‘Liar’s Dice’ to represent India at Oscars

Hindi film ‘Liar’s Dice’, a road drama about a tribal woman’s journey to find her missing husband, has been selected as India’s official entry to the upcoming Academy awards in the best foreign film category.

Directed by Geetu Mohandas and starring Geetanjali Thapa and Nawazuddin Siddiqui in lead roles, ‘Liar’s Dice’ beat 29 other films to represent India at the Oscars 2015, Supran Sen, secretary general of the Film Federation of India (FFI) told PTI.

Mr. Sen said FFI, which nominates the Oscar entry from India every year, had received a record submission of 30 films.

Set in a village near the Indo-Tibetan border, the film’s story follows a young tribal woman whose husband has failed to return home after leaving to work in Delhi many months ago.

She decides to go to Delhi with her young daughter to search for him and on the way meets an Army deserter, Siddiqui, who realizing the perils of the journey ahead for them, decides to accompany them to their destination.

’Liar’s Dice’, Ms. Mohandas’ feature debut, was critically acclaimed in the festival circuits. It was selected at the Sundance Film Festival and International Film Festival Rotterdam.

The film won the National award for best actress to Thapa and best cinematography award to Ms. Mohandas’ cinematographer husband Rajeev Ravi.

India has never won an Oscar in the best foreign film category. The last Indian film that made it to the final five nominees at the Oscars was Ashutosh Gowariker’s ‘Lagaan’.

’Mother India’ and ‘Salaam Bombay’ are the only other two Indian films to have made it to the top five.

The 87th Academy awards will take place on February 22.

Freeing the undertrial

Without substantive reforms to the investigation and trial process, early release of undertrials may further aggravate the pathologically low rates of conviction and incarceration in the Indian criminal justice system

On September 4, a Supreme Court bench comprising Justices Kurian Joseph, R.F. Nariman and Chief Justice R.M. Lodha relied on Section 436A of the Criminal Procedure Code, 1973 (CrPC) to direct all States to release undertrials in prison for more than half the sentence they would serve if convicted within a period of two months. The Bench went further to direct the Central government to provide a road map for “fast-tracking” the entire criminal justice system — not just certain classes of cases. Not surprisingly, this order has attracted widespread media coverage; some civil society organisations have described it as “inspiring and welcome.” Will an activist court and a decisive Union government together solve the problem of languishing undertrials in the next two months?

In this piece we show that Section 436A is unlikely to be the solution to the undertrial problem in India. Further, to arrive at any solution, we must conceptually clarify and empirically understand what the “undertrial problem” is. Is it the proportion of undertrials to convicts in the Indian prison system, or the undue length of detention without proof of guilt or the socio-economic profile of the undertrial that lies at the core of the problem? The precision in answering this is the key to devise an effective law-and-policy solution.

The primary constitutional and moral concern with undertrial detention is that it violates the normative principle that there should be no punishment before a finding of guilt by due process. So, undertrial detention of those suspected, investigated or accused of an offence effectively detains the “innocent.” However, all criminal justice systems across the world authorise limited pretrial incarceration to facilitate investigation and ensure the presence of accused persons during trial. So, the critical challenge in this area is to identify the normatively optimal and necessary level of pretrial incarceration and then design a criminal justice system to achieve this.

Empirical claim

The Indian debate on the “undertrial problem” begins with the empirical claim that the proportion of undertrials to convicts in our prison system is too high. In 2012, undertrials comprised 66 per cent of the prison population, and in the period 2001-2010 this rate has on average been a stubborn 67 per cent. Is this high proportion of undertrials normatively undesirable or a sign of a pathological criminal justice system? A high undertrial proportion in the prison population may be the result of too many arrests during the investigation and trial process or too few convictions at the end of trial. India has an exceptionally low rate of incarceration which is defined as the number of persons in prison per 1,00,000 population. The International Centre for Prison Studies (ICPS) points out that at 30 (2012) the Indian incarceration rate is among the 10 lowest rates in the world. Mali (32) and the island nation of Comoros (28) are on either side. Our South Asian neighbours (Pakistan – 41; Bangladesh – 42) recorded higher rates of incarceration but similar percentages of undertrial detention (Pakistan 66 per cent/Bangladesh 68 per cent). By contrast, the United States displays an exceptionally high incarceration rate (707 in 2012) and a relatively low proportion of pretrial detainees in the prison population (21 per cent).

