public expenditures to stimulate growth, employment and people’s livelihood, the budget sees a contraction. In 2014-15, total government expenditure will be 7 per cent lower than the last budgeted figure, i.e., Rs.1.14 crore less. For 2015-16, the estimated gross tax revenue stands at 10.3 per cent of GDP which is less than last year’s budget figure of 10.8 per cent.

Social sector spending                

 

          Instead of stimulating domestic demand by targeting larger expenditures in social sectors, the budget proposals do the opposite to contain the fiscal deficit at 3.9 per cent. The allocations for MGNREGA and food subsidy have almost stagnated, in real terms, showing scant concern for food security, generating employment and improving people’s livelihood. Total subsidy as percentage of GDP has come down from 2.1 per cent to 1.7 per cent (Rs.2.60 lakh crore to Rs.2.44 lakh crore). The allocation for health and family welfare has come down from Rs.35,163 crore last year to Rs.29,653 crore. The total budgeted figure for housing and urban poverty alleviation has come down from Rs.6,008 crore to Rs. 5,634 crore. Similarly, there is a huge shortfall in allocations for the Tribal Sub-Plan (less by Rs.5,000 crore compared to last year), for the SC Sub-Plan (less by Rs.12,000 crore). The Gender Budget cut by 20 per cent (less by Rs.20,000 crore). The ICDS programme has been halved, from over Rs.16,000 crore to Rs.8,000 crore.

          Instead, India’s rich and both foreign and domestic corporates have hugely benefited. The budget proposals will reduce direct taxes by Rs.8,315 crore benefiting the rich and increase the burden on people through indirect tax hikes of Rs.23,383 crore. In addition to direct tax benefit, for India’s rich, wealth tax has been abolished, corporate tax planned to reduce from 30 to 25 per cent, greater concessions and access to FDI, and FIIs absolved of capital gains tax and minimum alternate tax (MAT).

        Further, the reduction in the tax concessions given by the Central government to the rich (subsidies to the rich called “tax incentives”) results in a revenue loss which is more than the actual fiscal deficit (i.e., Rs.5,89,285.2 crore for 2014-15 as against the budget estimate of fiscal deficit of Rs.5,55,649 crore). Hence, our economy is suffering from a deficit burden primarily due to such subsidies to the rich, not due to subsidies for the poor. Under these circumstances, to bolster governmental revenues, the budget has announced an aggressive disinvestment of the public sector to the tune of Rs.70,000 crore, i.e., selling “family silver” to meet current expenditure.

Mirrors UPA reforms              

 

          The Modi government’s budget this time is, thus, a more aggressive variant of Dr. Manmohan Singh’s reforms. They follow the same logic that our economic development is only possible by attracting larger quantum of investments through big concessions to foreign and domestic Capital. However, this alone cannot automatically lead to higher employment and growth. This can only happen if the purchasing power of our people grows to be able to purchase any increased production. With global commerce shrinking due to continued economic slowdown, our exports will remain low. People’s purchasing power will now further contract this budget.

          Instead of expanding concessions amounting to lakhs of crores of rupees for attracting investments, which, in any case, cannot result in growth and improve people’s welfare, if these amounts were utilised for substantially increasing public investment to build our much needed economic and social infrastructure, both greater growth and equity could have been achieved.

           However, by doing this, the Modi government could not have redeemed its “payback time” promises to those who heavily financed its election campaign. The Finance Minister was confident that the time has come for India to fly. With this budget, the rich may soar but the poor will have to prepare themselves for a disastrous crash landing.

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Government - Of Reliance, by Reliance, for Reliance

Surya P. Sethi 

   The government has used fallacious arguments to double the price of gas and hand over windfall profits to India’s richest company

                 Hans Christian Andersen’s story about the emperor’s new clothes came to mind as I read the Finance Minister’s justification of the totally indefensible hike in India’s wellhead price for dry natural gas. The absence of any evidence-based research backing key economic decisions is the true “economic reality” of India, which is today the only country in the world that sees no difference between the wellhead price of natural gas and the price of liquefied natural gas (LNG).

         The core argument being presented is that the higher price will yield higher upstream investment in untapped hydrocarbon frontiers, resulting in higher output of domestic natural gas and the reduction or even elimination of India’s import dependence on even costlier LNG, thereby improving the country’s fiscal stability and energy security.

Unfortunately this argument is fallacious on several counts.

 

Decline in output

 

              First, the government itself admits that despite raising the domestic wellhead price of natural gas by almost 300 per cent from as low as $1.79/MMBtu to as high as $5.25/MMBtu, investments in the sector and the country’s gas output have actually dropped. The bulk of this drop is because of Reliance Industries Ltd (RIL), the company whose demands triggered the recent price increase. The Comptroller and Auditor General report explicitly outlines how RIL reneged on its production commitments while gold-plating its investments. Can the government guarantee that a price of $8.4/MMBtu will raise gas availability?

