Gas price deregulation: A distant dream - Views on News from Equitymaster

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Gas price deregulation: A distant dream

Aug 21, 2009

After years of government control, India made the shift towards lesser regulation in the early 1990s. But old habits die hard. As per a leading business daily, the oil ministry plans to determine the price of natural gas till the time the acute shortage is addressed. The price will be determined on a cost-plus-adequate return basis. The official reason is that such a price will be in line with the Integrated Energy Policy, adopted by the government in December 2008. We wonder to what extent the decision is a result of the ongoing public spat between the Ambani bothers.

On the broader question of liberalisation though, we believe this sends out a wrong signal. It is true that there is a huge demand-supply mismatch in the natural gas sector in India. But the answer to every problem is not government intervention. Till today, the government finds it hard to leave matters to market forces. Even when on paper it says it has done so.

Take the example of the Administered Price Mechanism (APM) regime for the oil and gas sector. It has been dismantled for years now, but the government finds it very hard to let go of petroleum product prices. The point is, license permit raj perpetuates a 'mai-baap sarkaar', fosters red tape and corruption, and ends up choking the energy of the entire country.

What we really need is well regulated free enterprise, if India is to move beyond its underachiever status of the last 62 years.

India's auto story keeps getting better
Slowdown or no, the Indian auto sector, be it domestic or exports, is vrooming ahead. As per a leading business daily, the response of powerful super bikes in India has been really encouraging. In fact, that global motorcycle majors such as Yamaha, Suzuki, KTM, Kawasaki and Honda plan to introduce new bikes in the coming months.

In another development, Suzuki is transforming Maruti Suzuki as the largest research and development centre for Suzuki outside Japan. Maruti Suzuki now has a 700-acre facility for R&D located in Manesar (Haryana) and has recently hired 8 automobile engineers from Detroit, the auto hub in the US to augment its R&D capabilities. Tata Motors has also visited Detroit. It may be noted that the US auto industry, once the global leader, is now in shambles leaving talented technocrats up for grabs.

In our opinion, the Indian auto space looks exciting partly based on strong domestic demand and partly on the confidence of Indian auto companies in designing and manufacturing cars for global markets.

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