Crude politics

UPA's dismal political management turns a belated (and much needed) petrol price hike into an 'event'.

Representational image | Dhiraj Singh | Bloomberg

More than two months after the prime minister said we needed to bite the bullet, and a couple of weeks after the finance minister talked of hard decisions, we finally have one: the petrol price increase. Even more encouraging, there is no talk of a rollback yet. Petroleum Minister Jaipal Reddy even showed some old-style political skill in asking people to wait a few days before a price reduction might be considered. Crude has been slowly moderating lately and the oil marketing companies are supposedly free to reset the petrol price on a fortnightly basis anyway.

The question to ask, therefore, is: why have they not been doing that lately? Because if they were, this week’s approximately 10 per cent hike would not have become such a story, or rather, event. Before this, the last increase of Rs 1.80 per litre in petrol prices was carried out on November 4, 2011, followed by reductions of Rs 2.22 and 78 paise in the following two fortnights. And then the process stopped. Why? Because, apparently, the UPA was getting ready for the Uttar Pradesh elections. We suspended that fortnightly rhythm in search of cynical electoral gains which never came. Then we waited even longer as nobody wanted to give the silly Opposition a chance to scuttle the Budget Session of Parliament. At the same time, crude kept rising, and the dollar falling, the deficit widened and inflation peaked, so the voter all over the country got angrier anyway. Even at the risk of some over-simplification (but we are talking political governance, not statistical perfection), look at it this way: in the same period, overall inflation has been running at around 10 per cent, and nobody, not even Mamata Banerjee, has been out in the streets protesting. Would anybody, even the voter of Uttar Pradesh on whom this fiscal suicide is being blamed, have noticed?

How would a more political government have handled this? It is lazy now to say that Atal Bihari Vajpayee’s NDA had an easy time because they had crude running at $12 a barrel. The fact is, Vajpayee carried out 33 (yes, 33) fuel price increases over his six years. Of course, the average increase was so tiny nobody seemed to notice too much while there were token protests by the Congress and the Left. Yet, in the process, the price of kerosene, the most politically sensitive fuel, was taken from Rs 2.52 to Rs 9.01 per litre, an increase of more than 350 per cent. The second most sensitive, diesel, was more than doubled from Rs 10.25 a litre to Rs 21.74 and the equally troublesome, LPG, was nearly doubled, from Rs 136 to Rs 241.60. Petrol went up only by 50 per cent, from Rs 22.84 to Rs 33.71 and, in the process, the distortionary gap that is rapidly and destructively dieselising our economy and environment, was narrowed to manageable levels.

In comparison, in the eight years of the UPA, crude has risen nearly 170 per cent, the rupee has fallen more than 20 per cent, yet prices of kerosene and LPG have been increased by 65 per cent only and diesel and petrol by 88 per cent and 114 per cent respectively. In the process, the fisc has been vacuum-cleaned, and yet, for its spasmodic but headline-making price increases, the UPA has got much more bad press. Diesel, meanwhile, is back to being the evil polluting king of all fuels.

The inherently indecisive style of this establishment is compounded by the fact that its administrative and political authority is so scattered so scattered, in fact, that the buck has to make a dozen halts en route, like a DTC bus, before it finally stops with somebody. This results in even routine decisions dragging themselves out into public controversies and, finally ending up as events. Thirty-three fuel price hikes, one every two months or so on an average, can never be events in fact the frequency and the tiny size of the increases make them relatively non-newsworthy. But that is not the style of the UPA. It dithers and meanders into making everything out to be a story, a controversy, an event.

The current plight of civil aviation is a pretty good case. Every day there is a speculative headline somewhere saying that FDI in private airlines will soon be allowed. Nobody reminds anybody that it is already allowed, to the extent of 49 per cent. So what is the story? It is just that this FDI policy was customised to the needs or demands of one private airline known for legendary persuasive powers in New Delhi then. So if you are a chappal, apparel, automobile, candy manufacturer, in any business whatsoever, you can invest in an airline in India. But not if you are a foreign airline. Now, would you call that incredibly stupid? No, it is incredibly smart of an Indian capitalist who found the right cronies and had the law customised for him so that all competition is kept out. This incredibly unique restriction is not merely the most striking example of Indian crony capitalism, it makes us look like a banana republic. Changing this should have been a minor, routine editing correction. Yet, we have dithered over this for so long that it has been allowed to grow in the popular mind as some kind of a bailout for an Indian capitalist as effete, decadent, wasteful and incompetent as Vijay Mallya. So when this FDI policy is indeed rationalised, it will be another event.

Because the UPA takes so long with its deliberations in fact, it usually prefers deferring a decision a lot more than taking one it has forgotten the virtue of political management by boring routine. In state after state now, electricity utilities have gone bankrupt (their combined losses now top Rs 2 lakh crore and the banks are bracing for another shock) while the regulators have either sucked up to their governments and not allowed tariff increases or because the chief ministers have also caught the UPA virus. It has taken two really powerful chief ministers, J. Jayalalithaa and Mamata Banerjee, to make abrupt, sizeable tariff increases of 37 and 25 per cent recently. Most of the others except Rajasthan are letting the monster grow.

You do not have to be an economist to see how, with new capacity being added, India will be power surplus by 2015. Yet, by then, everybody involved in the electricity business, from producers to distributors to their banks, would have gone bankrupt. We will not address these tariffs and deficits as a matter of routine now, and one day everybody will need a giant bailout may be from the IMF. Now that will be some event, not witnessed since 1991.