By holding fuel prices, we are damaging the finances of oil companies and shifting the cost of adjustment from the affluent to Government.

S. Balakrishnan

INDIA'S central bank is asserting itself.

In its latest Annual Report, the RBI advises Government to pass on the higher international price of crude to consumers by raising the prices of final products - petrol, diesel, kerosene, etc. If this is not done, the fiscal burden will increase and the whole thing could conceivably spill over into higher inflation. Also, how will Government meet the deficit? It has to borrow more and that means higher interest rates, which, in turn, could affect the investment climate and investments.

The point underlined is that despite more than a decade of reforms, a key sector - energy - continues to be in the vice-like grip of Government. This is not a value statement. In the Indian context, safety and security demand Government ownership, control or intervention, or at least the threat of the latter two. Otherwise, it seems where significant systemic and public interest are involved, the private sector cannot behave itself.

For example, for the present, it is entirely desirable that banks are largely Government-owned, considering the bad experience of the past and also with most new generation private sector banks, where the ones that are surviving are, in fact, those set up by originally Government-owned or dominated institutions. And, after the strict norms on capital adequacy and NPAs, public sector bank lending too is more discriminate. As a wag remarked, we have to be thankful for small mercies.

This Government, dependent as it is on the Left parties, cannot act on its own on energy prices. Still, who is the Left protecting? Energy consumption - be it private transport or air conditioning - is concentrated in the upper crust and middle class, whose incomes have risen disproportionately in the current economic boom. Sparing two-car and three-car families from costlier energy hardly smacks of evenhandedness or pro-poor policies.

In the US, the fear is that high oil prices will sap consumer and business confidence and eventually lead to an economic downturn. The possibility looks real given that there are no sustainable growth engines in sight.

Our situation is different. By holding fuel prices, we are damaging the finances of oil companies (which are supposed to function on commercial lines) and shifting the cost of adjustment from the affluent to Government and thereby indirectly to the weaker sections of the population. Does the Left understand this?

Or as the Petroleum Minister, Mr Mani Shankar Aiyar, remarked, are they simply a party of the petty bourgeoisie?

(This article was published in the Business Line print edition dated August 31, 2005)
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