Diesel deregulation: Boon or Bane

A couple of days back, UPA government decided to bite the hardest bullet when it decided to deregulate the diesel in phased wise manner based on the recommendations of Kelkar committee report which recommended reducing the subsidy burden gradually for sustained economic growth.

Criticised for long for being deterrent to take important policy decisions, some recent announcements such as direct cash transfer scheme, FDI in multibrand retail and to name a few,  have tarnished the government’s ‘not doer’ image to a large extent. Few of them have even forced people to roads to protest against. Capping the subsidized cylinder to just six a year per household (though recently increased to nine per household) was one step which has met with objections from all the factions of society, NGOs and political parties etc.

Going further, in its bid to reduce the subsidy burden and succumbing to the continuous pressure from oil marketing companies which were facing under recoveries for long, Government has finally decided to let OMCs raise the price of diesel as and when they find it appropriate. Till now except LPG, Kerosene and Diesel all other petroleum products were priced under import parity pricing mechanism and hence were deregulated.

Deregulation of diesel: Boon or bane?

Diesel, an important fuel, is also considered backbone of the economy. In its wide ranging usages diesel is consumed for both commercial and domestic purposes. How increasing diesel prices and eventually deregulation will help economy?

• To give a fillip to agricultural production and in absence of irrigation facilities government decided to subsidize diesel as it was the only fuel used by farmers to run their pump sets which in turn irrigated their parched lands. Being universally subsidized it benefited both rich and marginalised farmers. Phasing out subsidies on diesel will decrease the subsidy burden of the government. Though the marginalised farmers will have to pay more for buying the diesel, they would be compensated through direct cash transfer to their bank accounts for the same.  
• Rationalizing subsidies mean more disposable income with the government which it can invest for human capital formation through its social sector programmes such as NRHM and RTE etc. which in turn, will benefit the economy.
• Other flagship programmes for social welfare such as MNREGA, Rajiv Awas Yojna, and Indira Awas Yojna etc. can be financed by the government in better way once its subsidy burden is reduced.
• After deregulating petrol, sale of diesel cars soured up sharply. Diesel being dirtier fuel, its large scale consumption would have further compounded to the global warming problem. As diesel and petrol will eventually cost more or less same people will again turn to petrol driven cars and thus reducing the threat to the environment which means less damage due to environmental disturbances like cyclones and tsunamis.  

It is true that raising the diesel prices will eventually lead to the benefits for the government; however, it is common people who will have to face the repercussions, if any, due to the government’s such action. Let us see, how?

• In India, transportation and railway freight is run by diesel mostly. Increasing diesel prices will affect the transport services adversely whose effects will be visible in form of increased prices of commodities i.e. inflation. As Indian economy is already witnessing sustained and persistent inflation for last few months, another blow in form of hike in diesel prices would have been the last thing it had imagined for.
• Though government is terming its direct cash transfer scheme a ‘game-changer’ where govt will transfer the subsidies and other benefits directly to the beneficiaries’ Aadhaar enabled bank accounts, poor distribution of Aadhaar cards might be a hurdle in implementation of the scheme. The marginalised farmers, who will have to pay more for consuming diesel, will be worst affected due to increase in diesel prices because they would be deprived of the subsidies and due to not owning an Aadhaar card might not be entitled to the benefits of the direct cash transfer scheme simultaneously subjecting them to the economic stress.
• There had been incidents galore where people used subsidized kerosene to adulterate with diesel and run their vehicles. Problem of adulteration will be further looming large over the consumers owing to the increased prices of the diesel.    

For any nation, regular reforms are needed. Recent initiatives of government were much needed reforms per se.  Any scheme of any law will not be effective until its implementation is taken care of diligently. Schemes as such are not good or bad, it’s their implementation which makes people suffer or enjoy its benefits. If the loopholes are assiduously breached and enforcement is taken care of mindfully, direct cash transfer would definitely be true game changer and increasing diesel prices or for that matter any such scheme would certainly help India emerge as the economy which is resilient, progressive and sustaining.

