Cutting corners

It was announced on Tuesday that petrol prices would be cut by around Rs 2,which wipes out the hike in prices on November 3. That had been greeted with a predictable outcry from UPA constituents and the opposition,but it had appeared that the government would stand fast,recognising its constraints. The cut now is both bad economics and a failure of politics.

That petrol prices must trend upwards is obvious. Let us ignore for a moment the massive losses being made by oil marketing companies,which will eventually serve to pad an already large fiscal deficit and exacerbate inflation. The deeper point: the rupee continues to be weak,and India needs to pay for most of its oil in dollars. And oil prices are on a steady upward trend. These require that consumers face the real price of the resources they are using. In any case,without rational petrol prices,India will not be able to adapt to a future in which rapidly depleting fossil fuels are ever more dear. The excuses from the government thus are sadly weak. We are told that prices have moderated,and that the dollar has weakened against the rupee. This is not entirely untrue,but certainly massively misleading. Oil prices have been rising solidly for months,hovering around the 100-a-barrel mark now,up from below 80 a barrel at the beginning of October. That is a trend; a minor blip in that trend doesnt call for a rollback. Nor has the rupee strengthened by more than about 10 paise to a dollar. These claims are therefore flimsy.

Meanwhile,the Congress has actually welcomed the cut,with General Secretary Janardhan Dwivedi saying: We have also said that policies are made in the interest of people and if there is a policy which does not bring the desired result or give succour to people,it can be changed. This does not serve its governments supposed purpose,of depoliticising and deregulating the price of petrol. When the government should have been building a constituency for sensible reform,and facing down its more populist constituents,it has inexplicably weakened its resolve. As with its errors in delaying deregulation,this will only hurt it later.