Getting rid of subsidies and inefficiency breeding economic policies is close to impossible in India. Political “compulsions” are at the root of these problems. As a result, it takes a crisis (such as the one in 1991) to carry out reforms. In other instances, international commitments enable the required willpower.
As reported in Mint on Tuesday, India has submitted a plan to the Group of Twenty (G-20) last month to phase out inefficient energy subsidies. This is part of an exercise that involves many other countries. But the plan allows the country in question (in this case India) to define energy subsidies. That’s where the catch lies.
On the one hand, it could allow the government to push ahead with increasing fuel prices, as recommended by the Kirit Parikh committee and align them with international prices. On the other hand, such leeway can serve as an excuse to make nonsense of subsidy removal by redefining existing subsidies in another way. You can simply change the name “subsidy” into another name and continue with business as usual.
So in the end, it all depends on political circumstances. The plan to the G-20 is not a 1991-type “crisis opportunity” that forces government to go for far-reaching changes.
Should the government look for such excuses? In principle, this makes for bad policy. If changes are required, then the government should havesufficient willpower to make those changes. The political aspect of decision-making in this case is complicated. On the surface, the excuse is that a coalition government hobbled with mercurial supporters has little will to carry out painful increases in fuel prices. But, as mentioned, this is a ruse.
The fact is the Union government today presents a picture of a house divided. Within the Congress party, there are influential politicians who believe that raising fuel prices will be “anti-people”. There are others, both within the council of ministers and in the party, who understand the financial difficulties of oil marketing companies when fuel prices are delinked from the cost of crude oil and that of refining it. In these circumstances, the G-20 plan could be an elaborate excuse to do something or do nothing. As with much recent policymaking, the decision-making is likely to take a path of least resistance and little else.
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