Petrol slump

When the spectre of recession rears its ugly head, predictable things happen to commodity prices. The price of gold goes up, as people head towards the safest of all stores of value; and the price of oil goes down. It is easy to see why: demand is expected to fall, and supply had already stepped up in response to the insane heights oil had reached in past months. This should be sustained: estimates of the future price of oil have fallen as well. This is good news — it could be better if we could take advantage of it.

It is good news to the extent that the burden on the fisc, and on oil marketing companies, which has arisen because of India’s atrociously structured subsidy regime, will decrease. That burden has been taken up partly directly and partly through the issuance of oil bonds. These are bonds which future generations will have to repay, in order to finance our profligacy with petrol, diesel, and LPG; these are bonds which nationalised banks are sitting on, but cannot lend against, further intensifying the credit crunch. India, and the future Indias we want, cannot afford that the situation which gave rise to those bonds last much longer. It is good news because some of the world’s most problematic states depend on expensive oil: Iran, Venezuela, and Russia all need prices to stay above $70 a barrel to fund their interfering, aggressive governments.

And we should take advantage of it now. We have already felt some of the pain that arises from a partial increase in prices at the pump; the country has already braced itself for double-digit inflation lasting into the new year. The government needs to seize the opportunity that this decrease presents — and it is expected to be a sustained decrease, as oil stocks are piling up across the world. This is the moment at which rationalisation becomes possible. Yes, we are close to a general election: but reworking our subsidy schemes is still never going to be as politically possible as it is right now. The public has high expectations of inflation; it has also internalised a higher price for oil. A competent, far-sighted government, one that cares for the aam aadmi in future Indias, would take that expectation and use it to fix a broken subsidy regime.