In absolute numbers, in 2013, there were around 2,49,800 undertrials in India and they formed roughly 70 per cent of the prison population. In the U.S., in the same year, there were more than double that number of remand non-convicted prisoners (4,75,692). Yet they formed only 21.2 per cent of the prison population. While there may be scope for a substantive debate about which countries offer the appropriate comparison to India, there is no doubt that the fact of India’s high percentage of undertrial incarceration must be placed in the context of the relatively small size of its prison population overall. Any effort to identify the optimal or normatively justifiable rate of undertrial detention must account for the pathological failures of the Indian criminal justice system to convict and imprison despite the overwhelming public concern with the failure of public order and security. If our conviction rate improves, then the proportion of undertrials will drop. Taken alone, the high proportion of undertrials in India is a sign of a pathological criminal justice system. Unless we can show that current undertrial detention is for excessively long periods or disproportionately targets the poor and the marginalised, the proportion by itself is not the core problem that we need to focus on.

Offences and length of detention

The excessive length of undertrial detention has been a subject of judicial, media and civil society concern. Section 436A was introduced into the CrPC in 2005 to mandatorily release on bail all undertrials who have already served half the period of their sentence if convicted. The Supreme Court, in its recent order, and civil society groups have invoked Section 436A of the CrPC as the primary strategy to reduce the undertrial population. This strategy would work if undertrials are in fact detained for inordinately long periods of time.

However, the available National Crime Records Bureau (NCRB) data on prisons shows that between 2001 and 2010, on average around 40 per cent of undertrials incarcerated in the country spent less than three months in prison; the largest single category among periods of detention. Further, during the same period, over 60 per cent of undertrials on average were detained for less than six months. If we include the percentage of undertrials detained for over six months but less than a year, we find that on average over 80 per cent of undertrials in India spent less than one year in prison during the years under consideration. The offences for which these undertrials are being investigated or tried make the futility of a Section 436A strategy apparent. We conservatively estimate that at least 75 per cent of all undertrials between 2001 and 2010 in the country were detained for offences with a maximum punishment of three years and above and could be detained for up to 18 months under Section 436A. The single largest category of undertrials by offence was that of murder, which accounted for close to 22 per cent of all undertrials on average each year. Hence, relatively short periods of undertrial detention for an overwhelming majority of undertrials than is commonly assumed, together with the long sentences attached to the offences undertrials are investigated or accused of leads inevitably to the conclusion that very few undertrials may benefit from Section 436A. The enactment of Section 436A in 2005 had little impact on the composition of the prison population thereafter. The new enthusiasm to implement this provision is welcome but is unlikely to be a substantive solution to the “undertrial problem.” If undertrial detention numbers are a problem, we must re-articulate what is the normatively acceptable length of pretrial detention. If we conclude that the requirement of mandatory release, barring in a few limited circumstances, is on the filing of a charge sheet within a period of 90 days from arrest then we are likely to reduce undertrial detention numbers significantly (60 per cent of undertrials). However, without substantive reforms to the investigation and trial process, early release may further aggravate the pathologically low rates of conviction and incarceration in the Indian criminal justice system.

