THE GIST of Editorial for UPSC Exams : 18 January 2020 (Let’s not muddle along on how we share natural endowments (Mint))

Let’s not muddle along on how we share natural endowments (Mint)

Mains Paper 2:- Governance
Prelims level:- Floor space indices
Mains level:- Adoption of policy of auctioning of resources and periodic review of the policy

Context:

• Governments regulations and restrictions in the markets, believing that policies could artificially restrict either supply or demand, or both, often results in unrealistic or unworkable prices.

Adoption of the auctioning process to allocate resources:

• While auctions may be the cleanest way to allot scarce natural resources to private parties, their design makes all the difference.

Three things for desired results from auctions:

• Define clear policy goals for the allotment of the resource whether coal blocks, spectrum or land.
• Define a proper process for periodic review of the design itself, since it may not be possible to get everything right in the first instance.
• Make the political oversight process as non-partisan as possible, so that regime changes do not keep upending policies.

Goes wrong in spectrum allocation case:

• Arbitrary tweaks were made in the telecom licence and spectrum allocation policy.
• Which is what forced the apex court to intervene and cancel those licences.
• Cancellation followed a claim by the CAG that the “presumptive” revenue losses may have been as high as ₹1.76.
• The net result was that all subsequent auctions were designed to maximize spectrum bids.
• The policy finally ended up becoming a winner’s curse, evident in the pile of debt incurred by the telecom sector.
• This happened because of the absence of a clear policy goal.

Real estate sector:

• The same goes for real estate, which is struggling right now due to high land prices because the bureaucracy prevents price reduction in land.
• Unaffordable to middle-income buyers that make most properties unaffordable for middle and lower-middle-income buyers.
• Urban land prices are high due to artificial constriction of supplies through the fixing of low floor space indices (FSIs) even in land-scarce localities.

Technology and periodic review of policy:

• Spectrum or land or coal mines are not always in short supply, for new technology lowers costs.
• The same spectrum can, with the use of newer technology, be used more efficiently.
• Better infrastructure and improved building technologies (even 3D printing techniques for mass housing projects in non-urban areas) can lower housing costs enormously.
• Automated coal mining can lower coal production costs, enabling higher profitability even with relatively high auction bids.
• Technology can reduce the prices of the resources and hence the periodic review of the prices at which the resources are allocated need to be taken to for balanced pricing.

Conclusion:

• Policies on the allocation of scarce resources need to evolve based on actual experience and changing technologies and processes.
• The success or failure of a specific policy cannot be judged purely from a revenue or transparency point of view.

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Prelims Questions:

Q1. With reference to the ‘right to private property’, consider the following statements:
1. Property ceased to be a fundamental right with the 42nd Constitution Amendment in 1976.
2. The Supreme Court has ruled that Article 300A requires the State to follow due procedure and authority of law to deprive a person of his or her private property.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: B
Mains Questions:
Q1. Policies on the allocation of scarce resources must evolve to assure India the best eventual outcomes. Comment.