Thursday, September 13, 2012

A good bold decision on fuels pricing….let the cribbers crib

Finally, the government has taken a bold decision. It increased the price of diesel by Rs 5 a liter. More importantly, it cut the number gas cylinders eligible for subsidy to six a year. Unsurprisingly, almost all opposition parties – and some usual suspects within the ruling coalition – have opposed the moves. The government shouldn’t worry about these parties as they have already proved themselves to be pursuingly nothing but a political agenda.

The price of diesel is being increased after 15 months. Which other price in a family’s “dhobi” list has remained stuck for so long? We are lucky that prices didn’t increase earlier – stuck as the government was in various political crises. Besides, everyone knows that India is a huge importer of fuels and if fuel prices increase globally, then its logical that Indian consumers will have to pay more. What’s so difficult to understand in this? Isn’t this what happens with other import-dependent products? When prices of palm oil increase globally, doesn’t it have an immediate impact on domestic oil prices? What’s so special about transport fuels then?

Oh I know the standard reasoning given by the opposition. That global prices are less today than the levels reached a few years back (some $150 a barrel; currently its $110 a barrel or so). Yet diesel prices are higher. Clearly this line of reasoning is appropriate with total dodos. Everyone knows that the government subsidizes diesel. So in effect, the government, by increasing domestic prices when international prices are off-peak, has cut subsidies. Everytime global prices come down and the government holds on to domestic prices or increases them, the subsidies again come down further. And yet, for every liter sold today, even after the price hike, the government is bankrolling the customer. Should the people not understand this? But politicians love to cozy up to voters by complaining about every price hike.

One other standard argument used by opponents of price increases is that the government could have reduced its own tax levies. Now this is basically a silly argument. Every tax rupee the government collects goes back towards welfare schemes for the poor. If the government cuts taxes, in effect it means cutting the welfare programs of the poor. How convenient for the middle classes represented by the BJP! In any case, this time around the government has cut excise duties on petrol, sparing any increase in that fuel’s price.

The inflationary effect of a price increase in diesel is almost the same as subsidizing it. When subsidies increase, the government borrows more money, and this leads to inflation all around. Interest rates go up and even sectors unaffected by diesel see increases in prices. These higher interest rates bring down industrial growth as we have seen over the last year and more. The beneficiaries of such subsidies are those who use diesel; the losers are all of us including those who don’t use it. This is blatantly unfair. Why should I – who doesn’t use diesel – pay higher EMIs and higher electricity bills etc when I am not even using diesel? Increasing prices is just a more fair way of going about this business.

What are all the opposition parties cribbing about? If their concern is the poor people, then why did they complain when petrol prices went up? Hardly anyone amongst the poor uses petrol. By opposing the petrol price increase in the past, the opposition has blunted its edge. Now its clear….no matter what the government does, the opposition will oppose. Just as a senior (not sure if he is wise) politician from the BJP once said: we are the opposition so we will oppose. Such a dodo I say!

And while the diesel price increase will affect the poor, many segments of the poor are largely protected. Farmers use a lot of electricity in addition to diesel and most of that is subsidized. Besides, the UPA has been very generous with farmers by increasing MSPs very rapidly. Especially in comparison to the NDA government.  In its five years between 1999 and 2004, the NDA increased MSP of rice by just 25% and wheat by an even lower 15%. The MSP is the farmer’s salary. Just imagine if your salary went up by such a small amount over 5 years! You will quit the company right? That’s what the farmers did. They quit the BJP in 2004. In contrast, in its first seven years, the UPA has increased MSP for rice by 96% and wheat by 78%. Now that’s more reasonable! When incomes increase so rapidly, its ok if the costs also go up. That’s how life works. We can hardly expect that incomes keep rising and costs remain frozen in time. Only a foolish opposition can expect that!

And why is the BJP complaining? It cares little for the rural folks, most notably the farmers as shown by the MSP point above. The reason the BJP is complaining is that its core constituency is the urban middle class. More likely the urban rich class. The urban rich drive four wheelers with diesel engines. This is the community the BJP wants to protect. The BJP doesn’t care about the poor. The BJP doesn’t even care about the urban middle-class. Because if it did, it would not oppose FDI in multi-brand retail. It opposes this because it wants to protect the urban baniya – the rich businessman who loots the common man by keeping on increasing his margins. If big international groceries came in, the baniya’s margin would be cut. So what if the farmer benefited? So what if the urban middle class benefited? The BJP cares little. It knows it can use the TV medium with its chic lawyer-spokespeople to spread some more lies.

The BJP has chosen to juxtapose the diesel price increase alongside the Coalgate issue. Why? Because the BJP is really worried that the diesel price increase will take the attention away from coal. Its invested a lot in it. But then it forgets that such is the nature of politics in a fast growing country. Things move! And no one can stay stuck on a single topic for too long.

The real pinch the middle classes will feel will be in LPG. By limiting the number of cylinders to just 6, the government has used a different formula to increase prices. But again, this community has been spoilt over the years. Prices have remained artificially low for too long. In some ways, this cap on subsidized cylinders is only a correction. Besides some 40% of the consumers (the smallest ones) use less than six cylinders a year. The ones who will be really hit are the big (and rich) restaurant owners who use hundreds of subsidized cylinders a month – drilling a big hole the common man’s pocket. Let them pay more. Let them pass it on to their customers if they can. But again, only those consumers will pay who dine at such restaurants.

The government is making an attempt to shake off its stupor. It needs to be supported. By opposing every move of the government, the opposition is crying wolf. But more than the opposition, it is the TMC that must understand that it cannot be opposing everything. What objection does the TMC have in allowing FDI in aviation? Air travel is only for the rich; why should FDI matter to it at all? Likewise why should Mamata oppose FDI in multi-brand retail when she doesn’t oppose large Indian domestic retail chains in her state? Kishore Biyani was on record a few days back saying that the best place to do business for him was Kolkata. In fact, Kolkata has become one of the highest revenue-grossing markets nationally for Future Group, Spencer's, KFC and Pantaloons among others over the past 12-8 months as per Economic Times. Why such double standards then?!

On a different front, the government is doing the right thing by selectively canceling coal blocks. By standing its ground against cancellation of blocks en masse, the government is showing a new-found nerve. I now hope it now reconsiders its policies on 2G. By setting up such a high reserve price, the government has pretty much started digging the sector’s grave. The SC has not said that revenues should be maximized during auctions. The government was right in giving spectrum cheap. It should have continued with that policy. In fact, it is the 3G policy that was flawed. There is no point cloning 2G on this flawed policy. Because of this flawed policy, there is hardly any 3G roll-out. And With LTE/4G expectedly shortly, 3G players will be brutally hit. They will soon need a bail-out. Wrong policies – as promulgated most strongly by the BJP – will come back to bite.

The real truth is that the government must do what is right. The cribbers have made a habit of cribbing. Just as the opposers have of opposing. At some point in time, the cribbers and perpetual opposers need to be ignored. That time has come….

1 comment:

  1. Rather just keep on increasing the fuel prices, oil companies must found the way out how to reduce the total operational cost. We have never seen that in news that the fuel prices gone down becuase of reduced operational cost of Oil companies.