ECONOMY-INDIA: Oil Price Hike Not Anti-Poor, say Economists

By Ranjit Devraj Reprint | | Print |

Ranjit Devraj

NEW DELHI, Oct 2 2000 (IPS) - The weekend resignation of two Indian government ministers to protest the steep hike in transport and cooking fuel prices, has more to do with politics than genuine concern for the poor, say independent economists.

Rather than help the poor, a deferment of the decision on the hike would have hurt government efforts to raise living standards of the poorest, they say.

Media commentators agreed that political considerations drove Mamata Banerjee and her party colleague Ajit Kumar Panja to announce their resignations as railway minister and junior foreign minister respectively.

The two belong to the Trinamool Congress party, based in the eastern border state of West Bengal. The party is a key member of Prime Minister Atal Bihari Vajpayee’s National Democratic Alliance (NDA).

“The provocation for this, however, does not seem to be what Ms. Banerjee has publicly stated — her opposition to the hike in the prices of petroleum products — but seems to be rooted in the political alignments she is keen on working out in West Bengal,” said the leading national daily, ‘The Hindu’.

The Trinamool Congress could not afford to be seen endorsing the hike in the government-regulated prices of petroleum products, because it is preparing for state assembly elections in West Bengal, say political observers.

“We are a people’s party. West Bengal has been devastated by floods and poor people cannot afford to pay more for their kerosene at this time,” Banerjee said. The floods in the Ganga river have killed at least 1,000 people and made hundreds of thousands of people in the state homeless.

Vajpayee, who expanded his cabinet, hours after the hikes were announced, has not accepted the resignations. The firebrand Trinamool Congress leader has given him till Tuesday to reverse the hike in the prices of petrol, diesel and kerosene.

These have become costlier by six U.S. cents a litre each. The biggest hike of 87 percent was reserved for liquefied petroleum gas (LPG), popular as a cooking fuel in urban homes.

Opposition political parties hit out at the government, specially for the hike in kerosene prices, which is used by the poor for cooking. Others pointed out that coupled with the hike in petrol prices, this would reduce the availability of kerosene to the poor.

According to leading Indian environmentalist Anil Aggarwal, vast quantities of subsidised kerosene are diverted into the adulteration of petrol.

“Adulteration of petrol takes place at all levels, from the refineries, to the petrol kiosks and three-wheeler taxi operators and contribute greatly to environmental pollution,” he says.

However, independent economist Arjun Sengupta thinks that subsidising diesel prices does not help the poor.

“For the poor, the benefits of subsidising diesel is limited because diesel-linked products constitute only a fraction of their budgets — increased prices may raise operational costs of truck owners but not greatly affect the price of the vegetables they move,” he says.

According to Sengupta, subsidies in the name of the poor would only benefit whose who can pay more and who should actually be made to reduce their requirements.

India gobbles up 3.8 million kilolitres of diesel every month and hidden subsidies for that amount of fuel alone are estimated to cost the country 100 million dollars.

Another leading economist, Sunanda Sengupta of the Jawaharlal Nehru University (JNU), says India will have to learn to live with a lower oil consumption.

According to Sengupta, higher deficits in India’s balance of payments resulting from higher oil imports, could only translate into a further weakening of the rupee, which in turn would affect the poor.

One of India’s leading energy use experts, R.K. Pachauri, who directs the prestigious Tata Energy Research Institute, says India’s consumption of oil can be cut down with more efficient use.

“The power sector is in a deplorable state and many industries, households, hospitals and hotels are forced to install oil-based captive power generation plants to make up the shortage,” Pachauri said.

India is estimated to have some 20,000 MW in the form of privately-run power generation plants, he says.

Moreover, India has been shifting from highly efficient rail transport to oil-guzzling road transport.

Pachauri advises the government to do away with artificial prices for petroleum products and leave these to the oil companies.

The government said the hike was long due. “The issue is not about pegging domestic petroleum product prices with international ones, but about stopping a gaping six-billion dollar deficit in the oil pool account,” said Petroleum Minister Ram Naik.

Most media commentators agreed. “Why should there be a clash between populism and good governance? Why should decisions which make economic sense and are in the long-term interest of the people evoke the people’s wrath?” asked senior journalist K.K. Katyal of The Hindu.