Soniaji, your petrol price act is a political lie. Correct it

Dear Soniaji,

You have been in politics, and in a political family, for so many years that I cannot hope to convince you to think differently. But the current mess the country has landed itself in makes me wonder what kind of political-economy advice you are getting. Either your advisors are wrong, or your own instincts are wrong.

I will focus on one segment of the energy economy, which is at the core of the economy’s (and UPA’s) current problems, and not only because of that stupid petrol price hike, which is drawing so much flak from the public.

Your whole energy policy - from petrol, to diesel, to coal and gas and power is deeply flawed - because it is built on the idea that you must use taxpayer assets to pay for your re-election. This is fine politically, but disastrous economically.

However, I would like to suggest the opposite: what is economically disastrous is politically damaging too. You have been avoiding oil price increases in order to win elections. But when you postpone the inevitable indefinitely, it will boomerang on you politically. Today, the government has no options left on energy pricing - and this is coming at a politically inconvenient time for you because you didn’t act when you could have. Your government failed to do sensible things in the last three years - it squandered the honeymoon it got from the electorate in 2009.

But all is not lost. I would like to explain how in this letter. I will not go into the whole energy pricing issue, but restrict myself to petrol, since it is “the burning question,” as one TV channel tends to put it. But the principle applies to all fuels, all subsidies.

First, it is the height of irresponsibility and pretence to claim that the price hike is the decision of the oil companies, since petrol is deregulated. The truth is the opposite. If oil companies were free to price petrol as they liked, your government would not have forced them to defer price hikes from the end of last year. That happened due to the Uttar Pradesh elections, where your son was fighting an election and did not want to face inconvenient questions on petrol prices.

So, not only was it wrong for Pranab Mukherjee to say that the decision to hike petrol prices was that of the oil companies, it was even more wrong for your party to distance itself from it, and a complete travesty of truth if you too claim you had nothing to do with it. You and your son wanted it that way, and that is why all the increases that should have happened in stages have come at one shot.

As a good leader, the first thing you should do is to own up responsibility for this. It is cowardice to pretend that decisions taken by the Manmohan Singh government are not yours. If the government is not doing what you want it to do, who don’t you remove Singh and install Rahul, or even take up the job yourself?

Is it good politics to constantly evade responsibility for your government’s actions? Do you take the public for fools? How long can you live this political lie?

Second, you are right to be concerned about the impact of higher oil prices on the aam aadmi, even if it is only for political reasons. But can any country afford to endlessly subsidise everybody all the time? You could say yes, if the government had enough resources for it - though that is clearly not sensible. But what if it does not have the money for it - as is clearly the case now? Isn’t it more sensible to subsidise only the really deserving? Shouldn’t you be throwing your weight behind this idea rather than keeping mum and implying that everyone should be subsidised?

Good political leaders lead from the front. They don’t hide behind deniability all the time.

Third, I hope you realise that deregulating oil prices is the only alternative. In fact, allowing prices to rise when global crude costs rise, and fall when they tumble, is the sensible way to run energy policy. In fact, you also seemed to believe in it when it suited you. In 2008-09, before the last general elections, your government actually reduced oil prices at your insistence when global prices came down. And this, when you knew oil companies were bleeding profusely from past losses. If you can reduce prices when it is convenient to you, where is the logic in not raising them when global prices move adversely?

Fourth, I hope you see the damage in keeping such a wide gap between petrol and diesel prices. In Mumbai, the price differential is Rs 33 per litre - which is asinine by any stretch of political or economic logic. It is an invitation to adulteration, corruption, and dieselisation of the economy - which, if diesel prices are not raised, will compound our import dependence, increase the subsidy bill, and keep the rupee permanently weak. This is a self-fulfilling vicious cycle. It is damaging for the country, damaging for you politically. What would you like to go down as? Someone who debauched the rupee and took it down to Rs 60-70 a dollar, or someone who stabilised the economy and the currency even while reducing poverty? So, the sensible thing to do is cut petrol prices and raise diesel prices.

If you accept this logic, I am sure your concern is about the political damage it will cause to you and your party. Here are five suggestions to push through sensible changes even without losing political credibility.

#1: First, cut petrol prices by Rs 5 and increase diesel by Re 1 or Rs 2. This will immediately cool down the political atmosphere

#2: Next month, increase diesel by another Re 2 a litre, but cut duties by Re 1, so that the net increase is only Re 1.

#3: Keep doing this once every two months till domestic prices reach global parity prices. #4: If global prices fall, resist any attempt to pass it on to consumers till the oil companies are completely loss-free. Once you are done with diesel, do it with cooking gas.

#5: If you have achieved global parity pricing, you can ask your government to fix oil duties in specific terms - so any increase or decrease in global prices will not dent revenues. In periods of low prices, revenues will be buoyant. When prices are high, taxes will not ratchet up prices even higher. By setting the right example, you can ask states to do the same.

If you do this, the valuation of your oil companies will soar, and you will make more money from disinvestment than you are losing temporarily by way of tax adjustments.

More importantly, your people will know that pump prices are truly determined by the oil companies, and not by you.

Today, no one will believe you when you or your party claim that you had nothing to do with petrol prices. Why lie, when you can tell the truth and improve your credibility?

Yours Truly