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The oil price hike: The blow could have been softened

By the time this column appears the much dreaded price hike for petrol, diesel, kerosene and LPG may or may not have taken place. It is imminent, however, and when it does happen it will certainly make a tough impact on the economy and our lives because the gap that the government wants to bridge is enormous and even if the petroleum ministry, by some smart financial engineering, brings down the liability of consumers to a third of what is actually required, it will still impact us hugely.

The anticipated oil pool deficit of Rs 23,600 crore is no small amount and (what is worse) the hike, whatever proportion of this deficit it may actually cover, will have a runaway inflationary impact on the economy at a point of time when the rupee is on a free fall and the stock markets are not exactly in the best of health.

Could we have averted the hike? No. Could we have cushioned it? Perhaps. Could we have anticipated it? Certainly. Instead of making brave noises, we could have taken the decision earlier and stepped up the price gradually, linking it to the global price rise as it actually took place.

Most of the free world works that way. Our government could have done the same and taken the nation into confidence instead of trying to sidestep the issue and pretend that, like the prime minister's knee problem, it would vanish if we ignored it.

Secondly, and as important, we should have re-examined our tax structure for petroleum products much earlier. For, as everyone knows by now, the high oil pool deficit is largely due to the heavy taxes levied on oil. This book-keeping method, or so argues one of our leading newspapers, has essentially been tailored to increase the government's revenue receipts. That is how the fiscal deficit remains smaller than what it would have been had the oil subsidies come directly out of the budget. Interestingly, according to the same newspaper, calculations indicate that if the government lifts all taxes on oil, the subsidy on oil products will not be all that high after all.

Most of the taxes have been imposed on the arguable premise that those who buy petrol to run their scooters, motor cycles and cars or use LPG gas cylinders at home deserve to pay punitive taxes for such incredible luxuries in a poor nation. Luckily, that point of view is slowly dying out and the government is realising that oil and petroleum products affect everyone's life and the economy as a whole. But the taxation continues. To support harebrained government schemes that may or may not touch your life at all.

This is where economic reforms come in. The idea is to cut out the crap and offer citizens a clear and transparent view of what the State takes from us and what it gives us in return. In simple terms, to know what we as citizens are paying for and why. The purpose is to make governments more accountable, less wasteful, and hopefully more transparent. Has it done so? Frankly, no. Not as yet. That is the problem.

In fact, this may be a perfect opportunity for the government to set its house in order. To come clean and tell us how they intend to restructure the taxes for oil and petroleum products so that we, the people, know exactly at what price they are importing the stuff and at what price it is being retailed to us, without all the fancy book-keeping. We are today mature enough, as a nation and as a people, to face the facts and it is the responsibility of the State to take us into confidence. That is the essence of economic reforms. To keep all tax payers fully informed about where their money is going, how the government is spending it.

For decades, we have watched the State squander our hard earned money on running hotels, restaurants and bakeries, making second rate wrist watches and third rate photographic films, run radio stations that have not exactly helped in any way to enhance the quality of our life. Everything the State has done has actually enriched and empowered the ruling elite and their cronies. It may not be crony capitalism is the true sense of the word. But crony socialism is no less ugly, no less degrading, as the Russians and East Europeans would be the first to agree.

By agreeing to bear a third of the of the total burden of the international price rise of oil through the simple process of reducing taxes, the finance ministry has wisely acknowledged the fact that there are more efficient ways to bridge the gap than simply passing on the entire burden to the people. We boast of a strong savings ratio in India, but that does not mean we must keep eroding that and allow the State to pursue its profligate habits. In fact, it is time we recognised the fact that the way forward to strengthen the economy lies not with the babus of North Block but with those who have made Indian enterprise such a strong and powerful instrument of change all over the world.

The fact that the president of the United States pays so much attention to what successful Indians in Silicon Valley say and do rather than what our official spokespeople regurgitate proves that track two diplomacy is now slowly going into the hands of Indian entrepreneurs and professionals who have dazzled the world with their skills and expertise as well as their amazing dynamism. It is time we strengthened their hands and diminished the role and responsibility of the State.

Pritish Nandy

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