          What if history repeats itself and it does not? Will the government then find more ways to raise prices even further? How long will the government wait to do so? Does it have a long-term vision based on geopolitical developments in the energy sector, especially gas, where Canada and the U.S. are poised to become major LNG exporters?

        Significantly, the single largest instance of foreign direct investment that the above cited 300 per cent price increase attracted was BP’s acquisition of a 30 per cent stake in RIL’s declining KG basin play and not in any new greenfield frontier. BP is not known to invest $7 billion-plus for improving a country’s fiscal or energy balance. The company must have seen returns from a known discovery even at the then approved price of $4.2/MMBtu.

        Second, the import parity price for a globally traded commodity such as crude oil (unlike natural gas) that has justifiably been in place since the 1990s has not succeeded in raising domestic crude production significantly or attracted significant FDI in the Indian sedimentary basin. Here too, the single largest investment was the purchase of a foreign company’s stake in an existing on-shore field in Rajasthan.

           Finally, and most importantly, even if the government is right; what is the justification for raising the price of gas from existing fields? We can always pay a higher price for more difficult horizons provided the duly approved and audited costs of exploration and production warrant that. The current production was realised with no prospect of getting $8.4/MMBtu. Will the government spell out its plan for this windfall profit it is bequeathing to current producers at the cost of the common man and honest taxpayers?

            It has been argued that the bulk of the benefits from the price hike will go to the public sector. However, we all know that the upstream public sector companies are milked by the government through ad hoc burdens such as funding under-recoveries. Hence, the real beneficiaries will be private gas producers unless the government also announces policies that place the same burdens on upstream private and public sector companies. But that would defeat the real purpose of the price increase, wouldn’t it? A bogey used to milk the upstream public sector is the absence of profit-sharing in the nomination blocks that they received in the pre-NELP era. It would be educational for me and others if the government would make public the exact amount of profit gas and profit oil that it has received from private producers since the New Exploration Licensing Policy was instituted.

             In any event, the entire fairy tale of fiscal stability has now been undermined by none other than the Finance Minister himself. In his press briefing on Friday, he opened the door for subsidising the purchase of gas for the power and fertilizer sectors that together use over 75 per cent of the available gas in India.

 

Cheating & double-cheating

  

          Like the $4.20/MMBtu price the last time, I am intrigued by the choice of the number $8.40/MMBtu this time around. In everyday language, these numbers are used to signify cheating and double-cheating! The price of 4.20 was derived based on a RIL formula that had never been used and is still not used anywhere in the world to price natural gas at the wellhead or any other form of gas anywhere. The 8.40 number reportedly flows from the Rangarajan formula, which again is not used anywhere else in the world to establish the wellhead price of natural gas or any other form of gas anywhere.

             Can the government identify even a single gas field in the world that gets a well head price of $8.40/MMBtu for conventional dry natural gas? How come investments keep taking place elsewhere without resorting to such dubious pricing formulae? Can Dr. Rangarajan identify which element in his formula represents the wellhead price for dry natural gas actually received by conventional natural gas producers around the world? The truth is that none of the elements in the Rangarajan formula represents the wellhead price it sets out to establish, and yet it magically delivers a price at exactly twice the 4.20 level! The Henry Hub spot price (currently at $3.77/MMBtu), which is the only relevant element in the Rangarajan formula, is also greater than the wellhead price received by producers of conventional dry natural gas in the U.S.

 

‘Gigantic scam’

  

           Strong words are typically not in my vocabulary so let me simply say that I agree with Gurudas Dasgupta, MP, that a “gigantic scam” is being perpetrated on the impoverished people of our country.                                                                           

                I also agree with former Union Revenue Secretary E.A.S. Sarma’s assertion that the gas price hike is a policy initiative that “socialises costs and privatises profits.” Let us not forget that the same KG basin gas that was once offered to NTPC at $2.34/MMBtu for 17 years and which is documented to cost under a dollar per MMBtu to produce received $4.20/MMbtu in the first five years and is now guaranteed to receive twice that or more in the next five years. This is the road to wealth in a country wherein some 80 per cent of the people live below the $2/day purchasing power parity threshold.

