The Indian economy is buffeted by the twin threats of high inflation and a growing external deficit. So, this is the season for some tough decisions. But they seem unlikely right now. The latest election results from Karnataka could lead to more policy paralysis in New Delhi.
Global oil prices have been going up vertiginously and are now at around $135 a barrel. Financial instability, too, has not yet gone away despite the recent bounce in markets around the world.
The government has so far desisted from raising domestic prices of petroleum products. As a result, for the sale of every litre, given the current level of international oil prices, the oil companies are absorbing a loss of Rs16.34 on petrol, Rs23.49 on diesel, Rs305.90 on LPG and Rs28.72 on kerosene. They are bleeding heavily. Issuing oil bonds will only worsen the fiscal deficit—which is substantially worse than what the finance ministry claims. The situation is such that the government has to inevitably bite the bullet and raise domestic prices of petroleum products.
However, things changed dramatically this Sunday: the Congress party, which leads the United Progressive Alliance (UPA), lost in Karnataka; worse, the opposition Bharatiya Janata Party is poised to form its first-ever stand-alone government in that state. Not only has it politically diminished the Congress, it has emboldened its feisty ally, the Left. This can mean only one thing: policy paralysis. There is no doubt that the government, which has less than a year to go in office, has turned into a lame-duck one.
(Illustration: Jayachandran / Mint.)
There is every reason to believe that the UPA would be tempted to let things drift, rather than force politically unpleasant decisions. The current economic circumstances do not permit this luxury. The economy, which is still growing at a very healthy pace, could see an abrupt dip in fortunes.
It is clear that the UPA as a collective and the Congress, in particular, have to take some hard decisions. Staying in power for the sake of it will bring only more grief. As Karnataka showed, sheer populism will not work. The time has come, therefore, for the government to cut its losses. At this point of time, the only way out is if it remits office and calls for fresh elections. It has enough honest people at the helm to realize that while there is no guarantee that they would be returned to power, it is in the best interests of the country. And that is all that matters.
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