november 19, 2011

The Politics of Petrol

The political response to rising petroleum prices is dangerously short-sighted.

he recent political drama over the increase in petrol prices staged by Mamata Banerjee and the Congress-led United Progressive Alliance government has only underlined the high political visibility of the issue and how it is used by every political party to try and garner narrow support for itself. This time the increase in prices of petrol, used primarily in passenger cars, was a little less than Rs 2 per litre but enabled the West Bengal chief minister to wrangle for her state hundreds of crores of rupees in promised grants by the central government. The price of petrol is the most convenient occasion for political parties to show their concern for the common man and to attack the government for its anti-people policies. It has surely helped them that during a period of high inflation the price of petrol has been raised six times this year from around Rs 50 a litre to about Rs 70 a litre, varying over different states due to varying levies. The prices of diesel, kerosene and LPG cylinders used for cooking were raised only once, in June, by Rs 3 and Rs 2 a litre for diesel and kerosene, respectively, and by Rs 50 for an LPG cylinder. Today the price of diesel remains at around Rs 41 per litre (the price varies across the states), not much higher than it was two years ago. The last time there was such a rise in petrol prices was during the first Gulf War of 1991. The price of petrol went up from about Rs 8.50 to more than Rs 16 a litre, while diesel prices rose from about Rs 3.50 to more than Rs 6 a litre. The big difference between then and now is the presence of diesel passenger cars. In the early 2000s, diesel cars constituted only 4% of the passenger car fleet. With the wide differential today between petrol and diesel prices, consumers have been encouraged to switch to diesel passenger vehicles and these are today estimated to be as much as 40% of new registrations of passenger vehicles. Passenger cars are now the second largest consumers of subsidised diesel at 15% of the total. Bus transport and agriculture, traditionally larger users of diesel fuel, each account for only 12% of the total consumption, while the railways consume a mere 6%. The largest consumption of diesel (37%) is by freight trucks; consumption has grown primarily due to the neglect of the freight carrying capacity of railways by successive governments. The railways are by far the most efficient transporters of freight, consuming a fourth of the energy used by trucks to carry the same amount of goods.
Economic & Political Weekly EPW

The massive increase in diesel consumption, fuelled by passenger cars and trucks, is a public health disaster. As a result of civil society and judicial activism in the 1990s, many Indian cities, starting with Delhi, moved from diesel to compressed natural gas (CNG) for their buses and the government improved the quality of diesel. There was a perceptible improvement in urban air quality and a concomitant improvement in indicators for respiratory diseases. But in the rest of the country it is subsidised diesel that continues to drive freight haulage and now increasingly and scandalously private transport as well. Diesel may be more energy efficient than petrol; it emits less carbon dioxide but its impact on local pollution through emission of particulate matter is substantial. Almost everyone agrees that the pricing policies in Indias oil and gas sector are in a mess. However, opinion on what exactly this mess is and what needs to be done to remedy matters diverges greatly. The ruling establishment, irrespective of the political formation at its helm, argues for complete price deregulation and reduction in subsidies (often in the name of targeting). The Kirit Parikh Committee had predictably asked for a decontrol of diesel prices and massive reduction in LPG and kerosene subsidies. The government has not implemented most of these recommendations, not due to any alternate economic vision but because a rise in diesel prices will further push up inflation. But diesels influence on inflation is due to other past and continuing policy lapses. For instance, the government has continued to allow the unrestrained growth of the diesel car industry and even now has not implemented the Kirit Parikh Committees recommendation of an excise duty to neutralise the price advantage of diesel. The railways remain starved of investment and road transport keeps moving an increasing share of long-haul freight. Even today, investment in railways is a fraction of what is being invested in new roads to ease truck movement. Similarly, in agriculture, diesel use has ballooned due to the unregulated extraction of groundwater, which is another ecological disaster. Better management of urban transport, railways and irrigation would have resulted in a lower impact of diesel prices on inflation and freed the government to take policy measures which would have been in line with environmental and public health goals. The original rationale for subsidising diesel was to keep its price close to kerosene, then the

November 19, 2011

vol xlvi no 47

EDITORIALS

poor mans fuel for (rural) lighting and (urban) cooking, so as to prevent the latters use as adulterated fuel. But adulteration happens on a large scale and the need to keep diesel prices low has acquired a logic of its own. But there is little sign that the right lessons are being learnt. The government looks at every problem from the narrow perspective of decontrol and ending subsidies. Unfortunately, there is also no alternative political perspective with regard to

oil and gas policies. Across the political spectrum the obsession is with prices. While these are important and the poor need to be cushioned from the fallout of the excesses of the rich, it also needs to be recognised that corrective policies which discourage personal transport, trucks and groundwater-based agriculture would reduce our dependence on fossil fuels and improve the efficiency of use as well. Can we hope for such a political position to emerge?

