Cynical calculations behind petrol price hike

By: Sreekumar Narayan
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The cynical manner in which the steepest ever petrol price hike was effected on May 23, 2012 speaks volumes about the UPA's concern for the aam admi. The largest single shot increase in the retail price of petrol was announced just after the Budget Session of Parliament ended. It ensured that the opposition could not create a din in the Lok Sabha or the Rajya Sabha over the issue and can only hit the streets in protest. 


With Mulayam Singh Yadav now on their side, Congress leaders had reasons to be confident of the arithmetic even if Mamata Banerjee chose not to back them on this issue. However, live telecast of the proceedings in both the Houses would have allowed their rivals to not only score brownie points, it would have also given the people valuable insights into the politics behind the latest hike.

To avoid the second probability, the government simply waited until the LS and RS were adjourned sine die. Then it claimed that the latest hike was necessitated by the need of oil marketing companies to offset their huge losses. Government sources pointed out that the net under-recoveries of various oil firms is estimated to be about Rs 1,32,000 crore this year.

The problem with this argument is that the companies lost thousands of crores in the last few months, yet they were not allowed to raise the prices at that time. A valid counter argument is whether a steep hike would have been countenanced when the ruling party's crown prince Rahul Gandhi was in the midst of a vain effort to revive his party's moribund organisation in Uttar Pradesh. If extraneous considerations are factored in while taking vital decisions, God help the oil firms.

As for the political fallout of the unprecedented hike, the Left and BJP have already called for a Bharat Bandh on May 31. While constituents of the UPA like the DMK and Trinamool Congress roundly castigated the decision, the Samajwadi Party demanded a rethink. Realising that their allies are not on the same page, Congress leaders suggested a partial rollback.

Subsequently Oil Minister Jaipal Reddy, who was forced by the brouhaha to return from his foreign trip a day earlier than planned, defended the unpopular decision but promised to relook at in a week or so if crude oil prices remain comparatively low.

His simultaneous statement that the government was aware of the concerns of consumers can at best be described as crocodile tears. A less charitable view would be that it was downright absurd given the fact that he had allowed the oil companies to sharply raise the prices in the first place.

Besides, an empowered group of ministers is shortly going to decide whether to go in for diesel and LPG price hikes. Economists have long suggested dual pricing of these two items. In their view, only the poor farmers should be permitted to benefit from the significant subsidy on diesel. They also want the middle class to pay at least Rs 100 more per cylinder. The possibility of the government biting the bullet once more in order to improve its finances cannot therefore be ruled out.

It seems that Congress chief Sonia Gandhi and her team are hoping to ride out the storm well before Gujarat and Karnataka go to the polls. The party has vital stakes in the two important states. Time will tell if their calculations are correct.

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