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India’s energy ignorance

India’s energy ignorance
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First Published: Mon, Sep 19 2011. 09 48 PM IST
Updated: Mon, Sep 19 2011. 09 48 PM IST
In one of his recent blog posts, Tyler Cowen of Marginal Revolution (www.marginalrevolution.com) contrasts a blogger from a statesman. He says, in effect, that a blogger can state what he wants to say but a statesman has more constraints. Fair enough. But he goes on to add that a statesman takes costs and benefits into account and postpones the decision hoping for better times so that the right decision could be taken in more propitious circumstances. I am not sure that is my understanding of statesmanship.
I went and checked dictionary.com that came up with a more prosaic definition. It simply said that a statesman could be a politician, a senior government leader who makes public policy decisions and who is known for wisdom and integrity.
I would expect a statesman to disregard short-term personal negative consequences of a decision taken with larger, longer-term interest in mind.
In that regard, Prime Minister Manmohan Singh has been behaving neither as a statesman nor as a politician. It is hard to know what he believes in and what he stands for, if he stands for anything at all.
Nor, if one might add, are there statesmen or stateswomen in the ranks of the opposition in the country. They all continue to practise counterproductive politics: oppose what you proposed while in office and two, articulate saner and bolder policy alternatives when out of office only to jettison them and opt for the lowest common denominator while in office.
Let us take the case of the recent petrol price increase by oil companies. The price of petrol has been decontrolled. Oil companies take these decisions or, at least, we believe so. It is as it should be. The Bharatiya Janata Party claimed that it wanted to end administrative prices for hydrocarbons. If so, what is the need for dharnas and processions for the latest increase in the price of petrol?
Much is being made of the fact that the price of petrol in India is higher than the price of gasoline in the US. That is appropriate. India is a developing country and it needs to make sure that the price of a scarce, depleting resource reflects those properties accurately. Moreover, who said that the pricing policy in the US is correct? The price of gasoline is set by Detroit and that’s not something that India should emulate.
India cannot and should not allow so many individual vehicles on the road. The costs are both considerable and, unfortunately, external to those who create them. Therefore, that the price of petrol raises the direct costs for owner-polluters and driver-polluters is a good small step. More needs to be done. The subsidy being provided for diesel must be withdrawn. Or, there should be a higher tax on passenger vehicles running on diesel. Further, the costs of multiple vehicle ownership in a single family need to go up, so as to discourage it.
All these things look as unlikely to happen in India as the sun rising in the West. Therefore, at one level, one should not be disheartened that the Union cabinet postponed a meeting to consider differential pricing of liquefied petroleum gas (LPG). At another level, it is criminally irresponsible on the part of the United Progressive Alliance (UPA) government to take a casual attitude towards energy security.
Charles Ebinger, director, energy security initiative at the Brookings Institution, wrote in his trip report after a recent visit to India that the government was still too heavily involved in the energy sector, that pricing reforms were crucial to India’s energy security and that there was too little investment in the sector (http://www.brookings.edu/reports/2011/0914_india_energy_ebinger.aspx?p=1). Put the three together and you get the logical conclusion that the government’s heavy role in the sector has been only to distort pricing. Its involvement has neither resulted in energy availability for the consumer nor a friendly climate for investors.
Ebinger thinks that India understands that it faces an acute energy crisis. Going by the protests by national parties on the latest petroleum price hike and the postponement of the cabinet meeting on differential pricing of LPG, one wonders if Ebinger’s analysis of India’s understanding is correct.
The Prime Minister championed the Indo-US nuclear energy deal. But delivering energy security for India does not start and end with nuclear energy. For the foreseeable future, oil, gas and coal would remain major fuels. He has to champion a few initiatives personally. For example, he should see through the complete transition to rational pricing of hydrocarbon inputs and end-products. If necessary, he should hold educational sessions for his colleagues so that key meetings are not endlessly postponed.
This government is falling short in two crucial areas—in managing coalition and in making policy decisions. No wonder one bureaucrat observed that the UPA’s indecision was final (source: T. N. Ninan in the Business Standard).
V. Anantha Nageswaran is an independent macroeconomic and investment strategy consultant, based in Singapore. Your comments are welcome atbaretalk@livemint.com
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First Published: Mon, Sep 19 2011. 09 48 PM IST