The Government must prioritize; it can only govern a few things at most. It can do well to carefully select them and act diligently.
Ease of Doing Business starts by looking at Governance itself. Then it must look at the areas where the government has prioritized. Let me mention some of the good initiatives taken by the government.
The current environment reflects a sense of urgency and concern for the business as opposed to the maintenance of status quo. The current government has the superiority of numbers but that by itself is not the reason for success. For industries the first step to reform is the governance process itself and here the new government has definitely scored better in terms of transparency and accountability, which is elaborated below.
1. Governance structure of the Government: The government needs to govern with some semblance of discipline and the structure of governance in the erstwhile governments had much to be desired. In the recent times we have seen the maingovernor shifting to the PMO for not only policy formulation but actual monitoring of projects in every ministry. This is a fundamental shift that puts enormous amount of accountability to the PMO and can only succeed if the PM himself is working overtime to ensure monitoring and follow ups. Some of the bigger projects like Make in India or Swacchh Bharat are entirely driven by the PMO, which shows the resolve to steer activities with strict timelines. There is a briefing process which makes allowance for the PM and PMO to have close touch with every Ministry almost on a daily basis. Such processes have put enormous pressure on the administrative offices in terms of adherence to timelines. This is a welcome step and the industry benefits from it as every Minister and his core team has full details of every aspect of progress at all times, which makes industry-government discussion progress at a much faster rate and more efficiently as well.
2. Coal & Power: We have seen very bold reforms in the Coal sector in particular, that saw quick implementation of the auction of coal assets to the private sector post the de-allocation of coal licenses. The administering of the auction was fair and transparent and the policy environment has seen pro-activeness by the government to understand some of the burning issues related with coal de-allocation. Security of coal supplies took precedence over any other considerations prompting industry players to engage in auctions as the only available choice. However the coal auctions by and large raised the cost of coal production far above the market rates and have not been economically viable given the capacity over-hang in the domestic coal sector. The nature of this shift in demand-supply scenario has been abrupt as coal consumption by the power units significantly dropped in the last ten months.
The price of coal in India is entirely governed by the consumption schedules of power producers and this has seen quite a beating in the last several months; the PLFs have seen dwindling between 60% or even below for protracted periods of time.
The Power Ministry although it has been very successful to make coal available has to now look at evacuation where we have a number of concern areas. Electrification programs are influenced by progress of transmission lines and here the country has been lacking the right policy and administration interventions to allow access to land for building of the transmission towers without any hassle. The consumption of electricity can only happen once this aspect has been solved. The State electricity boards and licensees have balance sheet issues however, which comes on top.
The policy and governance environment is good, but the overall economics of privatization of coal assets will depend on the total cost of acquisition versus the market price of coal; auctions therefore may not be the best and the only route and more flexible arrangements like linkage auctions have been the right steps taken by the Ministry.
3. Rail & Road: The major success of the government has been to realize that logistics is the backbone of the nation and it needed a far deeper focus than what had been extended in the past. The best of minds like Mr. Gadkari and Mr. Prabhu having given the charge of the Ministry of Road and Rail was the first step. In Roads the TCI-IIM paper, “Operational Efficiencies in Freight Transportation By Road in India” shows the step by step improvement that needs to be attempted by the government that includes speeding up of the road making in terms of kms per day and in ensuring that we have far lower number of stops on the road, which is a colossal waste. On Rail, the Bibek Debroy Committee report had provided the initial insights into the areas of focus and the Ministry for the first time shifted the entire focus from passenger transportation to freight. Speeding up of projects, arranging financing and creating a customer centric organization have been the few quick wins already acheived. Mr. Prabhu is like a CEO meeting customers in regular intervals trying to understand the deeper issue in freight transportation and finding solutions through a joint exercise instead of unilaterally deciding, which had been the earlier norm. Many of the bottlenecks have already been removed in many of the clusters in India. The freight tariff structure review and forming key account management structures is a very bold step taken by Railways.
Road and Rail has a good start, something if taken to its fruition will pave way for India’s growth, which is currently constrained by logistics bottlenecks.
Ease of doing business can progress once the governance mechanism is in place and infrastructure building is taken up as a planned arrangement and not as uncoordinated steps. We have seen all of this happening.
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