               I urge the non-Congress leaders to join hands with Mr. Dasgupta in stopping this loot. Perhaps the Supreme Court, that placed very clear responsibilities on the government while pronouncing its judgment on the gas dispute between the then warring Ambani brothers, will take note of what is going on, especially in light of the CAG’s findings on the KG basin. Let me add that if indeed India is floating on natural gas, raising the wellhead price of dry natural gas to levels unheard of anywhere else in the world is the worst policy option to release this national wealth. Such an option works best when reserves are limited and producers gold plate their investment to extract the much needed energy at higher and higher prices to achieve the investment multiples that current policies guarantee — just as the CAG discovered in the case of KG basin.

                     In closing, let me inform the honourable Petroleum Minster that everyone related to the hydrocarbon field in India knows that I do not represent any lobby — not even the oil and gas import lobby that our Petroleum Minister seems to have inside information on. My old and new clothes do not come from any vested interest, blandishment or deception. Can our emperors make the same claim?

 

(The writer, formerly Principal Adviser, Power & Energy, Government of India, is Adjunct Professor, Lee Kuan Yew School of Public Policy, National University of Singapore)

 

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Patrice Lumumba - The most important assassination of the 20th century...!

         

          The British intelligence services may have just had one of their best-kept secrets blown: their role in the abduction and assassination of Patrice Lumumba, Congo’s first democratically elected prime minister whose Pan-African nationalism and pro-Moscow leanings alarmed the West.

           For more than 50 years, rumours have swirled over allegations of British involvement in Lumumba’s brutal murder in 1961, but nothing has ever been proved — leaving the CIA and its Belgian peers alone to take the rap for what a Belgian writer has described as “the most important assassination of the 20th century.” Now, in a dramatic revelation, a senior British politician has claimed that he got it from the horse’s mouth that it was MI6 that “did” it.

           In a little noticed letter to the editor in the latest issue of the London Review of Books (LRB), Lord David Edward Lea responded to the claim in a new book on British intelligence, Empire of Secrets: British intelligence, the Cold War and the Twilight of Empire by Calder Walton, that the jury is still out on Britain’s role in Lumumba’s death. “The question remains whether British plots to assassinate Lumumba … ever amounted to anything. At present, we do not know,” writes Walton.

             Lord Lea retorted: “Actually, in this particular case, I can report that we do. It so happens that I was having a cup of tea with Daphne Park… She had been consul and first secretary in Leopoldville, now Kinshasa, from 1959 to 1961, which in practice (this was subsequently acknowledged) meant head of MI6 there. I mentioned the uproar surrounding Lumumba’s abduction and murder, and recalled the theory that MI6 might have had something to do with it. ‘We did,’ she replied, ‘I organised it.’”

According to Lord Lea, she contended that if the West had not intervened, Lumumba would have handed over Congo’s — now called Democratic Republic of Congo — rich mineral deposits to the Russians. When contacted by The Hindu, Lord Lea confirmed the contents of his letter to the LRB and that the conversation over tea took place a few months before Ms. Park died in 2010. “That’s the conversation I had with her and that’s what she told me. I have nothing more to add,” he said when asked if he had any other independent confirmation of Ms. Park’s claim.

        Ms. Park was a career intelligence officer who served in Kinshasa (then Leopoldville) between 1959 and 1961. On retirement, she was made a Life peer as Baroness Park of Monmouth. Her fellow peers in the House of Lords referred to her as a spokesperson for the Secret Intelligence Service. She was also briefly head of Somerville College, Oxford University.

         There has been no comment from MI6 on Lord Lea’s revelation. “We don’t comment on intelligence matters,” an official said.

               Lumumba, hailed as “the hero of Congolese independence” from Belgium in 1960, was shot dead on January 17, 1961 after being toppled in a US-Belgian backed military coup barely two months after being in office.

              Lumumba had been sheltered by Rajeshwar Dayal — the Indian diplomat who was the UN Secretary General’s representative in the Congo — for several days but was captured and killed soon after he chose to leave the compound. “This heinous crime was a culmination of two inter-related assassination plots by American and Belgian governments, which used Congolese accomplices and a Belgian execution squad to carry out the deed,” wrote Georges Nzongola-Ntalaja, a specialist on African and Afro-American studies and author of The Congo from Leopold to Kabila: A People's History.

           Declassified American documents from the time have established Washington’s role in covert assassination plots — the most famous being a CIA plot to poison Lumumba’s toothbrush by smuggling poisoned toothpaste into his bathroom.“The toothpaste never made it into Lumumba’s bathroom. I threw it in the Congo River,” Larry Devlin, the CIA station chief in Leopoldville, later said.

         Not much is publicly known about UK role. But, in 2000, the BBC reported that in the autumn of 1960 — three months before Lumumba was murdered — an MI5 operative in the British embassy in Leopoldville suggested “Lumumba’s removal from the scene by killing him.” 

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