The Hindu Business Line : The primacy of politics

Fresh polls on the cards? The litmus test of the Government’s intentions in this regard will be its response to the sharp spurt in the world oil price.

Ranabir Ray Choudhury

Most people engaged in the game of politics at the national level are not quite certain about the Congress Party’s gameplan as regards the proposed nuclear deal with the US. Has the deal been cold-storaged to the extent that it will not see the light of day till, perhaps, the end of next year, at the earliest? Or, has it not been set aside at all, the Congress Party — the anchor of the UPA regime — planning a complex schedule (probably covering not very m any weeks), which will lead either to the opponents of the deal backing off from the well-publicised threat of withdrawing support to the Government, or the Prime Minister going to the President and submitting his resignation, the intention being to have a fresh Lok Sabha election.

In recent days, conciliatory statements have been made by some quarters vis-a-vis Dr Manmohan Singh at a personal level, the objective probably being to mollify the economist-turned-politician and assuage his ‘hurt’ feelings so that he does not, impulsively, hand in his papers and precipitate fresh elections.

If this reading is correct, it would be ample proof that some of the most diehard critics of the proposed deal are, in reality, not ready to face the electorate now — or even in the next six months.

The Congress Party must be aware of this, which is probably why it is using every lever at its command to turn on the pressure on the deal’s opponents at the political level.

The critical question, however, is: has the Congress Party made up its mind to go in for a mid-term election? If it has, the major presumption would be that its opponents (at all levels) would get a smaller number of seats in the new House, thereby strengthening its own position in national politics. This may or may not be a correct presumption to make, but it is the only one that can justify the Congress Party’s decision to go in for a mid-term election.

Perhaps the decision has not yet been taken, all eyes now being trained on the Gujarat Assembly polls in December. This would be a sensible course to adopt because the poll results could yield some idea about which way the wind is blowing — despite the fact that Narendra’s Modi’s Gujarat is more of an exception than anything else in today’s Indian political milieu.

Fresh test at the hustings

But there is little doubt that preparations are already under way for a fresh test at the hustings, the surest indication of this being the decisions taken in the economic sphere. To this writer at least, the litmus test of the Government’s intentions in this regard will be its response to the sharp spurt in the world oil price, specifically the steps taken to counter the adverse effects on the oil marketing companies.

Briefly, OMC losses have shot up in the recent past owing to the ‘explosion’ in the crude price, resulting in a weakening of their financial position, even though the companies concerned may be ‘strong’ corporate entities.

The Government, specially since it owns most of these companies, is aware of this and, in the normal course, it is to be expected that remedial measures will be taken to lessen the adverse impact.

The most direct way in which this can be done is, of course, to raise proportionately the selling price of the products sold by these companies, that is, petrol, diesel, kerosene and LPG. But this is not always possible because of the resultant impact on poor and average citizens, another (perhaps more important) function of the Government being to cushion such economic blows to the best of its ability.

Oil-elections link

This explains why Governments of all political hues have, till now, not passed on to the consumer, fully, all changes in the international crude price.

This is what has been done in ‘normal’ circumstances. When there is an electoral test around the corner, the Government’s circumspection in increasing fuel prices for the public has become even more pronounced.

For those who wish to see current developments from this perspective, it would be normal to infer from the statements that have been made till now by Congress politicians and Ministers — nearly all of which have focussed on the undesirability of increasing prices at the moment — that an election is not very far away. Of course, no one has overtly mentioned the link between higher fuel prices and impending elections, but it is easy to make the connection, going by the nature of the political imperative involved.

What makes the wariness about increasing fuel prices just now stick out even more is that the economic conditions prevailing at the moment are conducive to such an increase, perhaps even a sharp one.

Among other things, given the fact that the inflation rate is just around 3 per cent — the lowest in five years — and also the fact that the trend has been encouraging (the rate has been ruling below 4 per cent for 10 weeks and 5 per cent for 20 weeks), on paper at least no one could have faulted the Government if it went ahead and increased petrol and diesel prices appreciably (compared to earlier increases).

But the indications till now have been a bit different. Certainly, a price increase has been talked about, and in all probability such a step cannot ultimately be avoided. But then there has also been discussion about a mix of measures, including excise rate changes and the issuance of more oil bonds, all of which point to a strong desire on the part of the UPA Government to minimise the extent of the retail-level price increase.

Danger of populism

There is little doubt that the n-deal controversy has begun to cast its long shadow on the nation’s politics, which is perhaps as it should be in a healthy democratic set-up.

The danger, however, is that the competition among the political players may verge on unbounded populism, which could have unwanted effects on the nation’s economy — at a point in time when the Indian economy has become the cynosure of all eyes in the international investment community.

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