The increase of Rs 5 per litre in price of diesel though welcome economically is politically a suicidial decision. But the very fact that the government has bitten the bullet will provide some proof that there is some spine still existing in the decision makers.
The government finds itself hopelessly entangled in the maze of subsidies. It just does not know how to come out of it. It is literally butchered everytime it attempts to reduce its subsidy burden. Being a political animal, the ruling parties combine also reacts politically and continues subsidies and there are chances that a roll backin diesel prices may happen after some time to assuage the widespread anger in the country.
The diesel and LPG price hike have been announced against the background of massive scams in which the government is estimated to have lost lakhs of crore rupees revenue, ,which could have helped it to control prices and avoid the need to increase prices. The arguement looks and sounds perfect and that is why the common man is up in arms against the price rise especially in diesel which has a cascading effect on prices of almost all goods and services.
However the scams are one time events but subsidies are a continouos phenomena. The amounts involved can help at best postpone the price rise decision by some time. After that prices will have to be raised to mitigate the losses being incurred by oil companies.
The choice will be to be prepared for higher taxes to pay for higher subsidies. Natural justice says that the user should pay the actual price. Why should Vijay be robbed to pay for Ajay's consumption. Many people were
In our country, it is only the fixed income group who bears the brunt of rising prices like private pensioners, and the poorest of the poor who are without clout to bargain better wages. The rest will get wage or income raises to compensate for the price rise in one way or the other. In the organised sector, there will be a upward revision in Dearness Allowances, as the various price based indexes will rise. In the unorganised services sector, there will be increase in service charges like rise in transport fares both for carrying goods and people like truck and taxi/bus fares etc. The vegetables and other commodities will become costlier. The farmers will get a higher support price. The electricity suppliers will charge higher fuel charges and so on.
There will be a period of adjustments and soon the economic system will settle to a new equlibrium level. There is a need for reducing the subsidy burden furthur and only real subsidy to the poorest class should be there like on kerosene, primary education, health etc. Rest subsidies must be eliminated in steps in a well defined time period of not more than ,say, two years or so.
The question is, is there political will to do so?