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Fuel price hike may cost UPA government dear

Fuel price hike may cost UPA government dear
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First Published: Sun, Jun 08 2008. 11 19 PM IST

Hard times: A file photo of Prime Minister Manmohan Singh.
Hard times: A file photo of Prime Minister Manmohan Singh.
Updated: Sun, Jun 08 2008. 11 19 PM IST
The decision of the United Progressive Alliance, or UPA, government last week to hike the prices of petroleum products — petrol by Rs5 per litre, diesel by Rs3 per litre and LPG (liquefied petroleum gas) cylinders by Rs50 each — may have been long overdue given the steep rise in the international crude oil price that has reached around $135 (Rs5,776.65) per barrel.
Hard times: A file photo of Prime Minister Manmohan Singh.
For an economy already reeling under a 45-month high inflationary spell of 8.24 % for the week ended 7 May and for the beleaguered Congress party, which has received a series of electoral setbacks over the past four years, the decision to increase fuel prices could not have come at a worse time. Lok Sabha elections are due early next year and elections to the assemblies of Madhya Pradesh, Rajasthan, Chhattisgarh and Delhi are slated for December.
Ironically, as the UPA enters the crucial electoral stage, it is losing the momentum rapidly. L.K. Advani, leader of the opposition and the National Democratic Alliance’s prime ministerial candidate, echoed this sentiment when he said : “The UPA government has in a way signed its own death warrant with this petroleum hike.”
The Congress party’s reported move to counter the concerted campaign by the opposition and its key allies, the left parties, by bringing out booklets to explain to the people the compulsions of the UPA will not have the desired effect. It is impossible for any party to convince the electorate of the inevitability of harsh decisions.
As the Centre fixes the prices of petroleum products marketed by public sector oil firms, a price rise is directly attributed to it. The fuel price increase is the most visible form of inflation as the prices are standardized, government-determined and lend themselves to easy comparison over time. So, when rival parties allege a failure to maintain the price line, it sounds credible and also sticks in public memory.
The political cost of inflation in petroleum products is very high and direct as the blame is squarely laid at the door of the regime at the Centre. In contrast, the Union government can try to find scapegoats for inflation in prices of other commodities. For instance, it can blame the state governments for demand-supply mismanagement.
The UPA leadership could have conceived some innovative ideas to offset or minimize the brunt of public anger rather than make a public spectacle of its cabinet’s decision to hike prices. It appears that the UPA not only lacks ideas on managing the economy, but managing the negative fallout of its unpopular decisions as well.
An increase in the prices of different petroleum products affects different sections differently. The rise in petrol prices is hugely unpopular with the middle classes who use it as a fuel for transport. A hike in diesel prices is hugely unpopular with farmers and a hike in prices of LPG does not go down well with housewives belonging to middle and lower middle classes. These interest groups are so large in number and so volatile in their voting behaviour that a sizeable shift induced by an unpopular decision such as a hike in prices could have devastating electoral consequences.
The “onion” election in Delhi in 1998 (where the then ruling Bharatiya Janata Party or BJP lost to the Congress) is the most vivid example of the electoral potential of prices as an election issue. The success of the BJP in the city of Bangalore — where it won 18 of the 28 assembly seats in the recently concluded assembly elections — to a considerable extent is due to the rising prices during the UPA regime.
Currently, inflation is the top concern of voters all over, and more so in urban areas. No doubt, this would emerge as a salient issue in the ensuing elections and influence voting choices of swing and non-committed voters, who usually are more among the urban electorate as the voter loyalty is less intense in urban areas compared to rural areas.
Ironically, while a positive economic performance does not necessarily produce a pro-incumbency vote, a negative economic performance in respect of key parameters such as unemployment and inflation has the potential to inflame voter anger against an incumbent regime. The UPA leadership appears to have lost its political plot and has ceded political ground to its rivals. As prices of petroleum products are not expected to see a major fall in the next one year, the electoral fortunes of the UPA may see a further downward trend if it fails to rein in general inflation in the next three months. The clock is surely ticking for the UPA regime.
G.V.L. Narasimha Rao is a political analyst and managing director of a Delhi-based research consulting firm.Your comments are welcome at thebottomline@livemint.com
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First Published: Sun, Jun 08 2008. 11 19 PM IST