Need to consider interests of risk taking entrepreneurs without running welfare state for capitalists: Nitin Desai

KNN, June 26, 2017

There is a need to balance interests of diverse stakeholders across sectors to ensure economic growth, said Nitin Desai, President CIRC Governing Council and Former Under Secretary General to UN.

He was addressing the Roundtable co-organised by CUTS International and CUTS Institute for Regulation and Competition (CIRC) and hosted by Nehru Memorial Museum and Library (NMML).

The roundtable was organised to discuss fallout of the Supreme Court decision denying compensatory tariff to Tata Power Limited and Adani Power Limited. Issues with respect to, and apparent conflict between, sustainability of business and sanctity of contract was discussed.

Amit Kapur, Senior Partner, JSA, catalyst for the discussion, pointed out that the issue was much larger than sustainability of business but comprised sustainability of economy and capital. Whenever investment is made in public goods, it is meant for consumption of economy, and if not priced or serviced properly, would adversely impact welfare.

Shantunu Dixit from Prayas, another catalyst for discussion, pointed out there have been instances in the past of changes in rules of games post bidding. As a result, power producers knowingly entered into unviable contracts with a hope that such contracts will be renegotiated in future. This should be not allowed as consumers will adversely suffer from crony capitalism.

Highlighting the need for judiciary to consider economic impact while decision making, Pradeep S Mehta, Secretary General, CUTS International, pointed out recent Supreme Court decisions on banning sale of liquor along highways, among others, which were pronounced sans economic rationale.

Ramji Srinivasan, Senior Advocate, Supreme Court, pointed out that the Court was seized with the question of interpretation of contract, particularly, the force majeure clause, and ruled accordingly. Thus, expectation from the Court to consider broader economic impact might have been misplaced.

Shakti Sinha, Director, NMML added that the objective cannot be to keep any asset stranded and there is a need to ensure overall sustainability of the project.

Highlighting the political economy challenges in reforming the power sector Dr. Pramad Deo, Former, Chairman, Central Electricity Regulatory Commission (CERC) pointed out the monopoly of public sector in distribution of electricity.

Dr. Arvind Mayaram, Chairman, CIRC and Former, Finance Secretary, Govt. of India noted that Indian law is grounded in liberal capitalist framework, often ahead, and at odds with its social economic and social realities. As a result, market players are expected to be aware of implications of legal provisions, which does not necessarily exist. Further, significant technological and disruptive advancements might make long term commercial contracts unfeasible in future. Thus, more research is required in areas of dynamic and shifting risks.

Arun Maira, President, CUTS International and Former Member, Planning Commission highlighted that there is a need to discuss inclusive process based solutions rather than assigning individuals/ experts to find solutions. He pointed out that some principles could be laid down such as: having minimal and only critical rules, permeable boundaries, and having requisite variety in decision making process.

Concluding the discussion, Desai pointed out that absence of effective price discovery mechanism and wholesale market for raw material results in the requirement of contract and bidding. Much greater clarity is required on goals of bidding process. For instance, there is a need to decide if maximising revenue or delivering public benefits is the objective. The need to reform bidding process is necessary, including clearly defining the renegotiation process and ensuring equity. Consumers should be equally allowed to call for renegotiation.

The discussion witnessed active participation from several stakeholders including industry, former regulators, think-tanks, academia, media and consumer organisations.

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