Mr Modi, the time for diesel deregulation is now; don't repeat UPA's mistakes

If there is one lesson the Modi government needs to internalise from the UPA experience, it is this: there is never a good time for reform. In good times, governments are reluctant to introduce reforms because they worry about spoiling the good mood; in bad times, reforms appear even more politically suicidal.

Ultimately, the best UPA reform - the decision to allow diesel prices to rise steadily by 50 paise a month - had to be taken when the political initiative was beginning to slip from the government’s hands. To cover up for this difficult decision, and the resultant continuous uptick in fuel inflation, the UPA brought in all kinds of badly designed, and even foolish, legislation (the Land Bill, the Food Security Act), which still failed to save it from ignominy.

The Modi government should thus deregulate diesel now - and not wait for the ideal moment when subsidy levels fall to zero.

Petroleum Minister Dharmendra Pradhan should know that there is never going to be a right time for diesel price deregulation . Last night (midnight of 31 July-1 August), the oil companies raised diesel prices once more , and the subsidy element is still around Rs 2.49 per litre. Some time ago, when crude prices had briefly fallen, the subsidy level had fallen even lower, giving the government hope that soon it will be zero. But that didn’t happen.

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Waiting for the right time is wrong if the reform is something you have to do anyway.

The point of reform is to ensure that no matter which way the global price moves, oil companies have the freedom to adjust pump prices without politics getting in the way. Already, people understand that diesel prices can move both ways. This is a great learning for ordinary consumers of diesel, who no longer have an excessive incentive to buy diesel cars or use more diesel for running agricultural pumps or power generators. Truck and bus fleet owners have an incentive to buy more fuel-efficient vehicles.

Pricing freedom is good because it encourages higher use in easy times and lower use in difficult times.

The downside with the 50-paise-a-month policy is that beyond a point it needlessly prolongs the agony and always gives people the impression that it may be reversed. The point of reform is to make change irreversible and forward-looking.

Consider the following possibility: if the Gaza strife and the Iraq civil war were to worsen and oil prices shoot up suddenly, it may take years to neutralise the losses with the teeny-weeny, 50-paise-a-month price hike policy.

In Macbeth, the main character has this to say about his impending assassination plans: “If it were done when ’tis done, then ’twere well it were done quickly.”

If you have to do something unpalatable, it’s best to get it over with quickly.

The time to deregulate diesel is not a few months down the line or when the under-recoveries of oil companies fall to zero, but now.

The oil companies have already crossed the hump of consumer anger on this score. The time is, in fact, ripe. Pradhan should get a move on and convince his boss this is the right time to move. He then has to start work on the bigger challenges: kerosene and cooking gas.