Profile data

Irrespective of the length of undertrial detention, the core of the undertrial problem may be its disparate social, economic and religious impact. While existing data sources are inadequate, our preliminary research suggests that the illiterate, lower castes and members of religious minorities are over-represented in the undertrial population. In 2012, close to 74 per cent was either illiterate (30 per cent of the undertrial population but only 18 per cent of the Indian population) or had studied below Class 10 (43.3 per cent of the undertrial population). Similarly, Muslims (21 per cent/14 per cent), Scheduled Castes (22.4 per cent/16.2 per cent), Scheduled Tribes (13.3 per cent/8.2 per cent) are over-represented. In order to show that this is a deliberate or structural result of the prosecution or bail process, we need access to the profile of those arrested. This data is currently unavailable. Nevertheless, a policy response that assumes that the disproportionate numbers of socially and economically disadvantaged people are subject to unnecessary undertrial detention calls for a focussed Centrally sponsored public defender programme to replace the ham-handed legal aid services currently administered.

So far we have argued that legal and public policy responses to the undertrial problem should not proceed solely on the proportion of undertrials in the prison population. Arguably, the high proportion of undertrials is a reflection of the pathological failure of the criminal justice system to successfully convict and thereby secure peace and security. This failure must be resolved by focussing on systematic institutional reform of the investigation and prosecution of offences. Second, our current legal strategy assumes inordinately long periods of undertrial detention and we show that a Section 436A-focussed strategy will have minimal impact on the undertrial population overall. New rules mandating release on the filing of a charge sheet — barring limited exceptional circumstances — along with a Centrally sponsored public defenders programme that weeds out the overt or structural discrimination in the criminal justice system is the best bet for a targeted intervention to reduce the length and eliminate the disparate impact in undertrial detention in India.

Learning from Alibaba

The most exciting event of last week was undoubtedly the listing of Chinese e-commerce giant, Alibaba Group Holding, on the New York Stock Exchange. The Alibaba share listed at $92.70, a whopping 36 per cent premium to the offer price, proving right analysts who felt that the IPO price was conservative.

The scale of Alibaba’s listing success should be evident from the following: the $21.8 billion it raised (could get close to $25 billion if the issue managers decide to accept the excess subscriptions) was the highest amount ever raised by an internet company in the U.S. It was much larger than Facebook’s $16 billion and Twitter’s $2 billion.

The valuation of $231 billion that it secured on listing day now makes it the 11 most valuable listed company in the U.S. ahead of the bluest of blue chips such as Procter & Gamble, Pfizer, IBM and Coca Cola.

Jack Ma, who founded Alibaba with $60,000 in an apartment at Hangzhou, south-west of Shanghai, in 1999, is now the richest man in China with a net worth of close to $22 billion.

The 49-year old former school teacher has not only inspired a thriving start-up culture in China but has also created immense wealth for employees, a number of whom are vested with shares in the company.

Scene in India

In the backdrop of Alibaba’s success, it is tempting to look at the scene in India. Admittedly, there is no comparison between China and India when you consider key numbers such as internet penetration, on-line buyers and e-commerce sales volumes.

Compared to China’s estimated $180 billion e-commerce market, India’s is a piffling $13 billion, according to a study by KPMG and Internet and Mobile Association of India. About 70 per cent of India’s market comes from online travel transactions.

India’s internet users number a little over 200 million: China has more than thrice that at 632 million and is projected to touch 850 million by 2015. India is projected to cross the 500-million mark by 2018. The number of on-line buyers in India is expected to cross the 39-million mark by end of this year; in contrast, Alibaba alone has 279 million active buyers in China!

There are two ways of looking at these numbers. The first is to fret over how far ahead China’s e-commerce market is and how Indian consumers are still in the brick-and-mortar shopping era. The other, more optimistic way, of looking at the comparative data is to realise the potential that India holds for growth in the e-commerce space. That is exactly the attitude and approach of those such as Flipkart, Jabong, Snapdeal, eBay and Amazon in India.

The optimism seems to have rubbed off on financiers as well — Flipkart bagged $1 billion in funding in July which valued the company at $7 billion. In barely three months since the previous funding round in May, Flipkart’s valuation had more than doubled prompting founder Sachin Bansal to dream of turning into a $100-billion company in the next five years.

