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Govt tries hard to politically manage its economic decision

Govt tries hard to politically manage its economic decision
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First Published: Thu, Jun 05 2008. 12 19 AM IST

Updated: Thu, Jun 05 2008. 12 19 AM IST
New Delhi: The long-due fuel price hike came as the climax to weeks of intense discussions on soaring global crude oil prices, within the government and the loss-making public sector fuel retailing companies, that suggested a ballooning crisis was at hand.
It had the air, if not quite the dimensions of the balance of payments crisis that preceded the historic switch to economic liberalization in 1991, and the politically divisive negotiation for the International Monetary Fund loan earlier in 1980, veteran analysts recalled.
Much like the earlier crises, it helped the Congress party-led United Progressive Alliance (UPA) government in reaching a politically charged decision, which could potentially push the inflation rate — which was 8.1% on 17 May, as measured by the wholesale price index — into double digits.
“Subsidies have been so politicized in India that they cannot be reduced without risking a political backlash, unless the government clearly communicates that the move is unavoidable,” said Sudha Pai, chairperson of the Jawaharlal Nehru University’s Centre for Political Studies.
Prime Minister Manmohan Singh took the unusual step of addressing the nation on Doordarshan, the state-owned television broadcaster, as part of the strategy to politically manage the difficult decision.
Petroleum minister Murli Deora, too, suggested that the leaders of the Left Front, which lends critical outside support to the government and had been warning it against any fuel price hike, “understood” the government’s economic compulsions even if they didn’t support the hike.
A Central minister, who did not wish to be identified, however, said: “Political expedience scores over economic rationale not only in India but the US as well. The farm subsidies doled out in the US are not dictated by economics, but mainly politics.”
The flip side to the rule, then, is to package an economic imperative as a politically viable decision. However, that is where the political parties lose their nerve, experts say.
“The lack of political consensus on economic imperatives has much to do with the lack of decisiveness on part of the government,” said Pai, “Given the compulsions of coalition politics, the moment the government reveals its lack of political will, everybody seeks to take advantage of this weakness. The Left, for instance, pokes its nose in even though it is not in the government.”
Yashwant Sinha, a former finance minister and deputy leader of the main opposition, the Bharatiya Janata Party, in the Rajya Sabha, argued that the Congress party was squarely to blame for fuelling the oil crisis. “In 1997, finance minister P. Chidambaram, as finance minister in the United Front government supported by the Left parties, decided to dismantle the administered price mechanism,” reminded Sinha. “We implemented it in the last two years of our government, from 1 April 2002. We also decided that whatever subsidies we would offer would be reflected in the Union budget.”
“But, over the past four years, the UPA government has been just passing the burden to future governments and generations through its ballooning off-budget subsidies (by issuing oil bonds to state-owned oil companies),” he maintained. Sinha said there was no question of supporting the hike. “Whenever fuel prices rose during our regime, the Congress fiercely opposed it. Let them first apologize and admit that their opposition was misplaced, and only then they can come to us to try build a consensus.”
It was not just the BJP and the Left parties, which promptly announced a week-long agitation from 5 June against the decision, but also the Rashtriya Janata Dal, a constituent of the UPA, which voiced its dissent at the price hike. “Farmers will suffer from the hike in diesel prices,” said Devendra Prasad Yadav of RJD, who has been critical of the Congress ever since it introduced the Women’s Reservation Bill in the Rajya Sabha, “The government should have explored alternatives to the price hike.”
S.C. Panda, head of the University of Delhi’s department of economics, reasoned that the challenge to fiscal prudence ran deeper than political opportunism. Thanks to the legacy of a socialist economy, Indian polity remained plagued by a distorted notion of populism, he said.
“Price hikes are avoided in the name of helping the poor. But, the relatively well off continue to gain from the increasing subsidies the most,” said Panda. “Since prices are kept artificially low, economic principles are not allowed a fair play. If you hike petrol prices by Rs20 per litre, for instance, you will immediately see some fall in demand.”
Ruhi Tewari and Jacob Koshy contributed to this story.
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First Published: Thu, Jun 05 2008. 12 19 AM IST