Coal block auction, food stock offload soon: Montek Singh

The fundamental issues such as high CAD, high inflation, energy problems, among others, continue to plague the economy. But despite the gloomy and worrisome macro scenario, Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, continues to remain optimistic.

Though he agrees with the fact that the high prices are a burden to the common man and reflects poorly on the economy as a whole, but this time around, the high CPI and WPI inflation numbers were caused by food inflation, which was primarily driven by onion prices, which is expected to correct shortly and is just a short-term disruption, he justifies. The government has already stepped in to ease food prices and plans to offload some stocks in the coming months, he adds. Also Read: Gone are the days of 8% growth: Moody's on India
One of the other components of inflation is fuel. According to Ahluwalia, the high prices in this case are a reflection of rising global fuel prices. But it is only a small part of total inflation, he says. The last component is inflation in manufactured goods, which is very low, somewhere around 3 percent or so, which is again good news for the economy, he adds. But despite all the positives, the overall rate of inflation is above the comfort level of 6 percent, he told CNBC-TV18.
Another area of concern is the coal block allocation, which has been mired in controversy. But Ahluwalia seems content with the government's efforts to smooth the issues. He says the government recognises that these coal block allocation decisions are bound to be subject to questioning and hence must be auctioned.
He feels it is imperative that surplus coal in allocated coal blocks be allowed to be used by other power companies or sell it to other power companies or use it for other power projects for the same company. He says India's total coal production is not enough to satisfy total demand. But if there are some domestic capacities which can be expanded beyond what is the immediate authorised need, the more coal one can extract from these capacities, the more coal one will save on the import front, he adds.
Another major issue for the economy has been the high current account deficit. But Ahluwalia is certain that CAD will be much lower than the estimated USD 70 billion. He gives full marks to the government in its efforts to bring down CAD as this USD 70 billion is an improvement over last year's deficit at USD 88 billion.
According to him, the government's efforts in reducing gold imports has finally paid off and the slower growth of non-oil, non-gold imports, which reflect that the economy is moving slower than perceived, will automatically result in the deficit falling much below USD 70 billion.
In terms of giving a boost to corporate India, he says the government took many steps to relax borrowing rules in rupee terms. He is in favour of a transition to borrowing in rupee against the current practice of borrowing in dollars. He reiterates on the need to develop a much more active bond market. The government has been trying to get India into one the international bond indices, which Ahluwalia feels is an effort to integrate the Indian economy with the global economy financially. Below is the verbatim transcript of Montek Singh Ahluwalia's interview on CNBC-TV18 Q: First on the consumer price index (CPI) and wholesale price index (WPI) numbers, very troublesome the trajectory and the manner in which they rose. What is the sense you are getting as an economist, do you see them peaking of at all, both food and non-food is struggling?
A: Inflation clearly is a problem and you need to separate out three different components of inflation. One is food inflation, one is inflation in fuel and other is manufactured goods. Now the fact is food inflation has been high. I think in the most recent month this has been driven by extraordinary high inflation in onions which I believe will correct itself and therefore we should see an automatic easing of that that is a short-term disruption. It does reflect the fact that our markets are not well organised to smooth these disruptions and that is a separate issue. But certainly on food including particularly food grains, the government is taking steps to essentially offload some stocks in the coming months and I therefore expect to see some relief there.
In terms of fuel inflation the truth is that this is a reflection of rising global fuel prices. I think we have to absorb that and I don't therefore expect to see any change. But fuel inflation is only a small part of total inflation.
The really good news is that inflation in all manufactured goods is very low, somewhere around 3 percent or so. Nevertheless the overall rate of inflation is above comfort level so we have typically regarded say 6 percent or below 6 percent as an acceptable level of inflation and it is not there yet. And I just hope that in the course of the year we will see that happen.
A lot will depend on food inflation particularly as far as consumer prices are concerned because consumer price index is very heavily weighted towards food compared to other products. Q: In terms of a timeline when do you expect to see relief on WPI and CPI because like you mentioned the government has put in place that mechanism of using some of the food stock to cool the price pressure so if that plays out in the next couple of months do you suggest that at the start of the next year we could see some relief?
A: I would certainly hope so. The government has decided that and we have set up a committee of officials to find a formula that would enable us to offload food stocks in a manner that responds to the fact that prices are high in some places and not so high in other places.
In the past what has tended to happen is that food has been offered at a particular price for offtake and that is not a very good system. We need to recognize that we have to cool food prices wherever they are high and hopefully this committee in another couple of weeks will work out a formula. That means that during the months of November December we should be in a position where stock is getting offloaded and as people perceive that the stock is going to be offloaded, that will affect market sentiment also. Q: More importantly the planning commission questions. On coal it is always one step forward and two steps backward. We thought we were making some headway with policy allowing the auctioning of coal blocks but now with so much of public questioning again on coal allocation do you think we will see any headway in the coal block auctions, will it happen in this fiscal?
A: In my view it absolutely must happen. Remember the problems that we are seeing are really are a reflection of concern about the way the older system operated. This older system is a system that had been in place for several years. So since we have some of those actions being investigated by the investigating agencies, they all relate to decisions taken much earlier and lets hope that comes to a quick conclusion and we can put it behind us. The major change that was made in policy and it is a very important change, the government recognizes that these allocation decisions are bound to be subject to questioning and therefore they must be auctioned. Cabinet has approved that method so I am very confident that we will see that auctioning take place.
To my mind it is a very important signal for the future. I mean whatever may have been the problems with the system in the past, which had been going on for many years including prior to the UPA government. Anyway it came to a problem where people felt that was not the right way to go and the government itself felt that we should auction. So I sincerely hope that in this year which will be the last year of UPA too, that we are able to say that auctioning as a system has started and there is no reason why it can't be done. Q: BK Chaturvedi was also on our channel a few days back and he was speaking about recommending the usage of surplus coal in allocated coal blocks by other power companies. Selling it to other power companies or using it for other power projects for the same company. Is that well close to being achieved?
A: My personal view is that is a flexibility that is absolutely essential. It will be controversial because we are running a system where any change in policy can become controversial. I think we need to look at it from a national point of view. From a national point of view we have limited usable coal resources at the moment. The total production is not enough to satisfy total demand. We are importing coal at the margin at a cost two-three times the domestic.
Now if there are some domestic capacities which can be expanded beyond what is the immediate authorized need, the more coal you extract from these capacities, the more coal you will save on the import front.
From a national point of view it is utter nonsense to say that we shouldn’t do that. Now because we are seeing that it attracts controversy, the way we do it, it should be done in a completely transparent manner where people can see there is a national interest being served and it is not something which is being done behind the curtain or in a non transparent manner. Exactly what that is the BK Chaturvedi Committee is supposed to see. It is absolutely clear to me that energy is critical for this country’s development and energy security means that you should utilize the domestic available energy as much as possible. And we have in captive coal a lot of capacity and if these people can produce more coal than they need, we must find some way of allowing that to happen and then using it.