Not just Flipkart, its much larger rival, Amazon, has also been stepping on the accelerator in India. Within a day of Flipkart announcing its $1 billion funding, the U.S. e-commerce giant said it would be investing $2 billion in India. Why this burst of optimism in the industry?

For one, the number of on-line buyers is projected to treble to 128 million by 2018 according to research firm Forrester. If the growth in mobile penetration is any indication, this is a conservative projection given that half of all internet users in India are based on mobile platforms. The competition is to grab as much of the new users as possible.

Yet, where the players could be going wrong in India is on their revenue-first strategy unmindful of profitability. While the likes of Amazon and eBay may have deep pockets, the same cannot be said about their domestic counterparts, the large funding rounds notwithstanding.

Alibaba was smart in its business strategy which ensured that it would be profitable. For instance, with millions of products vying for customer attention on its portal, Alibaba devised options for sellers to advertise on its site and also set up attractive online storefronts for a fee.

It also leveraged on its massive size in terms of registered customers by blocking search engines such as Baidu from trawling its e-commerce portals when users search for shopping options. Perforce, Alibaba forced buyers to approach it directly and thus made its portals attractive for advertisers. Alibaba thus captured the advertisement revenue that would have gone to Baidu otherwise.

While it is understandable that the Flipkarts and the Jabongs may be eyeing Alibaba’s success longingly the fact is that they need to devise similar innovative strategies to turn profitable. Flipkart already boasts of 27 million registered buyers — two-thirds of total online buyers in the country — which can be leveraged to attract advertisers in a bigger way. The Indian e-commerce industry is obviously beginning to take-off.

It will be interesting to watch whether it will eventually spawn a local Alibaba or will it be consumed by giants such as Amazon or eBay. Or who knows, even Alibaba.

Mars mission: Confident ISRO awaits for Sept 24

Will India be able to lower its spacecraft into the Martian orbit in its debut attempt? The answer will be available around 8.15 a.m. on September 24.

“We have left no stone unturned to ensure that this happens,” said S. Arunan, Project Director, Mars Orbiter Mission (MOM), Indian Space Research Organisation (ISRO).

On Wednesday, the orbiter’s propulsion system, called 440 Newton engine or the Liquid Apogee Motor (LAM), will erupt into life at 7.17 a.m. after remaining dormant for 300 days during the spacecraft’s journey to the Red Planet.

Simultaneously, eight 22 Newton thrusters on the spacecraft will pounce into life. The LAM and the eight thrusters will fire together for 24 minutes to perform the MOM’s most crucial manoeuvre called Mars Orbit Insertion (MOI) to lower India’s spacecraft into the Martian orbit, with a peri-apsis of 423 km and an apo-apsis of 80,000 km. The manoeuvre will end at 7.41 a.m. Around 8.15 a.m., the world will know whether India is home and dry.

“Both the hardware and software simulation has been well-established for the MOI. We do not expect any new concern to crop up for the MOM success,” said Mr. Arunan.

ISRO wanted to ensure that the LAM would ignite into life after it had remained dormant for 300 days. Towards that, ISRO tested the LAM on the ground, simulating the thermo-dynamic conditions of the Mars spacecraft, he said.

A test-firing of the LAM and eight small thrusters was done simultaneously. “We have conducted this test in the operating conditions [of the spacecraft] as envisaged during the MOI manoeuvre. The test was successful. The engine performance was as per prediction… So there was no concern on the simultaneous firing of the LAM engine and 22 Newton engines,” Mr. Arunan asserted.

Besides, ISRO test-fired a LAM, kept on the ground for 450 days in the same conditions that India’s Mars orbiter was undergoing in space now. “We kept it in a vacuum chamber for 450 days and when we fired it again, its performance was absolutely as predicted,” Mr. Arunan said. All the tests were done at the ISRO Propulsion Complex, Mahendragiri, Tamil Nadu.

