ELECTION 99
COLUMNISTS
DIARY
SPECIALS
INTERVIEWS
ELECTIONS
CAPITAL BUZZ
REDIFF POLL
DEAR REDIFF
THE STATES
YEH HAI INDIA!
ARCHIVES

Search Rediff

Petrol price hike cannot be ducked any longer

What's for dessert?" Most of us are conditioned to expect something sweet at the end of a meal. But in some places -- parts of Karnataka for instance -- it is customary to begin dinner with a sweet, instead of the other way. ("It freshens the mouth for that which is to follow!" was one Kannadiga gourmet's explanation.)

I believe Prime Minister Atal Bihari Vajpayee's trip to the United States might well be an example of the 'dessert first, main course later' school of thought. Indo-American relations are on the upswing but follow an evolutionary rather than revolutionary path, which means that there will not be any dramatic announcements. But matters will be spiced up when the prime minister returns home and takes some hard decisions.

To begin with, a reshuffle, an expansion, or both of the Union Council of Ministers are long overdue. Kumaramangalam's death, the resignations of Ram Jethmalani and Uma Bharti, the elevation of Bangaru Laxman to the presidency of the Bharatiya Janata Party, and other such matters have created vacancies that must be filled. But juggling portfolios will not be easy.

The Shiv Sena, for instance, feels that it has not been given its due. Some members of the Trinamul Congress are wondering how Ajit Kumar Panja, who held independent charge of ministries in various Congress regimes, has been "demoted" to being a "mere" minister of state under External Affairs Minister Jaswant Singh. (It is not a major issue, but such problems are better avoided when Mamta Banerjee, chief of the Trinamul Congress, is publicly demanding that her colleagues concur with her demand for the dismissal of the Jyoti Basu ministry in West Bengal.) And then there is the matter of sating the appetite for office of the eternally splitting Janata family...

Moving on from ministerial reshuffles, the prime minister is also faced with filling vacancies in various important bureaucratic offices. He has to appoint a new cabinet secretary, the man who heads the entire civil service. He requires a new defence secretary and a finance secretary as well. New chiefs are required to be appointed in important institutions such as the State Bank of India and the Industrial Development Bank of India.

But all these matters are mere pinpricks compared to the biggest dilemma of them all -- the economy. I am loath to use terms such as 'recession' since no two economists seem to agree on a precise definition, but it must be admitted that there is a certain uneasiness. The stock markets continue to move up and down a little too quickly for comfort, inflation appears to be on the rise, and the rupee has been taking a pounding of late vis-à-vis the dollar. Looming over all this is the spectre of rising petroleum prices.

Two years ago, petroleum prices stood at around $ 10 to the barrel; today, they are $ 30 and climbing. I can remember the shudders sent out by the 'oil shocks' in the 1970s and early 1980s, and I fear the impact of another one today. The developed world may consume more oil than India does in absolute terms, but their economies are also more insulated. The first round of 'oil shocks' sent First World nations scrambling to reduce their dependence -- by improving fuel efficiency if nothing else. Has that happened in India?

India depends on imported crude oil for something like 70 per cent of its energy needs. In 1999-2000, the bill rose by a huge 63 per cent to ten-and-a-half billion dollars. Some economists calculate that this could rise by 50 per cent more in 2000-2001; they are the optimists. Pessimists say the figure will be closer to 100 per cent. Bring together the increased need for oil (a feature common to developing economies), the depreciation in the value of the rupee and rising petroleum prices, and you have a recipe for a potential disaster.

Is there any hope of prices falling in the world market? Nobody seems to be at all sanguine. Most petroleum producing nations say they are producing to full capacity and so are the refineries in the United States. With winter coming up, the demand for petroleum will increase in the United States and Europe. So what happens if petroleum prices shoot up to, say, $ 50 a barrel?

It is undoubtedly true that prices will tumble from this height. But let us be practical -- we shall still end up paying double the price that we were paying just a couple of years ago. The oil pool deficit is expected to be in the vicinity of Rs 15,000 crore by the end of the year, which means that the sharp rise in the price of crude oil threatens the fiscal balance as well.

What will happen if the rise in prices is passed on to the consumer? We have already had a small foretaste in France where the unions have brought the country to its knees. France is a rich country, far better equipped to absorb the rise in prices than India. But India's unions are likely to be just as vociferous as their French counterparts, especially those in government jobs. They are almost guaranteed to demand extra allowances, all of which will add up to greater deficits coupled with greater inflation.

That, however, is a problem to be tackled tomorrow. What the Government of India needs to settle right now is just how much the rise in petroleum prices should be. Mark that I am saying "how much" rather than "if" there should be one. The more the delay, the greater the damage to the Indian economy.

Ministerial and bureaucratic reshuffles always make the news. I just hope that his colleagues spare enough of the prime minister's time from these manoeuvres to enable him to concentrate on the economy.

T V R Shenoy