India and Pakistan: Enemies but how long?

Cross LoC simmering

Last week, India witnessed a gruesome attack on its security when the Pakistan’s Special service group officials fired upon Indian post at Poonch and as if killing two Indian military men and injuring many as well, were not sufficient that they decapitated one of the soldiers.

Pakistan Stand

As expected, Pakistan government has refused to admit the crime. Moreover, in a bid to prevent the situation to be escalated, they reported Indian officials that an enquiry into the matter was concluded which proves Indian claims wrong and further asserts non-involvement of Pakistan army into the matter.

Indian Stand

Indian politicians and army officials on the other side have declared to retaliate if they are further provoked. In all its manifestations, dissatisfaction and anger over the incident is clearly visible in army, public, media and most importantly our politicians. From MPs and MLAs to common men, all are demanding for a tit for tat action from the Indian army. On the one hand our beloved PM has warned of discontinuing the trade relations with Pakistan, on the other, there are many who are in favour of teaching Pakistan lesson this time and minimum they want - 10 heads of Pakistani soldiers as an act of vengeance. 

Backgrounder

Historically right from partition, India and Pakistan have been at loggerheads over the issues ranging from the cross boundary sporadic violence, Kashmir issue, Sir Creek issue and spat over Siachen glacier to river water disputes over Jhelum and Chenab.

Given the adverse climatic conditions in the PoK region, India and Pakistan have been continuing ceasefire in the region since 2003. However, the neighbouring nation has violated the ceasefire at many occasions (about 100 times in the last year itself).

After the 26/11 terrorist attacks there had been lull in the relations for many months. The two nations then decided to do away with the differences and confidence building measures (CBMs) were taken to strengthen the relationship which, among others, included opening of borders for trade through land route, liberal visa regime, India-Pak cricket series and bus and train services etc. Moreover, many round of diplomatic talks at ministerial level concluded to reinforce the relations.

But, current incidence has certainly derailed the ever improving relations with our neighbour. Pakistan has accorded most favoured nation status to India recently. However, at this juncture, continuation of trade relations with Pakistan seems too difficult, if not impossible. And probably this is what Pakistan army or for that matter militant groups based in Pakistan want. A simmering border relation with India does give an excuse to the Pakistan government and army to neglect the internal militant insurgency and thus, peaceful and friendly relations with India would be the last thing they would strive for.

In its military doctrine Pakistan army admitted internal insurgency the bigger threat than India, however, it never mean that the hate and disgust they possess for our nation will diminish anytime in near future.  

There had been diplomatic talks galore, be at track 1 or track 2 level but solution to the border dispute seems a far distant dream. And such talks have continuously failed not because two countries are not agreed for peace across the border but the army has its vested interest in sustaining the border dispute and militant groups would not let it happen owing to their continued hatred for India.

Indian rabble rousers

It is not that this is first such incident across the border. In the past there had been many such incidents, however, none has raised the matter as it have been escalated this time especially by our politicians. For scam trodden and policy paralysed UPA government such incidents can serve as deflectors for deviating the attention of the people from main issues. Except this, parliamentary elections are due in 2014 and any such issue which undermines the national integrity has always served as a tool for seeking favour of people.

Due to the vested interests of the politicians, it is good that at least such issue has surfaced otherwise many times they go unnoticed. Confidence building measures were a welcome step however implementing them seems difficult, given the stand of militant groups and Pakistan army.  The peaceful and healthy relations with the neighbours are mandatory for any economy to proliferate and flourish. And the need of the hour is to find out who has triggered such avalanche that threatens to bury the improving relations between the two nations. On part of India and it would be advisable to hold its nerve in cauldron as any impulsive decision would surely derail the diplomatic relations completely. India should also track the relations between Pakistan army and Pakistani government because peace at Indian borders and hence in its territory will prevails only if these two work in tandem.