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| Politics of oil | | |
BY reducing marginally the petrol and diesel prices, the UPA government has allowed Congress President Sonia Gandhi to claim credit for a people-friendly measure and project herself as a protector of the interests of the common man. Earlier when farmers were protesting against the forcible acquisition of their land for setting up special economic zones, she came to their rescue and told the government to have SEZs only on barren or single-crop land. The reversal of known policies makes the position of the Prime Minister a little embarrassing as he and Petroleum Minister Murli Deora had only recently ruled out any price cut despite a steep fall in the global oil prices from $78 a barrel to $56.8.
Dr Manmohan Singh, Finance Minister P. Chidambaram and Mr Deora had fiscal considerations in taking their position on oil prices. Their calculations focussed on the loss to the government on every litre of diesel sold or on how oil speculation had hit India’s GDP growth. But for Ms Sonia Gandhi politics matters more than economics. She has to prepare her party for the coming assembly elections in Punjab, Uttar Pradesh and Uttaranchal.
However, the oil price cut is not in keeping with the drastic fall in the global prices. The government needs to rework its petroleum price mechanism. The combined dose of Central and state taxation that comes with every drop of oil is quite stiff. The sharp rise in the prices of necessities can be partly attributed to the high oil prices. To reign in inflation, it is imperative to keep oil prices subdued. Luxury diesel car manufacturers can be made to pay more as they take advantage of the heavily subsidised diesel. The government reportedly plans to lower corporate taxes; instead it can pass the benefit of increased tax collections to oil users and this will benefit the corporate sector as well.
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