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A right step, albeit feeble

A right step, albeit feeble
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First Published: Sun, Jun 26 2011. 09 07 PM IST
Updated: Sun, Jun 26 2011. 09 07 PM IST
The government’s decision to raise kerosene, LPG and diesel prices is a step in the right direction, albeit a feeble one. Even after the hike, oil companies continue to lose a lot of money—estimated at 1.5% of the gross domestic product (GDP). For sure, this prescription needs to be repeated more often and in stronger doses—the prices of the three were last revised over a year ago. There is no doubt that a hike in the price of mass consumption products hurt political fortunes; more so in these times of high inflation, for the price hike in the mass transportation fuel, diesel, will only stoke this demon. This is, no doubt, inevitable.
What is not so inevitable, and a reflection of the government’s failings is the amplitude of the political reverberations after the hike— strikes, demonstrations against the hike led by the opposition parties that are seeking a rollback. The answer to this lies in more frequent hikes. For, this will build an appetite in the masses to pay for what they buy. And their decision to vote for a political party will be based on more qualitative issues such as governance and development.
In the last decade, this approach has been practised in the case of diesel for very brief periods by both the Bharatiya Janata Party (BJP) and the Congress-led governments. However, the aspect to note here is the BJP’s willingness to undertake hikes right up to a year before parliamentary elections in 2004. With three years to go, the Congress-led coalition must strive to keep this momentum.
For, in its absence, it is succumbing to a measure that dents the state’s ability to narrow the difference between what it earns and what spends. Along with the recent hike, the government decided to forgo taxes worth 0.5% GDP towards shoring up the oil companies’ revenues. This makes it harder for finance minister Pranab Mukherjee to achieve his fiscal deficit target this year of 4.1% of GDP from the previous year’s level of 5.1%.
Should the government revise oil prices more frequently? Tell us at views@livemint.com
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First Published: Sun, Jun 26 2011. 09 07 PM IST
More Topics: Ourviews | Price | Kerosene | LPG | Diesel |