No reverse gear

As anyone who has spent more than a moment on Indian roads will tell you, the country8217;s trucks apparently have no reverse gear. They are the monarchs of the road, and all must give way before them, even the Union government8217;s fiscal imperatives. Thus the transport unions8217; demands for a rollback in highway tolls and concessions on service taxes and diesel were met unconditionally by government negotiators. Unfortunately, neither the truckers8217; threats nor the government8217;s craven, immediate surrender can come as much of a surprise: the former because organised special interests will always object 8212; usually irresponsibly, in India 8212; when targeted benefits are withdrawn; and the latter because this government already has too many fights on its hands and fires to extinguish.

While the two-day strike had a relatively minor effect on output and prices, prolonging it would have reversed the slow decline in food prices. At a time when the government is making efforts to contain inflationary expectations 8212; and has a possible election on its mind 8212; that would probably have been an unpayable price. The problem is that this capitulation will not only further impede attempts to keep this year8217;s fiscal deficit under control but will also impact future investment decisions in highways, and the expected revenue stream for the government and its private partners from proposed infrastructure projects. The capacity bottlenecks that this re-evaluation might cause would end up creating medium-term inflationary pressure anyway.

It is debatable whether it was necessary to concede everything. While some adjustment of the incidence of service tax might be reasonable, forcing the oil marketing companies to provide non-premium diesel everywhere is deeply problematic, interfering in their efforts to prevent wide-spread misuse of that flagrantly over-subsidised fuel. The trucking industry, with its political connections and tangled ownership that make any quick resolution doubly suspect, has already benefited from the new highways over the price of which they are now haggling: the internal savings have extended in some sectors to as much as 89 paise a kilometre, greatly benefiting their bottom-line. Using a national crisis to extort further gains is both immature and short-sighted.