Slipping in oil

The hike in duties on petroleum products in the budget was seized upon by the opposition as a possible cause for an unprecedented and unjustifiable walkout during the budget speech,over the governments inability to control food inflation. But since then the pressure on Finance Minister Pranab Mukherjee to rethink his move,which would raise retail prices of petrol and diesel,has grown,with two major constituents of the ruling UPA,the Trinamool Congress and the DMK,demanding that the measure be withdrawn. Both parties face assembly elections next year,the TMC in West Bengal and the DMK in Tamil Nadu.

A point worth remembering is that the fuel price hike is not,in itself,a reformist step. It was taken merely to plug a giant gap in the governments finances. It does not solve the crucial economic problem,the lack of a direct connection between the world cost of oil and the amount that Indians pay; nor does it solve the crucial political problem,that the administered price mechanism is subject to constant external pressure. Indeed,it reinforces the latter. But,even so,this is a crucial test. Will the government be able to face down obviously populist demands? Even if not a full-throated reformist move,the hike was considered necessary to reduce the fiscal deficit something that responsible politics should recognise as a priority. It is notable that comprehensive alternative measures to replace the revenue lost were the government to roll back the hike have not been proposed. If cheap oil winds up trumping responsible politics,we are in trouble.

That is because there is no doubt that,sooner rather than later,this government will find it necessary to implement the Kirit Parikh commission report,which recommends the freeing of petroleum prices. Anything else is unsustainable; India simply cannot afford another spell of heavily subsidising oil companies if the international price of oil drifts back towards 100 a barrel. That moment is indeed,already overdue. If the government gives in to cheap-oil politics now,what hope for genuine reform later?