Diesel Price: Is it More Than Simple Economics?

The government finally gave in to demands of the oil companies and its own Congress MPs. The oil companies had been asking for a hike in diesel prices and a good number of Congress leaders and MPs had been asking for raising the limit on LPG cylinders.

But while announcing the most crucial decision of Cabinet Committee on Political Affairs (CCPA), the government linked the two and went in for the best prescription that it could think of, sugarcoating the hike in diesel prices by raising the subsidised LPG cylinder cap from six to nine.

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The fact that this decision came just a day ahead of Congress’s three-day Chintan Baithak at Jaipur indicates that it had the approval of the Congress leadership. Sources said last week the issue was discussed at the Congress Core Group meeting, with Sonia Gandhi and Prime Minister Manmohan Singh on board.

The in-principle decision to raise the cap on LPG cylinders was taken long ago but was held up on one pretext or the other. Earlier, the model code of conduct for Gujarat elections was said to be one of the reasons for the delay, but then the model code of conduct is still in existence after the announcement of polls for three north-eastern states. On such politically sensitive issues, the timing of announcement is always crucial and well thoughtout.

Decontrol of diesel prices, even if partial, has always been a political hot potato. Farmers run their tractors and water pumps on diesel and public transport, involving buses, trucks and trains, is dependent on diesel. Hike in diesel prices has direct and indirect effect on consumers of all classes.

The impact of LPG rationing is already being felt. With ceiling of six cylinders by March 31 over for most families, they have started feeling pinch – they have to pay around Rs 900 per cylinder now. Resentment is building up against the UPA over this already.

Oil and Natural Gas Minister M Veerappa Moily said the limit would be raised to nine. It means people, for now, would not feel the impact of purchasing LPG cylinders at market rate of over Rs 900 – a further hike is being speculated – till elections in nine states, including Delhi, Madhya Pradesh, Chhatisgarh and Rajasthan, are complete later this year.

Five other states, including Karnataka, will go to the polls in next one to three months time. Since the centre has raised the cap to nine, whether the Congress-ruled states give consumers benefit of subsidising three more as they had promised earlier, is not clear yet.

The Congress-led government’s calculations may go wrong if people don’t correct the perception of the hike that has already registered on their minds. The opposition parties would not like to let the Congress off the hook easily. Today, reactions from across the political spectrum, except the UPA partners, came thick and fast. The BJP, the CPM, the Trinamool and the Samajwadi Party went ballistic.

Since Moily repeatedly mentioned that it would now be on the oil companies, not the government, to effect small corrections, the political leadership hopes that the popular criticism would thus be deflected to oil companies. But it is possible only when people at large take petroleum and finance minister’s words at face value.