V. Kesava Raju, Mission Director, MOM, said the spacecraft’s velocity would be reduced on September 24 to enable it to get the Martian orbit.

“When India’s spacecraft comes under the influence of Mars’ gravity on that day, it reaches the closest point to Mars. At that time, our spacecraft will attain a velocity of 5.7 km per second…But we require only 4.6 km a second. So the spacecraft’s velocity is reduced by 1.1 km so that the spacecraft can be contained in the orbit around Mars,” Mr. Kesava Raju said.The test-firing of the propulsion engine on India's spacecraft to Mars for four seconds on Monday went off smoothly, boosting the hopes of the Indian Space Research Organisation (ISRO) engineers about the engine's performance on Wednesday when it will fire for 24 minutes to insert the Mars orbiter into the Red Planet's orbit.

The firing of ISRO's propulsion engine, called 440 Newton engine or Liquid Apogee Motor, on board ISRO's Mars orbiter began at 2.30 p.m. on Monday and there was no hitch at all in its performance. The firing helped to correct the trajectory of the orbiter - the altitude of the spacecraft was brought down by 200 km.

The engine ignited after it had slumbered in space for 300 days during the spacecraft's voyage to the moon. The LAM engine was fired last on December 1, 2013 to catapult India's Mars orbiter from its earth-orbit into sun-centric orbit and its sojourn to Mars began.

Time for action on climate

Anew report authored by Lord Nicholas Stern sounds as optimistic as his landmark 2006 study. It is possible to simultaneously prevent climate change and to augment economic growth, claims Better Growth, Better Climate: The New Climate Economy Report, of the Global Commission on the Economy and Climate. Allowing fewer emissions would fuel growth better than the current high-carbon model. For that to happen, governments would have to redeploy the $90 trillion they are estimated to spend on infrastructure over the next 15 years towards low-carbon technologies. One of them is mass public transport networks that will connect compactly built cities, saving $3 trillion in investment cost by 2030, the report points out. Restoring 12 per cent of degraded lands can feed another 200 million people, raise farmers’ income by $40 billion annually and cut emissions from deforestation. Evidence is mounting that coal is the biggest killer fuel. The World Health Organization’s finding earlier this year is the latest. The seven million premature deaths that occur annually, it says, are directly linked to exposure to outdoor and indoor air pollution, besides links between air pollution and cardiovascular diseases and cancer. The case for urgent change could not be more clinching. The climate report proposes phasing out the $600 billion current subsidy on fossil fuels and raising the $100 billion support to renewables. The result would be energy efficiency and poverty reduction.

The Commission’s ambitious action plan calls upon governments, businesses, financial institutions and cities to weigh the environmental risks and opportunities of their operations. The financial and non-financial performance of businesses should include an assessment of climate risk and resilience with disclosure to investors and stock exchanges. National governments should set a 2025 target on greenhouse gas emissions and a global annual target of zero or less by the latter half of the century. If implemented, says the report, the action plan would achieve 90 per cent reduction in emissions by 2030, enough to prevent catastrophic climate change. As shown by several studies, no region is perhaps more vulnerable to its impact as the countries of South Asia, home to nearly a quarter of the world’s population. A recent Asian Development Bank study warns that many nations in the region would on average lose 1.8 per cent of their gross domestic product by 2050 in a business-as-usual scenario. The damage would be greater when the impact from extreme weather events is also calculated. As current targets to cut emissions expire in 2020, the UN summit being held today is critical to building momentum for a new climate deal in Paris in 2015.

Small steps that matter

Chinese President Xi Jinping’s visit to India, his first since he assumed office in March 2013, has now come to an end. Xi’s trip was the first state visit by a Chinese president to India in eight years. The last stop in Xi’s four-nation tour in Central and South Asia, it was the most important, and the interaction between Xi and Prime Minister Narendra Modi over the last few days set a positive tone for ties between the two countries.

