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MAY 30 2012

Managing petro-politics in India

  • Economic Times, ET Bureau / Hyderabad
  • Created: Wed 30th MAY 2012

After the sudden increase in petrol prices last week, a "rollback of sorts is already on in different parts of the country. Some state governments have either reduced some taxes and levies (Delhi and Kerala) while others are contemplating such steps. On its part, the Union government has clearly said that raising prices of diesel, LPG and kerosene is off the table now. The problem of managing the politics of petroleum products is one of the governments own making.

No commodity, petroleum or otherwise, is politically sensitive by design. It is the involvement of the government that makes it politically sensitive, making any adjustments intensely difficult. If the government starts fixing retail prices of essential commodities such as milk and bread, they too will also become politically sensitive in no time. As long as the government remains intimately involved in pricing decisions, there will always be an action-reaction sequence, involving decision makers on the one hand and citizens reacting to prices on the other hand.

Once this is established, it is very difficult to get out of it. The ongoing reductions in taxes and levies should be seen in this light. Competitive politics ensures the rest: there is simply too much to be gained by opposition parties to let them allow the government some ease in this matter.

In the case of petroleum products, among other commodities, the additional problem is that ever since this government has come to power, it has gone out of the way to turn them into "quasi-public goods. Obliterating the difference between a private good (a loaf of bread, or a pouch of milkpaid for by individuals and, hence, consumed by them alone) and public goods (such as clean air, national defence, etc.) creates formidable policy problems. Once the link between costs and prices of items such as petrol is broken, citizens begin considering them as public goods instead of stuff that they have to pay to consume. Undoing this becomes a formidable political problem.

There is, however, something to be said about managing the process of raising prices. This process is not smooth in the present government. Instead of revising prices of petroleum products periodically, this government believes in sudden, knee-jerk, increases. It needs to rethink this.

Tags

Delhi Kerala Liquefied Petroleum Gas

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