The smart-card dichotomy

As has been largely expected, the Budget is more populist. The key challenges facing the energy sector in the short term centre around rising international crude oil prices, heavy subsidies on LPG/kerosene, under-pricing of transport fuels, huge electricity shortages (peak deficit of 14.8% and energy deficit of 8.4%) and stagnating coal production.

Dismissing the issue of high international crude oil prices by saying "the position of crude oil is well known to this House", the FM introduced smart cards for delivering effective subsidies for food supplies through the PDS.

The proposal to use the same smart cards for a transparent and targeted delivery of subsidy on energy - LPG, kerosene - has been completely ignored. Could this be reflective of the fact that in the latter instance it is the oil companies which cover the cost of these subsidies?

The move to do away with ad valorem taxes on petrol and diesel and replacing them with specific duties with no current impact on retail prices is good.

This can be considered to be a reformist move that paves the way for a move towards a more trade parity-reflective product pricing - as increases in oil prices would not translate into increased government revenues. However, it is unclear as to why the same is not applicable to the premium brands of these products. One can surmise that in the eventuality of an increase in trade-parity price of these products, those groups who consume premium brands would generate additional revenues for the government.

One can only hope that this does not signal a shift to unbranded petro-products and a poorer urban environment. The reduction in excise duty on small cars combined with this protection to unbranded transport fuels is clearly designed as a sop to the masses.

The achievement of the commissioning of 10,000 MW in 2007-08 should not lead to complacency. Meeting the remaining target of 68,577 MW in four years is a huge challenge, especially when we have averaged about 6,500 MW annually in the last three years.

No clear mechanisms have been identified to provide further impetus to the achievement of this 11th Plan target. India is yet to recognise energy savings as equal to energy generation, and therefore, the potential for energy efficiency hardly finds a mention in the speech except in the climate change context.

Non-coking coal production by end March 2008 may be about 30 million tonnes less than the quantity produced in the previous year. The large additional capacities needed in the future to fuel our power expansion programme will need more fundamental reform than the establishment of a coal regulator.