With airlines in India suffering big losses due to financial and economic turbulence, there is pressure that aviation fuel prices be “rationalized”. As reported in Mint on Saturday, the government may go in for such a step if airlines don’t lay off employees.
That would not only make bad economics, but would also be bad politics. The idea that fuel prices can be tinkered with, without any harm, is flawed. At the moment, crude oil prices are falling because of weak global economic conditions. That trend may change quickly. The Organization of Petroleum Exporting Countries (Opec) is mulling production cuts, given that oil prices have fallen below the $70 per barrel mark. Whenever that happens, crude prices will harden again.
That’s not all. Given the weakening of the rupee against the dollar, higher oil costs due to a worsening exchange rate are very likely, at least in the near future. India is sure to hit turbulence when these events occur.
That’s just one aspect of the situation. The Union government has no business thinking about a “reciprocal arrangement” between oil price rationalization and airlines not sacking their employees. It’s a step that smacks of state control of the economy that was prevalent from 1947 to 1991. Only, it’s much worse than that: In the socialist era, government controls were, ostensibly, for the welfare of all citizens. In the present case, they’re about saving a couple of thousand jobs. It also shows how policymaking horizons have narrowed in recent times.
With elections to state assemblies and Parliament around the bend, a week-kneed government can’t think beyond a few thousand votes, even if they’re purchased at a high cost to the economy.
If the government does go ahead with such an arrangement, it would set a bad precedent. Future governments may very well make policy compromises on much flimsier grounds.
In Indian conditions, such arrangements cement into standards and then become impervious to any rational change. Oil pricing is especially vulnerable to such problems. The problems caused by the administered price mechanism of yesteryears may be history, but the itch to tinker with prices in a bureaucratic manner has not disappeared.
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