Time to announce the gas price hike, free diesel
Timing economic reforms with an election calendar is never a great idea, but it is one of those realities of life; the reforms impetus does get weak when there is an election around the corner, so even when the UPA did the right thing by clearing a policy of hiking diesel prices by 45 paise per month, these were put on hold each time there was an election. And so it has been with the Narendra Modi government. While a lot of background work has been done in critical areas of labour reform, for instance, the all-important final seal has been withheld till elections are out of the way. So, for instance, the changes in Rajasthan’s labour laws whereby factories with under 300 workers don’t need state government permission to shut down have not been signed off by the President of India, essential if they are to become the law. Various other proposals have been worked on—as opposed to complete power in the labour inspector’s hands, an algorithm will now decide which factories are to be inspected, for instance—but these are to be showcased later today; ironically, these proposals have no scope to hurt labour even temporarily, but given how politically sensitive labour reform has begun, perhaps the government didn’t want to take a chance.
Freeing up diesel prices fall in the same category since, in this case, freeing them up will actually lower prices for users by over a rupee per litre. Logically, this should have been done before the election, but it would appear the government didn’t want to take a chance—if the rupee falls, or global prices rise, there is the possibility that diesel prices will have to be hiked more. The problem with this kind of approach, however, is that it is shortsighted. Apart from the large burden that petroleum subsidies put on the exchequer as well as oil PSUs who have to share the burden, they have ensured private sector players keep away from oil marketing. As a result, while rising consumer demand means India needs a lot more petrol pumps, the fear of rising subsidies has kept private retailers away—a decade ago, some retailers came in when decontrol was promised, but all learnt their lessons the hard way and, in the case of Reliance, had to mothball their pumps. Gas prices, similarly, were kept on hold after the high-decibel campaign by parties such as the AAP. While that may have been politically expedient, not hiking local gas prices has worsened the shortage of domestic supplies, and meanwhile India imports gas at much higher prices. With the Maharashtra and Haryana elections out of the way, it is time the government got down to business.