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ECONOMY:
India's Energy Security: Big New Challenge for Modi

Modi’s leadership is linked to good clean governance and rapid economic progress of Gujarat. During his tenure Gujarat turned into overall power surplus state, even as others grapple with acute electricity deficits. Modi was chief minister of Gujarat from 2001 to 2014, winning three assembly elections. It is hoped he will translate his regional success to the national level. Indian businesses see good prospects under Prime Minister Narendra Modi, known to be decisive administrator, pro-industry, micro manager and tough taskmaster, writes Siddharth Srivastava.



Many see Modi as India’s potential ‘Margaret Thatcher’ or even Japan’s Shinzo Abe.  He used technology and social media networks to reach out to India’s large young Internet savvy electorate. The focus and message was economic growth, higher income and better lifestyles for India’s teeming millions. Modi repeatedly said he believes in the principle minimum government, maximum governance. The BJP’s victory has been astonishing.

It is for the first time since 1984 that a single party, the BJP, is in a majority in India’s lower House of Parliament, the Lok Sabha. Since 1947, when India won its independence, only the Nehru-Gandhi family-controlled Congress party has enjoyed a majority in Parliament.

Freed from managing querulous regional parties in a coalition, a politically strong Modi will enjoy considerable administrative flexibility pushing decisions of his government. Modi has appointed his new Cabinet, handpicking those considered close to him and in sync with his vision. He has sidelined old party stalwarts such as L.K. Advani and Murli Manohar Joshi, who could be potential troublemakers and challenge his authority.

Observers say there are many “low hanging fruits” in policy making that Modi government can easily correct without much opposition or legislative action.  Analysts have predictably given a thumbs-up to the Modi government. Credit Suisse said, “A strong new government at the Center can potentially continue and complete the reform process.”

The process seems to have begun with the recent hike in rail fares, essential to reform and upgrade India’s ramshackle, unsafe and loss-making Indian Railways that is managed by the government. New Delhi is expected to bring about major overhaul in India’s Rail system and establish new freight corridors, key infrastructure areas that will impact several industries.




Focus on Oil, Gas, Coal. India’s hydrocarbon sector will need Modi’s particular attention due to teething and structural issues linked to management of natural resources. India’s domestic oil, gas and coal production are nowhere near levels they should be. Presently, India imports 80% of its oil needs spending about $160 billion annually. The country is also increasingly dependent on expensive imported LNG for gas. Currently India imports about 30% of its natural gas consumption.

The huge foreign exchange outflow has weakened the rupee and hurt India’s current account deficit. Indigenous demand-supply gap is due to underinvestment in exploration as overseas majors largely have stayed away from India. Involvement of global players such as Chevron, ExxonMobil, Santos, BP, BG, Shell and BHP Billiton, among others is important to bring in latest technology, big capital and management expertise.

Foreign companies have complained for long about India’s tough and non-transparent regulatory norms, corruption, land acquisition problems, issues linked to environment clearances, pricing below cost, and dealing with intractable defense agencies, among others.

The Modi government will need to incentivize exploration under the New Exploration Licensing Policy (NELP) bidding rounds to attract overseas players. There is a need to look at issues like royalty payments, tax holidays, pricing as well as revenue versus profit sharing agreements.

One immediate task of the Modi government will be to reduce India’s huge fuel subsidy bill of $26 billion due to selling of cooking gas, diesel and kerosene at below cost price. Petrol (gasoline) prices have been freed and quote market rates.

Presently, the fuel burden is shared by exchequer that directly impacts budget deficit and inflation and state-owned oil companies such as Oil & Natural Gas Corporation (ONGC) and Oil India Limited (OIL) that limits their financial ability to invest in their core area – exploration.

Gas pricing is another controversial area, the Modi government will need to address, as it will have a direct bearing on exploration and subsequent supply of natural gas in India.

As per formula recommended by the Rangarajan panel and accepted by the previous government under former Prime Minister Manmohan Singh, gas prices in India were to double to over $8 per unit from April 1. However, the move was put on hold by Election Commission’s model code of conduct to the chagrin of gas producers such as Reliance Industries and ONGC that stand to benefit. There has been continued criticism of the Rangarajan gas pricing approach.

It is seen as complex and distorted. The linking of price of domestic gas to expensive imported LNG price and U.S. dollar instead of local currency has been questioned. Observers say the price should reflect cost and reasonable return for the investor.




The Modi government is making some moves to sort out some of the structural infirmities spoken for long. In a bid to end constant bickering and to better coordination, Modi has decided to merge coal, power and renewable ministries, while a unified ministry will oversee the transport sector. New Delhi is also reportedly looking to split state-owned monopoly Coal India Limited (CIL) and opening the coal sector to foreign investment to boost output and cut imports.

CIL produces 80% of India’s coal, but has been severely criticized for not raising output to meet country’s rapidly rising demand for thermal power. This, in turn, has lead to a surge in coal imports.  “Modi Productions Ltd has been launched with much fanfare. It has a good cast and a good story outline too. But everything now depends on execution,” noted columnist Swaminathan Anklesaria Aiyar wrote in The Economic Times, recently.

Indeed, expectations from the Modi government are sky high. Indians overwhelmingly voted Modi to power as they sense he can deliver on income and employment generation and reverse the country’s dipping GDP growth rates. India is the third largest economy in the world with several sectors such as IT, auto, hospitality, telecom, knowledge outsourcing at cutting edge and world class. Modi will need to ensure that critical sectors such as oil, gas and coal, among others, that fuel the Indian economy pick up pace and stop lagging.


Siddharth Srivastava is India correspondent Siliconeer. He is author of "An Offbeat Story," a reality fiction novel. He lives in New Delhi.

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