Opinion A case study in coalition politics

The twists and turns of policy have thus not to do with ideology but with raw “tit for tat” politics. A fly on the walls of the offices in which this subject has been discussed would have a wealth of information on the compromises,unpredictabilities and fuzzy logic that define discussions based on political self-interest and personal perceptions rather than objective reality. It could in particular provide insight into the determinants of the boundaries between good economics and good politics.

The second reason is in a sense an elaboration of the first. Petroleum pricing is a subject over which the professionals have also spoken with one voice. Other than perhaps the most hardened of left wing ideologues,every economist or political scientist who has been asked to comment has agreed that the cost of administrative regulation far outweighs any conceivable economic benefit. Four major studies led by individuals of considerable renown — Vijay Kelkar,C. Rangarajan,B.K. Chaturvedi and Kirit Parikh have separately urged price deregulation. Their recommendations have not been rejected but nor have they been fully implemented. There is a grey area thus in governance between the form of soliciting professional counsel and the contents of the eventual decision. This is an area that this study could better define. It could help explain the reasons for the colouration. Why,for instance,did the colour darken palpably in 2004 (vide re-regulation) or whiten last week. No one should expect governments to define policies in unambiguous whites and blacks. The world is too complex for such clarity. But by examining the degree to which the advice of professionals determines the shading,one could offer further insight into the strains of the Cabinet (or should I say EGoM) in a coalition.

The third and final reason flows from the international dimension of petroleum pricing. With the benefit of hindsight it is clear the government missed an opportunity to deregulate in February 2009 when international prices were below $ 50 / bbl. Today it is hovering around $ 70 / bbl. Why did they not deregulate? Was it only because of the forthcoming general elections? Or did they expect that prices might fall even further?

(There were analysts who argued that the fundamentals of demand and supply pointed to an inexorable decline). Whatever the reason the case study might help better appreciate the extent to which international issues get factored into the formulation of public policy.

The 2007-08 financial crisis offers many lessons — not least of which has to be the cliched refrain “there is no free lunch”. Whatever the reason — whether greed,regulatory incompetence,corruption,the weakening underpinnings of markets; the unintended consequence of technological overreach — there is no escaping one fundamental truth. Economies across the Western world are reeling because for years,they spent more than they earned. The questions that this crisis has posed are: how did the governments ignore the early warning signals of impending collapse? What was it in their system of governance that allowed leaders to continue down the path of market fundamentalism (i.e. the conviction that financial markets were efficient and rational) when at least with the benefit of hindsight it was clear the signposts had shifted direction,and as Alan Greenspan admitted to Congress in August 2009,the system of self interest (i.e.,private companies promoting the public good) was “flawed”. We,of course,did not face the financial traumas of the West but these questions should not be ignored by us. For the saga of petroleum pricing does reveal the pressures in our system towards financial profligacy.

A case study could help answer these questions and possibly suggest safeguards against the deeper pitfalls of coalition politics.

The writer is chairman,Shell Group in India; views are personal.