Indian Govt’s flip-flop on Oil Subsidies

It is kind of proved. UPA’s new mandate is to just boost stock markets and create euphoria over nothing.

The markets suddenly caught a frenzy in the afternoon over deregulation of diesel. The Oil Minister followed by FM said the oil companies can raise diesel prices in a small way on their own. There were some reported differences over Oil Min saying small changes and FM saying marginal changes..Phew..

This was followed by statements that we cannot disrupt the oil subsidy suddenly.  FM even said that he is continuing to assume oil subsidy would continue as he does not know how much the prices have been raised. What do these statements mean? In or Out?

Some reporters said that govt. has thrown ball  in the Oil companies court and they would soon take a call on diesel subsidy. It has been evening and till date channels are only trying to interpret what was said by various parties. And as always the whole idea was to say look this is such a big reform. Really?

The government has changed the meaning of reform. It first means providing the subsidy in name of pro-poor and then removing the subsidy to boost stock prices and appeal to markets that it continues with reform. Petrol prices were deregulated in 2011 and it took such a long time for Oil companies to change prices regularly. They remained under pressure to change prices of what was then positioned as big reform.

Same thing perhaps would happen to diesel. The govt. has to bite the bullet but unable to as it faces several  elections. After ignoring their fiscal mess for years they are suddenly waking up post fears over downgrade. Earlier we were told that the decisions are not taken for  fear of downgrade only to admit later.

Another news which media chose to ignore was the raise of LPG cap of subsidised cylinders from 6 cylinders to 9 cylinders for the year. It is a pity that a government which has so many econs on board can’t enforce simple economics principles to their bosses. This is simply a rollback of whatever reforms they announced in Sep-12.

In order to please the homemakers in all probability and look at pleasing their new vote-bank- women. First, a party headed by a woman (living in Delhi) keeps ignoring them and suddenly wakes up. Second, women are more interested in their security and so many other reasons. Not LPG.

Rationing is simply a bad policy as Bibek Debroy nicely explained. And India has so many such examples. The link also points to  funny stories of how LPG companies are doing the role of Census of Kitchens…Well, you may use technology to map all this but is it needed?

It distorts the whole pricing bit and one does not know how to factor this in inflation data. WPI inflation simply has LPG cylinders as a category and we now need two categories. LPG Capped and Uncapped. How does anyone capture the impact on inflation via such a mode. Not surprisingly, LPG Price index in WPI  hardly shows any changes. I mean how does one change it?

Well, none of this is understood. You can’t ride the two boats of pro-poor (which is nothing meaningful except throwing money to the poor) and pro-reforms at the same time.

Much better is to make a plan and finish it once and for all. And don’t ride the two boats as you never really slip, we do.

High time government gets out if this business of pricing all these products which have to be market determined. So that they move from  to more meaningful reforms on governance.

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2 Responses to “Indian Govt’s flip-flop on Oil Subsidies”

  1. Crazybrain Says:

    Well said sir,
    Congress is messing all things up…But I think the current finance minister is more inclined towards pro-reform policy but for pleasing their vote banks they have to roll back important measures they took…I think it’s getting for them harder to take tough decisions on economic point of view because of opposition and bad reputation due to scams….

  2. Indian Govt’s flip-flop on Oil Subsidies « Mostly Economics « Shiva Ram Speaks Says:

    […] Indian Govt’s flip-flop on Oil Subsidies « Mostly Economics. […]

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