Don't take away the silver lining

Nov 21, 2008

A roll back in diesel and petrol price at this juncture can cause a bigger problem for the UPA government that has to seek votes next year. April is the month when the government is completing tenure and also when the red balance sheet of 2008-09 of government-owned companies may take away the only silver lining visible in the gloom of a failed economic report card. It can be argued easily that votes do not come on the back of an economic report card after all India Shinning did not see NDA back in power at the Centre in 2004, but the economic gloom is the only the dark spot in the UPA report card. It has successfully weathered the political consequences of India-US nuclear deal and introduced a host of social schemes even at the cost of criticism that it builds fiscal pressures. It is therefore best even politically to desist from any temptation from a roll back in petroleum prices.

With Japan officially stating that its economy is in trouble, it has now become clearer that the global slowdown has started showing on crude oil prices that touched $53.11 a barrel yesterday. Fears are the slide may hit oil producing companies as also speculators who may have bet on predictions of oil touching $200 a barrel not very long ago. For the Indian oil industry, the slide is worrying only to one extent. It impacts their return on investment on projects that had been oriented for the export market and cater to the domestic industry requirement for petrochemicals.

At the retail consumer end, the slide is good with this being the time for government-owned oil companies to make up for combined losses of Rs 12,987 crore in April-September 2008. The slide, that itself is expected to get arrested with the winter demand, brings another kind of fear among the oil marketing companies at the consumer end. A surge in political activity at the time of economic slowdown can build up the pressure to roll back the consumer prices last raised in June 2008 after a gap of two years. After all next to loss of livelihood, it is price rise that hits the aam adami (common man) but it is worth thinking that neither the price of diesel nor that of petrol can help governments in power to retain their seat. The reason is not far seek. The man in the village who votes does not use both. For him, issues are still roti (bread), kaprada (clothes) and makan (shelter) and to buy them getting or retaining a job.