Is regulating a monopoly the only solution?
In this issue:
» Freeing diesel prices a solution for fiscal deficit?
» Does US need a new housing policy for revival?
» China loosens the noose on its currency
» Steel consumption to grow in FY13
» ...and more!
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There is no clear answer to this. But in the case of India, one particular monopoly has been creating havoc for its customers. And these customers provide the backbone of the Indian economy. Therefore this monopoly is quintessentially threatening the economy. We are referring to the monopoly of India's largest coal producer, Coal India Ltd. (CIL). The company's disturbed coal supplies have put the Indian power companies in a fix more than once. Though a presidential directive has directed CIL to sign fuel supply agreements (FSA) with the power producers, it is yet to do so. Moreover, the quantum of penalty for failing to meet the FSA has been left to be decided by CIL itself. And the company has clearly stated that it will try and keep the amount of penalty as low as possible.
Needless to say, this has annoyed the power companies. As a result, the Union Ministry of Power has pushed for the need of a regulator for the coal sector. The Coal Minister too has stated that a draft Bill outlining the need and duties of a regulator has already been finalized. Once it is approved, there will be a coal regulator who would decide the allotment and pricing of coal. Considering the way that CIL has exploited its monopoly position, regulating it seems to be the only answer.
Alternatively, the sector could be opened up to competition. This way the mechanics of pricing would be decided by the natural competitive forces. However, this alternative would not always work in the favour of the economy as a whole and the government in particular. This is because it could lead to over mining for profits, as seen in Karnataka for iron ore. This in turn would cause more harm to the country than benefit. Therefore regulating the sector for now seems to be the best and only alternative. But it has to be done properly. Not drawing out ambiguous or ridiculous policies as we have already seen in other sectors.
Do you think that coal sector should be regulated or opened up for competition? Share your comments with us or post your views on our Facebook page / Google+ page.
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Source: Telecom Regulatory Authority of India (TRAI) |
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The current government's various bailout plans have not really made much of a difference to a sustainable US recovery. But regards the housing market, certain factors have to be taken into account. For instance, the subprime borrowers in the US have already defaulted. This means that the current home owners are not really behind on their mortgages and are punished simply because of market conditions and the wave of foreclosures around them. Given that the meltdown in the US housing market has affected almost each and every American, political leaders need to push aside politics and focus more on how to ensure that this market recovers going forward.
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5 Responses to "Is regulating a monopoly the only solution?"
Seth
Apr 17, 2012The only known wealth creator is either a Monopoly or Appreciation of asset value, which is the third in a manufacturing industry
In the service industry time is money any service provider who can have a service that saves time too will create wealth
Ragini Ghanekar
Apr 16, 2012I do not know details of disrupted supplies and exploitation by Coal India. Disrupted supplies indicate that company is not being run efficiently. Management should be held responsible and pulled up for it. Since there is a separate coal minister it seems to be his job to chastise management. If it does not fall within his duties regulator is a good solution since regulators like SEBI and insurance regulator are doing a good job. As to the pricing it should be tied to the cost and a reasonable margin of profit. It should not make exorbitant profit but at the same time should not be asked to subsidize power sector. Subsidy is a malice which should be gradually eradicated. It may be painful and bitter medicine but it will create a realistic and beneficial picture in long term.
Rahul khemani
Apr 16, 2012This post is designed
not by a master, but
by a Masterpiece. This
daily, wrapped up
with every useful
economic data or
news, or a part as a
whole. Thank you
Equitymaster.
Brij Kumar SIngh
Apr 16, 2012Regulating the natural resources is a desirable option and every citizen should welcome this step. But prior to this the resources need to be freed from the clutches of polticians and their yes man bureaucrats. Regulator is a beautiful word but the person who occupis this position is more important. India needs dedicated honest people with more common sense to govern this country rather bookish people who through their GOD gifted brain and hard work have occupied the high portals of administration. The lure of money & power in the civil services,brings every year many doctors, enginners scientists who could have done miracles in their own field. All most all the bodies like Ganga ation plan, yamuna cleaning drive etc are all stuffed by the yes man from civil services and the real workers-scientist are left to do the real hard work. It will be wonderful to study the life style and function of a District Magistrate of a district to get an answer in the root cause of deteriorating moral ethical monetary standard of life in this country.
saby chacko
Apr 28, 2012I do not agree with Mr Raghuram of world bank regarding removing price control of diesel to reduce a/c deficit as there are several other means to do it. Even a child in india knows that increasing of diesel prices will shoot up the price of everything in India and the inflation will be beyond anybody's control. cost of leaving goes up rapidly and also the labour cost. Perhaps with his advise the beneficiary will be not indians in India but the cost of our products will go very high and exports will be not really competitive and will loose the market share in our exports.