Winning India Over

Baburam Bhattarais visit to India secures its support for the peace process in Nepal but are the hardliners convinced?

epal Prime Minister Baburam Bhattarais mission when he arrived on a state visit to India last month was to convince his hosts to support his governments efforts to conclude the long-stalled peace process. To that extent, his visit turned out to be a success. Barely a week after his return to Kathmandu, the more contentious aspects of a peace process that had begun in 2005 were resolved after a three-year long stalemate. The Unified Communist Party of Nepal (Maoist) or UCPN, the Nepali Congress and the Communist Party of Nepal (Unified MarxistLeninist) or UML have signed a nine-point deal that paves the way for the parliamentarians to focus on the writing of a new constitution. The centrepiece of the deal is an agreement on integrating the former Maoist combatants into the Nepal Army; a give and take by all sides enabled a decision on an issue that had led to political drift and uncertainty. It needs no reiteration that a change in Indias stance and its support for the Bhattarai governments efforts must have been a major factor in the conclusion of the process. Bhattarais visit to New Delhi was mostly one of goodwill, as the Nepal government was keen not to stir any controversy at home in a delicate political situation by signing any major security or energy-related agreements with a neighbour who is widely and correctly perceived in Nepal as a hegemon. Even then, the inking of the non-controversial Bilateral Investment Promotion and Protection Agreement (BIPPA) triggered an outburst of protest by the opposition UML as well as the dissident Mohan Baidya Kiran led faction of Bhattarais own party. Nepal already has BIPPAs with five countries (France, the United Kingdom, Mauritius, Germany and Finland) while India has 80 such. There was nothing in the India-Nepal BIPPA that was skewed towards Indian investors. On the contrary, the India-Nepal BIPPA provides for compensation to Indian investors in cases of losses due to war, armed conflict, emergency, insurrection or riots as opposed to the BIPPAs India has entered into with many other countries that have broadly defined the civil disturbances clause, which could include, for example, labour strikes. Such is the nature of Nepals political intrigue these days that Prime Minister Baburam Bhattarai, who was feted and accorded rousing receptions in India, was greeted on his return to Kathmandu with black flags by the Kiran faction of the UCPN. An intense two-line ideological struggle is underway among the

Maoists between the Kiran group and the Prachanda-Baburam combine. The former identifies anti-imperialism as a key element in furthering Nepals revolution, while the Bhattarai faction has identified the primary contradiction to be between democratic forces and remnants of feudalism. It is this understanding that explains the strident rhetoric by the Kiran group against the India-Nepal BIPPA, while Bhattarai understood the importance of Indian support to complete what he terms the bourgeois democratic revolution by concluding the peace process and by drafting a constitution. Ever since the new government was formed with Baburam Bhattarai at the helm of a coalition between the UCPN and the Madhesis, there has been a visible shift in the Indian establishments position vis-a-vis the Maoists. But the Indian establishments shift to supporting the Maoists after months of attempts to isolate them from the rest of the polity was neither sudden nor complete. There are still sections in the government that do not favour any change in attitude towards the former insurgents. But the Maoists willingness to negotiate with the opposition and the strong public opinion in Nepal in favour of the Bhattarai-led government seem to have impressed many in the Indian establishment who have been disappointed with the stasis following the earlier security-centric geopolitical approach towards Nepal. Internally, Bhattarais government has undertaken a difficult balancing act, trying to conclude the peace process by negotiating with the opposition and at the same time attempting not to antagonise hardliners within the UCPN. Bhattarai has consistently insisted on using the possibilities for a progressive transformation in Nepal within the existing constraints he said so clearly in his speech at his alma mater Jawaharlal Nehru University in New Delhi during his visit. The subsequent nine-point deal among the main parties suggests that his approach has been vindicated. Drafting a new constitution will not be easy, but the members of the constituent assembly should at least be confident that a major hurdle in the peace process has been overcome. It is in Indias interest to play a positive and non-intrusive role in Nepal since a stable republic in the Himalayan country will strengthen the prospects of friendly relations. Bhattarais visit has hopefully heralded a new chapter in the history of close but tense relations between the two neighbours.
November 19, 2011 vol xlvi no 47
EPW Economic & Political Weekly