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Mid-summer crisis-II
Our esteemed economist turned Prime Minister, and his competent team consisting of FM P. Chidambaram and Planning Commission Dy Chairman Montek Singh Ahluwalia among others are sitting pretty on a barrel of oil, and a small spark could throw the whole Indian economy into disarray.
They have taken months to react to the rising crude oil prices, and their actions seem at best half-hearted. What they need to wake up to is that the oil subsidy costs the 'aam aadmi' more than if he were directly paying for it at international prices. I will explain this in a bit, but firstly, the government sees petroleum as a huge source of revenue in the form of taxation, thus while the under-recovery on a litre of petrol after the increase is around Rs 15 per litre, the tax on it is almost the same amount. This is blasphemy. You collect revenues from it for your coffers, and then say that the oil companies are bleeding..
In any case, at the outset, we must ask, who is benefiting from the subsidy?? Just so you know, it is not the poor in the country. It is the rich, who drive fuel guzzling vehicles, and it is the oil producing nations who are laughing all the way to the bank. Now lets see the consequences of raising the domestic prices to market levels. The first effect would be reduced oil consumption, since people would be more conservative if they had to pay more. This is good for everyone, the world, since this leads to reduced carbon footprint, and for the people, well, its better than you think it is. The government will now have a lot more moolah in the treasury to spend on actual development schemes, like the JNURM or the NREG scheme among others (We know that the NREG implementation is anything but successful, but still, more poor people would benefit out of it than oil subsidy). In any case, with the oil subsidy in place, the government is just giving fabulous discounts on oil to the rich, the ones who use it to go on long drives after an exotic dinner(most of which is wated, by the way). Thus, the need of the hour is to progressively abolish the subsidy.
The thing that the Indian public doesn't seem to understand very well, is that what the government giveth with one hand, it taketh with the other. They don't realize that it would be a lot better if the fuel subsidy money was instead spent in building better infrastructure, like mass-rapid transit systems for the urban areas, and better road/rail connectivity for the rural areas, and freight corridors for the inter-country transportation.. If this is how the cash would be used, we would reduce our dependence on oil, also reducing our national imports considerably.. By the way, all these infrastructure solutions could use electricity, which, if the N-deal goes through, we should plan to have a surplus of. So effectively, we are giving up good infrastructure for cheap oil. I guess the choice is for the people to make.
Anyway, I guess it is time for the government to make some hard decisions, and move away from what I can only describe as oil-harakiri. The concrete plan of action should involve a 5 year structure, where the oil-prices would be gradually brought to the international level, and parallely, a rapid action infrastructure development force, which would build enough infrastructure so as to not hurt the people from lack of personal vehicles for transportation. In the mean-time, the N-plants should be set up asap, sice they will provide us with the energy security to our country. This is the road to sustained energy security, and growth, with the least carbon foor-print.
PS : And whoever said that N-deal in a non-issue in elections is unaware of the fact that this issue is directly related to the BSP(Bijli, Sadak, Paani), something close to the Indian public's heart. With the right kind of publicity, I see no reason why this will not garner votes. Even as I write this, the government has begun poll preparations in earnest, and that seems a step in the right direction. Also, people who think the nuclear power would not ensure energy security, but only dependence on NSG, note that India plans to have all its second generation N-plants based on Thorium, which India has plenty of. So, it is a matter of around three decades. Anyway, oil isn't going to last forever, is it???
They have taken months to react to the rising crude oil prices, and their actions seem at best half-hearted. What they need to wake up to is that the oil subsidy costs the 'aam aadmi' more than if he were directly paying for it at international prices. I will explain this in a bit, but firstly, the government sees petroleum as a huge source of revenue in the form of taxation, thus while the under-recovery on a litre of petrol after the increase is around Rs 15 per litre, the tax on it is almost the same amount. This is blasphemy. You collect revenues from it for your coffers, and then say that the oil companies are bleeding..
In any case, at the outset, we must ask, who is benefiting from the subsidy?? Just so you know, it is not the poor in the country. It is the rich, who drive fuel guzzling vehicles, and it is the oil producing nations who are laughing all the way to the bank. Now lets see the consequences of raising the domestic prices to market levels. The first effect would be reduced oil consumption, since people would be more conservative if they had to pay more. This is good for everyone, the world, since this leads to reduced carbon footprint, and for the people, well, its better than you think it is. The government will now have a lot more moolah in the treasury to spend on actual development schemes, like the JNURM or the NREG scheme among others (We know that the NREG implementation is anything but successful, but still, more poor people would benefit out of it than oil subsidy). In any case, with the oil subsidy in place, the government is just giving fabulous discounts on oil to the rich, the ones who use it to go on long drives after an exotic dinner(most of which is wated, by the way). Thus, the need of the hour is to progressively abolish the subsidy.
The thing that the Indian public doesn't seem to understand very well, is that what the government giveth with one hand, it taketh with the other. They don't realize that it would be a lot better if the fuel subsidy money was instead spent in building better infrastructure, like mass-rapid transit systems for the urban areas, and better road/rail connectivity for the rural areas, and freight corridors for the inter-country transportation.. If this is how the cash would be used, we would reduce our dependence on oil, also reducing our national imports considerably.. By the way, all these infrastructure solutions could use electricity, which, if the N-deal goes through, we should plan to have a surplus of. So effectively, we are giving up good infrastructure for cheap oil. I guess the choice is for the people to make.
Anyway, I guess it is time for the government to make some hard decisions, and move away from what I can only describe as oil-harakiri. The concrete plan of action should involve a 5 year structure, where the oil-prices would be gradually brought to the international level, and parallely, a rapid action infrastructure development force, which would build enough infrastructure so as to not hurt the people from lack of personal vehicles for transportation. In the mean-time, the N-plants should be set up asap, sice they will provide us with the energy security to our country. This is the road to sustained energy security, and growth, with the least carbon foor-print.
PS : And whoever said that N-deal in a non-issue in elections is unaware of the fact that this issue is directly related to the BSP(Bijli, Sadak, Paani), something close to the Indian public's heart. With the right kind of publicity, I see no reason why this will not garner votes. Even as I write this, the government has begun poll preparations in earnest, and that seems a step in the right direction. Also, people who think the nuclear power would not ensure energy security, but only dependence on NSG, note that India plans to have all its second generation N-plants based on Thorium, which India has plenty of. So, it is a matter of around three decades. Anyway, oil isn't going to last forever, is it???
2 comments:
Most of the money going to all the mindless spending and the increasing subsidy bill is coming through increased deficit financing, also known as printing money.
And children, what does increasing money supply cause in a supply constrained environment? INFLATION!
Duh. And they're worried about inflation killing their reelection prospects. Let this be a lesson to you, children, next time you're in power.
Well, the one question I would like to ask Sonia Gandhi is, say if the oil prices shoot beyond $165 per barrel, Will the government bite the bullet, and effect another steep oil price rise, or will it let the oil companies bleed.
To choose the first would take a lot of courage, which the Congress is perennially short of, and to choose the second would mean the oil companies would surely be insolvent by the time a new government comes into effect.
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