These
days, one can hear growing calls in India and from abroad to
de-regulate diesel prices in India. Though this is what should be done
in an ideal free market society, such a move will wreak havoc across a
huge population of middle, lower, poor and very poor households across
the country. It is agreed that the government supported oil firms have
been facing quite a huge loss of revenue due to the fact that the
government fixes the price and keeps it down (a subsidy). But at the
end of the day, government compensates their loss by using the
taxpayers’ money – which in turn is a huge expenditure to the government
that balloons up the fiscal deficit. First of all, to be honest, I have
been very uncomfortable with the government subsidizing diesel for all
Indians for decades. Multi-millionaires and billionaires get a subsidy
to ride their luxury cars. Not fair! So my point was always to find ways
to eliminate these wrongful subsidies, but an all-out elimination of
diesel subsidies will shoot inflation to unimaginable levels that the
poor will find very difficult to cope with. And already, inflation is
unbearable to many of India’s poor. Ultimately, the goal here of
intellectuals asking for a de-regulation in diesel prices is to reduce
government’s deficit and debt – which could then be used to serve the
poor in better and efficient ways in the forms of jobs, opportunities
and markets. I agree! But come on guys! In our intellectual thinking we
got to mix practical facts as well! Do we really expect the government
to come up with “immediate” steps to tackle the sufferings of the poor
and the middle class with the rise in diesel prices ?– which will
undoubtedly shoot up the prices of literally everything within a short
period of time – literally everything that requires transportation –
from food to building forts! And the international oil situation doesn’t
look favorable now to determine this to be the right time to de-control
diesel prices. (By the way, I have never supported petrol subsidy which was rightly eliminated sometime last year).
Unless
the government and the population as a whole are clear about how the
people would be protected by undue rise in diesel and other commodity
prices that would follow as a result of de-regulation, the government
should not de-control diesel prices across the board. It is understood
that the markets would adjust themselves based on the factors of supply and demand - which, I agree, has a lot of favorable factors when looked at a
broader angle (“green economy” comes to my mind). But my point is that
this adjustment should not come by breaking the backs of the middle
income and poor people. The think tanks and intellectuals should be
talking and thinking about coming up with a solution that would do no or less harm to
all, rather than blindly following the text book line of market-based
pricing. India is a unique country with “billionaires and “below-poverty
line-ers” and hence the situation warrants unique models that are based
on the principles of equity. And for small businesses across the
country, they have a long way to go to catch up on technology to cope up
with every day fluctuations in diesel prices. So giving them time,
clarity and directions is a basic courtesy.
I
personally think India should push more for sanity in international oil
pricing in international forums such as G-20. There is enormous work
that needs to be done from OPEC to plugging holes in international
commodity futures trading. In the last few years, the trend has been
such that oil prices would remain at around $90/$100 range, no matter if
the economy is improving or declining, unrest in Middle East or
democracy in Middle East, flourishing emerging markets or slowing
developing economies. With traders becoming more and more tech-savvy and
profit hungry, they have clearly found ways to manipulate markets that
is so difficult to regulate correctly. At this point, I am unable to say
if the markets have priced oil right or if the speculative powers have
run wild, though I fear the latter. An article in Bloomberg.com caught
my eyes that day – it read – “Oil rose for a third day, the longest winning streak in a month, as slowing growth in China fueled stimulus speculation and U.S. equities advanced”. Now, I am sure oil will rise for the fourth day as well even if the news read something like – “China’s growth is NOT slowing as much as it was predicted earlier”. So
a slowing growth or roaring growth – oil prices somehow manage to
remain at levels where it is “kinda” uncomfortable to the common man. I
know that trading deals with high levels of sophistication that cannot
be so simply explained or ignored citing speculation. But hey! It’s
complicated, right? So one has every legitimate reason to atleast
“speculate” that speculators are running wild – either knowingly or
unknowingly! And count me in that league.
But
coming back to the India case, the country needs to focus on other
methods of reducing debt and deficit – like selling stakes in government
owned enterprises, opening certain sectors to more foreign investment,
tax reforms, rooting out corruption and removing wasteful subsidies. And
that does not, in my opinion, involve blindly de-controlling diesel
prices all of a sudden for the entire population.
Finally,
I understand the huge benefits of completely eliminating diesel
subsidies in the long run, and I agree that at some point in time,
diesel prices have to be de-controlled. But my opinion is that this is
simply not the right time. And this is not the way we should do! We
cannot dream of a prosperous 2020 economy by destroying the economic
lives of millions of Indians in 2012.
References:
- http://www.bloomberg.com/news/2012-07-13/oil-little-changed-in-new-york-reversing-earlier-gain-of-1-4-.html
- http://www.thehindu.com/business/Economy/article3662137.ece
- http://www.thehindubusinessline.com/industry-and-economy/government-and-policy/article1628103.ece
- http://www.indianexpress.com/news/diesel-deregulation-to-up-price-rs-14.3-ltr/937955/
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