I have read and heard outcries and roar against the Government's latest decision to raise prices of HSD (High Speed Diesel) by INR 5 per litre, a rise of almost 12%, and restrict 6 cylinders per account along with a host of other economic "reforms". Having heard the common man shout at the top of his voice against a Government that in my opinion has done what it should have done a long ago, I must bring few things in perspective for the aamaadmi, or the not-so-aamaadmi!
As a country, India runs a huge central fiscal deficit (4.3% of GDP, which is a whopping US$80bn) viz. the excess of government's expenditure against its "own" income (when you minus borrowings!). A large proportion of that is a result of a massive import bill (US$150 bn) of Crude Oil, which are further refined in to petroleum products. Our refining capacity exceeds our demand by a big margin (35%!), so India is a net exporter of refined petroleum products. Petroleum products include petrol, diesel, naptha, rpc, furnace oil, bitumen, etc. Out of total consumption of petroleum products, 44% consumption is that of diesel, 10.6% that of petrol, and 10.3% that of cooking gas. Subsidy on per litre of diesel is generally around INR 11 (depending on international FOB gasoline prices), and that on a gas cylinder in excess of INR 350.
Out of total diesel consumption, majority are used by SUVs/cars owned by elite Indians, followed by gensets used in urban residential complexes and in mobile tower companies, followed by the real intended beneficiaries viz. the farmers, tractors, transportation etc. So for every INR 10000 worth of diesel that SUVs buy from outlets, subsidy is a whopping INR 2600 viz 26%!! Mobile tower consumes nearly 4 lakh litres of diesel every month!52% of India's households still use firewood for cooking their meals, if any. Most of the 350/- per cylinder subsidy borne by the government is for the middle and upper middle class people. For nearly 24 crores households that India has, even if 12 crores households use gas cylinders it comes to around 144 crores cylinders a year!
Now the natural aamaadmi question therefore is: "So what? Government is the head of welfare, socialist state. It is supposed to cushion the impact and provide subsidy as a state policy." Well, inmy view, no government has unlimited resources, and least of all ours. The amount of subsidy that the Govt. doles out to middle, upper middle and elite Indians have to be financed through borrowings. A whopping sum of Rs 5.76 lakhs crores is the borrowing target for the current fiscal year. This massive borrowing program is surely to keep interest rates high for a longer period of time as it crowds our private borrowing forcing them to opt for overseas dollar funding. These high interest rates keep corporate capex on hold, production low, underutilisation of production capacity, taper demand and in turn depress the economy. Most importantly it results in a prolonged period of inflation.
This inflation is evident from CPI being in double digits for most of last several years, and WPI being in excess of 7% for several years at a stretch. We pay for this massive borrowing by purchasing expensive fruits, vegetables, meat, egg, cooked food, consumer non-durables, fmcg, clothes, and almost everything that we buy. It pinches us but we don’t create a noise and outcry, apparently because pinching our stomach is less hilarious than pinching the fuel tanks of our cars! Whether the subsidy is borne directly by the Govt. or by oil marketing companies (OMCs) or by people, it ultimately falls in the pocket of taxpayers.
Also, Indians as a habit have a very natural instinct to waste energy. We donot believe in car-pooling, conserving energy; Indians have a tendency for discriminate use of energy even for menial and avoidable reasons. There is no sense of energy conservation, be it electricity, fuel, cooking gas, or any other source of energy!
Let us believe in the power of a Capitalist economy, its policies and manifestations that we have seen over a period of time. History has time and again proved that Socialist and Communist economies die a natural, but painful death. The most successful way of eliminating poverty, creating jobs for millions and the panorama of "inclusive growth" has been a Capitalist regime operating within the principles of a free-market economy, and with a direct subsidy to the underprivileged such as the green and amber subsidy doled by the US to its farmers. A free market economy will eventually eradicate all evils of a subsidised socialist regime! The way ahead is therefore to adopt progressive, forward-looking policies in an effort to stimulate growth and foster a structural change that lays the seeds of a vibrant and strong future. Hopefully, we all Indians will understand this someday...until then, let the "Invisible Hand" of the markets determine what’s best in Politics and someday this politics vs. economics dichotomy should die its natural death, when everyone knows that good economics is definitely good politics!
(The author works with the Government of Bihar. Views expressed are personal)