Xi’s India visit should be understood in the context of China’s new periphery diplomacy strategy for the next 5-10 years. The Communist Party of China (CPC) Central Committee convened a neighborhood diplomacy conference in October last year, marking the beginning of Xi’s periphery diplomacy, which is based on the principles of qin (amity), cheng (sincerity), hui (benefit) and rong (inclusiveness). Xi also put forward a series of important cooperation initiatives, such as the Silk Road Economic Belt and the 21st century Maritime Silk Road — “one belt and one road” — and the Asian Infrastructure Investment Bank. These reflect China’s commitment to bringing more benefits to its neighbours and contributing to common development through its own growth. Given that China shares most land boundaries with South Asian countries, it is natural that the region’s importance will continuously increase under these new initiatives. India is the most significant piece on China’s South Asian chessboard.

Despite the dissonance between the warm welcome laid out by Modi for Xi and the congruent standoff along the India-China border, the dispute was not allowed to overshadow the spirit of cooperation blooming between the two countries. Both leaders seem to be pragmatic in their wish to establish deeper bilateral ties, with economic development a major shared concern. If Modi needs growth to deliver on his promise of “achhe din”, China too is at a critical juncture. It is Xi’s mission to secure domestic stability and keep up the steady growth of China’s economy.

In that vein, compared with previous high-level visits, many of the bilateral agreements signed this time allow China to make massive investments in India’s infrastructure and manufacturing sectors. For years, this was stymied by New Delhi’s security concerns. China runs huge trade surpluses with India, more because of the Indian demand for cheap Chinese goods than any conscious policy on the part of the Chinese. This imbalance can only be addressed if the volume of India’s exports to China is enhanced, and increasing Chinese investment in India is one way to do so. Moreover, overcapacity in industry has threatened China’s growth, and it needs to relocate manufacturing sectors in countries where labour costs are lower.

The agreements on railways and industrial parks and the five-year trade and economic development plan could be the building blocks for mutually beneficial economic cooperation in the long run.

Among Beijing’s main expectations from this visit was the hope that Delhi would clarify its position on the Bangladesh-China-India-Myanmar (BCIM) Economic Corridor and give China concrete support, since the BCIM is an integral part of Xi’s “one belt and one road” project. China views India’s position on the BCIM as a barometer of its attitude towards Beijing’s South Asia policy and the degree of its strategic trust. There was a positive response at least at the rhetorical level, as Modi remarked that “India believes that reconnecting Asia is important for its collective prosperity” while welcoming Xi. But how cooperation on the BCIM will evolve remains to be seen. China also

reiterated its support for India’s aspiration to play a more active role in the UN and the Security Council, and it will support Delhi’s membership to the Shanghai Cooperation Organisation.

Although the border issue will continue to hinder India-China relations and true political trust will be impossible to establish in the absence of a settlement, there is enough space to develop cooperation on common concerns. Shortly before Xi’s visit, Modi coined a new terminology to describe India-China relations — “inch (India-China) towards miles (millennium of exceptional synergy)”. This adequately describes the development of India-China relations over the past two decades: though there were tensions and ups and downs, the general tendency was towards intensified contact and communication between the two Asian giants. We cannot expect one high-level visit to result in a major step forward. But the accumulation of small steps could lead to a grander vision.

In a speech at the Indian Council of World Affairs, Xi said, “One who wishes to be successful, seeks to help others to be successful. One who wishes to be understood, understands others.” The political leaders of India and China are taking the initiative to foster a shared culture based on reciprocity and common interests. Hopefully, a deeper understanding of each other could lead to a better future.

Gas and hot air

The government will soon reveal its decision on gas pricing, which will shape India’s energy landscape for the foreseeable future. The Kelkar Committee has recommended that gas producers be paid “market-determined” prices. But what does this mean?

