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Asian Tribune is published by World Institute For Asian Studies|Powered by WIAS Vol. 12 No. 2702

L’affaire petrol price hike

By Chandramohan - Syndicate Features

While the common man moaned the opposition parties could hardly conceal their happiness at the government, in the words of Lauh Purush L.K.Advani, signing its ‘death warrant’ by increasing a steep hike in the prices of petrol, and diesel—by Rs 5 and Rs 3 a litre, and cooking gas by Rs 50 per cylinder.

These prices have been raised many times in the past but generally by lower margins to keep the blow ‘soft’. Not that that prevented an outcry from whoever was in the opposition. The protests against oil price hike by Advani’s BJP assumed dramatic forms with party leaders riding bullock carts and one chief minister even cycling his way to office with his large retinue.

Such familiar old stunts no longer prove any point because everyone knows that leaders in the BJP--and almost all other political parties—are not ready to give up their comforts and luxuries, which they often enjoy at the cost of the taxpayer.

Crude oil prices have been soaring since last winter. The Congress-led United Progressive Alliance government kept tinkering with the idea of increasing the prices but did nothing of the sort, reportedly because of polls in a number of states. Ironically, the Congress lost all these elections.

Now the price increase has been announced when an even more crucial election is in sight. There will be no surprise if the next Lok Sabha election is held ahead of schedule (May 2009). Coming at a time when inflation shows no inclination to head south, the hike in petroleum product prices with their cascading effect may well harm the prospects of the Congress at the next round of the big battle of the ballot.

The ‘damage control’ exercise will not necessarily help erase the psychologically adverse impact of the announcement of the hike. The reduction in sales tax and Value Added Tax (VAT) by the states in what is seen as a bout of competitive populism may mean that the actual increase in the prices of petrol, diesel and LPG will be less than the announcement made by the union government. But it will still be uncertain if that lessens the damage that the government has suffered at the popular level.

Look at the issue another way.

La’affaire petrol exposes the weakness of the PMO in the present coalition era. The actual decision to hike fuel prices was not taken by the Prime Minister but by a group of ministers (GOM) to whom the issue was referred after finance minister P Chidambaram refused to offer any bail out to the public sector oil companies.

When the going became tough, he yielded only marginally on customs and excise duties on oil. This is one reason why Sonia Gandhi had to goad Congress chief ministers to offer a sop across the board tax sops and gain a talking point.

While Chidambaram’s concern for his fiscal prudence is understandable, what about the states? Has he not made the states bear the Centre’s burden? Most states are already into deep red. They don’t have the elasticity in revenue mobilisation. Now they are forced to bear extra burden for political expediency.

Economists and petroleum experts are already saying that the ‘belated’ announcement in oil prices was not substantial enough. At best, it would provide public sector oil companies nothing more than a temporary relief. If the hike decision had not been taken these public sector oil companies would have been incurring a loss of nearly 250,000 crore annually. They would have run out of money to purchase crude oil and might have headed for bankruptcy.

There was a brief silver lining when oil prices came down to $125 a barrel. But that appeared to be an illusion as days later the price crossed even the record level of $135 a barrel on May 22 to touch almost $140 a barrel. The brief fall in crude price was attributed to slowdown of the US economy and a fall in crude demand. Nothing certain can be said about the oil market and the prices. The oil producing countries have all along insisted that there is no shortage of oil. If the demand is not short how come the prices have been going up and up?

The demand for oil in India has been growing at a frantic pace. Since 70 per cent of the oil requirement is met from imports the crude bill will go on increasing. And so will the popular discontent with the government if the crude prices keep rising sharply at frequent intervals.

Major oil-importing nations in Europe and elsewhere have been devising ways to reduce the oil import bill. Petrol is taxed heavily to discourage people from driving vehicles. That might have worked in the West where public transport system is efficient and reliable. In India it will surely fail because the public transport system in the cities is abominable; elsewhere it hardly exists.

Reducing consumption of oil does not seem possible at the moment for another reason: the ‘car revolution’ in the country is going to be intensified manifold when the ‘one lakh rupees’ car, Nano from the house of Tatas hits the road.

Encouraging the use of alternative sources of energy sounds a better, rather the only option but here again there seems to have been a lot of dithering. A major switch to alternative sources of energy is being awaited for many years, now it has to be substantial enough to lighten the burden of crude imports.

The country’s oil import bill is said to be $15 billion a year. Many think that a 20 per cent cut is quite feasible with the help of some simple measures that do not require use of alternative sources of energy. A lot of savings in oil consumption is possible if, for instance, users learn to drive more cautiously—switching off engines at traffic junctions where the wait lasts about half a minute or more, driving at a steady but moderate speed, regular servicing of vehicles etc.

The country is in a position to step up the use of solar energy because new technology is believed to have reduced the cost of reflectors that trap the solar energy. The country could be dotted with wind farms. Bio-diesel can be produced from locally grown grass. Electricity can be generated from waste and geothermal energy. By-products from sugarcane fields can also be used for electricity production.

Last, but not the least, the country has to increase the share of electricity from its nuclear plants. But that will require a show of firmness not seen in the UPA government, which is all set to let the Left parties with tacit support of the right wing sabotage its nuclear expansion programme.

- Syndicate Features -

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