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Trivial pursuit

Avoiding the small but necessary diesel price hike, the UPA reveals its desperation.

Published: April 2, 2014 1:10:02 am

Avoiding the small but necessary diesel price hike, the UPA reveals its desperation.

You know a government is in dire straits when it has to put off a long-settled 50-paise monthly diesel price hike to buy goodwill in the upcoming election. After the growth rate slipped below 5 per cent in the first two quarters of 2012-13, the UPA finally got a grip on itself and committed to a set of reformist adjustments.

Among those was the decision to scale back fuel subsidies by capping the number of subsidised LPG cylinders at six, and gently raising diesel prices by 50 paise every month. Economic good sense was unravelled by the Congress party’s election plans, and the government decided to raise the LPG cylinder cap this January to 12, after having raised it from six to nine earlier. The Aadhaar link with direct benefit transfers was also snapped. And now, to add to all the backsliding, the diesel price hike has been put on hold this month, the decision referred to the Election Commission.

Why should the EC’s model code of conduct have any bearing on a policy that has been running uninterruptedly for a year and a bit, one that consumers are now resigned to? The EC has been used to put off all kinds of inconvenient events that had already been decided upon earlier, like the contentious gas price hike.

A hypercautious RBI asked it to weigh in on bank licences, even though it clearly lay outside the outgoing government’s purview, which is all the model code of conduct should be concerned with. In the case of the diesel price hike, the government has tried to use the EC as an excuse to hold off an unpopular increase — one that is absolutely necessary to bring diesel into a more rational pricing regime, more in line with the market.

Think of how swollen and misdirected this subsidy is, and the distortions it has introduced — according to a recent Nielsen analysis for the Petroleum Planning and Analysis Cell of the petroleum ministry, Rs 12,100 crore of the total under recovery subsidises those who own private cars and utility vehicles, and roughly Rs 8,200 crore goes to commercial vehicles.

Public transport gets about Rs 8,800 crore and agriculture gets Rs 12,000 crore. In other words, this is a misdirected subsidy with all kinds of undesirable ripple effects. It discourages private participation by making it impossible to compete with IOC, it hurts ONGC’s financial health, it incentivises unsustainable energy-intensive activities as the real price of the diesel is not factored in. Given that this stark context is what forced the UPA to begin moderating the subsidy, this last-ditch attempt to put off a small, unpleasant hike, using the EC as a pretext, says much about the government’s shrunk self-image.

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