REFORMS. REFORMS. REFORMS.

Coronanomy — 07

Energy, Metals, Defence, Aviation, DISCOMS, Atomic, and Space are all critical and strategic sectors to any nation. These sectors are the backbone to the infrastructure development and national security, and there were overwhelming reforms in these sectors on the 4th day.

Black diamond

In 1973, India nationalized the coal due to the numerous instances of exploitation of labour and shambolic working conditions. India is the second-largest producer and consumer of the coal in the world after China. It has the world’s fifth-largest coal reserves. But for a long time now, India has been dependent on coal imports for meeting its demand with 251 Million Tonnes of coal imports in 2019–20.

Now, India is stepping up on the gas to lay a strong foundation for energy security that will generate significant employment opportunities and can attract large investments. The government opened the coal sector for commercialization without any end-use restrictions and also announced Rs 50000 crore for evacuation infrastructure. The private firms now have the option to do whatever they can with the coal they mine from coal gasification to even exporting it. There will be no eligibility criteria to enter the auction of coal blocks, and the highest bidder will get it. Even the foreign firms can take part in auctions as FDI limit have been increased to 100%.

The miners are supposed to share the revenue with the government. The earlier mechanism of fixed payments has been altered to a revenue-sharing one. So, when prices go up, miners share more with government and vice-versa.

On 18 June, India initiated an auction for 41 coal blocks totalling the capacity of 225 million tonnes of coal per year. While launching it, PM Shri Narendra Modi said — “We are not just launching the auction for commercial coal-mining today, but bringing the coal sector out of decades of lockdown.” It has the potential to generate immense job opportunities and induction of new technologies and competition in the sector.

Minerals

“India imports 60% of aluminium despite abundant domestic capacity.” Significant reforms were announced including a seamless composite exploration-cum-production regime, and 500 mineral blocks will be auctioned under this regime. Earlier, there was a distinction between captive and non-captive mines. Captive mines have to use their produce in their products only and cannot sell it in the market. The removal of this distinction will allow the sale of unused surplus minerals and better market efficiency. The Finance Minister also announced joint auctions of coal and bauxite blocks to enhance the aluminium industry’s competitiveness.

Industry stalwarts welcomed these reforms and lauded the government. Hindalco’s Managing Director said — “All these steps will not only improve the ease of doing business but also significantly contribute to the global competitiveness of the metals and mining industry.”

Defence

India is the second-largest importer of arms in the world. To cut import bill and give a thrust to ‘Make in India’, FDI in Defence was increased from 49% to 74% and a negative list that will ban imports of specific defence equipment. Several global arms producers have been demanding an increase in FDI to gain ‘more management control’ before expanding investments and provide top-notch technologies. Also, a budget will be created to buy indigenously-produced weapons.

India has been known for taking delayed payments, placing small orders, cancelling tenders, and unreasonable qualitative demands. Private companies are often left disappointed due to these systemic inefficiencies. Thus, an ethical procurement of weapons from the private sector is required to make an FDI investment more lucrative. Also, the weapons shortlisted to be banned and only procured from domestic sources will be of lesser quality and thus focus should be laid on enhancing the quality of domestic production.

Civil Aviation

India uses only 60% of its air-space for civil aviation which forces the sector to take long routes. The government announced the easing of the air-space leading to shorter flights, less fuel consumption and expected to bring a total profit of Rs 1000 crores per year. Also, the Airport Authority of India (AAI) has already awarded 3 out of 6 bid for operation and maintenance on private-public partnership (PPP) model. The government also announced the rationalization of Maintenance, Repair, and Overhaul (MRO) Tax regime and intend to make India a global hub for MRO. Earlier, it was cheaper for an Indian plane to fly to Singapore for its repairs.

Aviation is among the hardest-hit sectors. Its activities were completely halted and have resumed in a staggered manner. With the COVID-19 cases rising thick and fast, general sentiment towards travelling is at its lowest and the sector faces the question of its survival. In the wake of it, the package for it is too little or negligible. Aviation companies were looking for much more support in terms of debt restructuring, or cash benefits such as salaries for its employers.

Some of the other measures and reforms announced are as follows:-

• Privatization of Power Distribution Companies (DISCOMS) in Union Territories (UTs): The Finance Minister announced that all the DISCOMS in the UTs will be privatized and will later become as a role model for all the states. Privatization will lead to better consumer service and efficiency. DISCOMS will have to maintain certain service standards and would be penalized for their inefficiencies. Every energy expert appreciated the decision as it will reduce losses, better consumer service and ultimately better infrastructure development to achieve the goal of Self-reliant India.
• Increase in Viability Gap Funding (VGF): Viability Gap Funding is a way to support Public-Private partnerships (PPP) in which the government provides funding of 20% to infrastructure projects. In the fourth tranche, an announcement was made to increase it to 30% as Rs 8100 crores were announced for social infrastructure projects such as hospitals and schools.
• Space: The government announced that the private sector would be able to access the existing facilities of Indian Space Research Organization (ISRO) such as satellites, launches, and space-based services. Also, the ISRO will now share its imagery data with space startups who are forced to acquire data from foreign organizations such as the European Space Agency (ESA) at a high cost.
• Atomic Sector: This was probably the most unexpected announcement of all five days as the government permitted the entry of the private sector to set up a research reactor in Public-Private partnership model for the production of medical isotopes for treatment of cancer. The permission was also granted to establish facilities regarding irradiation technology for food preservation to complement agricultural reforms.

Overview

Things move slowly with government, as some of these reforms were probably long overdue for a decade or so. But, this pandemic has provided an opportunity for the government to fast track reforms to boost the industry’s confidence and generate employment which otherwise would have taken a very long time. All of the reforms are prudent in nature and can generate immense employment if implemented correctly. Some of the reforms were welcomed by the industry such as commercialization of coal and minerals mining, increased FDI in defence, and space and atomic sector’s opening to private sectors. Privatization of DISCOMS is the need of the hour. But the aviation sector is highly disappointed after the package as they received too little compared to the pains they are going through.

That being said, the implementation of all these reforms is key to their success. India does not want another scam in coal sector as it gears up for commercialization. Procurement from private as well as Public Sector arms manufacturers needs to be bettered if we aim to achieve the goal of Self-reliant India in the defence sector. Space and atomic sectors are strategically important sectors, so their opening should be accompanied by strict regulation as its misuse can harm the nation gravely.