Unlike oil, there is no global gas price. There are regional markets, where prices are determined by demand and supply. Gas supply contracts, which were typically hitched to oil prices, are increasingly linked to these regional market prices, reflecting a growing consensus that gas market dynamics are different. The three prominent markets used as price benchmarks are the US (Henry Hub), the UK (National Balancing Point) and Japan (Japan LNG), which imports liquefied natural gas. Gas prices are based on calorific value, measured in millions of British thermal units (mmBtu). Consumers in the US and UK pay prices three to four times lower than Asian consumers because Asia produces little gas and has to rely on imports, which are restricted by price and destination clauses.

In India, the producer price of gas is set according to the terms of the contract signed between the government and the operator of the producing field. Broadly, there have been three different contractual regimes. Two of these, the “nomination regime”, which covers production from pre-liberalisation-era fields by national oil companies, and the “new exploration licensing policy”, which covers production under India’s current liberalised policy, account for 60 per cent of the supply of gas. Under these, prices have been set at $4.20/mmBtu since 2010. In contrast, Asian LNG import prices range from $12-17/mmBtu So why the fuss? First, the pricing formula is linked to the price of crude oil up to a cap of $60 per barrel. But oil prices have persistently ranged around $100. Second, the price of rigs is set by the international market and capital costs of production have doubled in the last decade. Given the static domestic price, national oil companies, which produce the majority of India’s gas, have insufficient capital left over for reinvestment. For instance, ONGC’s production cost is such that it just breaks even. Since it cannot reinvest to produce more gas to meet India’s rising consumption, the deficit has to be met by importing LNG at three times the domestic price.

The Rangarajan Committee had recommended basing the producer price on the average of the Henry Hub, National Balancing Point, Japan LNG and Indian import prices. While this is a somewhat arbitrary price-formation mechanism, it attracted the greatest criticism for its impact on the price level as it would have pushed up prices for the domestic consumer, particularly in the fertiliser and power sectors, which account for 70 per centof gas consumption. In fact, governments of countries with underdeveloped gas markets tend to confuse “price formation” with “price level” and often concentrate on the latter for political reasons. Price formation refers to the use of a sound mechanism for setting and adjusting prices. It should reflect not only opportunity costs (the cost of imports), but also the cost of the fuels that gas is meant to replace in the domestic market — for instance, coal and diesel, which are used to generate electricity. In China and South Africa, the formulae take prices of competing fuels into account in order to promote the use of gas. The price level can be managed with policy instruments. For instance, once a price-formation mechanism is established, if fertiliser subsidies are increased, the hike can be offset by using the extra revenues from royalty and taxation. Fear of the price level has led governments to ignore the core issue of price formation. For instance, some Asian governments are keen to link domestic gas prices with the Henry Hub price, which has remained low ($2-4/mmBtu) due to the shale revolution. But this ignores the fact that the Henry Hub price is underpinned by the dynamics of the North American market and will therefore change, and even rise, independent of Asia’s fundamentals. India’s reforms reflect a wider move towards marketisation. In China, an economy undergoing similar changes, gas is being promoted to replace environmentally harmful coal. A roadmap for gas pricing reform was implemented in 2011, moving the country from a controlled cost-plus (production cost plus margins) system to a dynamic price-formation mechanism that reflects the prices of fuel substitutes. To manage the price level, the roadmap includes a two-tier system with different prices for existing and incremental (new) gas. The price of existing gas will rise to eventually converge with that of incremental gas. The roadmap also aims to establish a national benchmark price at Shanghai. The adoption of a clear price-formation mechanism and roadmap has led to a five-fold expansion in Chinese gas consumption over the last decade and boosted production. The Indian government needs to take a bold decision. There are costs either way — whether it reforms gas pricing to increase domestic production while risking consumer price hikes or continues to control prices while importing growing quantities of LNG at three times the domestic price to mitigate shortages.

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