The Daily Fix

The Daily Fix: Is Arun Jaitley’s fuel price U-turn a sign of responsiveness or panic?

Everything you need to know for the day (and a little more).

The Big Story: Gas supply

India’s government, and the Bharatiya Janata Party that runs it, spent weeks explaining why it could not play around with domestic fuel prices, and would let them rise in consonance with changes in the cost of importing oil. This, it was said, was part of an important reform, the decontrolling of petrol and diesel prices to allow them to reflect market prices. Moreover, the duties and taxes associated with fuel had been earmarked for important infrastructure spending, said Finance Minister Arun Jaitley. He added a kicker, saying states are welcome to reduce duties, but the Centre would stand firm. Fellow Union minister KJ Alphons said that car and bike owners are not starving, and can afford higher petrol prices.

Despite asserting those principles, the Centre on Tuesday announced a cut in the basic excise duty on both petrol and diesel by Rs 2 per litre. This came a day after petrol prices in Delhi reached Rs 70.83 on October 2, with similar increases in many other cities across the country. The Finance Ministry said on Twitter that the cut had been implemented to “cushion the impact of rising international prices” and to “protect the interest of the common man”. It also pointed out that the revenue loss on account of these reductions would amount to Rs 26,000 crore over a full year, with Rs 13,000 crore lost from the remaining half of India’s financial year, which runs from April to March.

The cut, explicitly announced as a way to protect the common man, is a significant departure from the ideas espoused by Jaitley and others just weeks ago. At the time, the government pointed out how any reduction would reduce the Centre’s revenues, especially when India’s fiscal deficit has reached 96% of its full-year target in the first five months. Indeed, there has been talk of an economic stimulus from the government. But this seems even harder to achieve with the Centre foregoing Rs 16,000 crore in revenue ahead of the Diwali festive season. While the move will have an immediate impact on inflation, since petrol and diesel are directly linked to this rate, it could also exacerbate other risks of fiscal slippage.

But what do we make of a government that takes a U-turn so soon after insisting it would stick to its ideals? From one angle, the signal is positive, suggesting the government is willing to listen to the concerns of the people and change tack when it becomes evident that its policies are causing pain. From another, however, it suggests a Centre with no coherent approach to economic policymaking, especially at a time when the ship needs to be steadied.

The double whammy of the failed demonetisation project and the hurried rollout of the Goods and Services Tax has led India’s economy to a place where crisis and stimulus are being talked about. Prime Minister Narendra Modi has acknowledged this by setting up an advisory council to give him counsel on the economy, beyond Jaitley.

But he will still have to make the final call. Right now, it is unclear what that will be on many issues. Will this be a government that sticks firm to its reform path, even if it comes at the cost of votes – and, as demonetisation has shown, at the cost of the economy too? Or will it cast about for populist moves, considering that 2019 Lok Sabha elections are on the horizon and the public mood, at least on the economic front, has turned against Modi? Most pertinently, three and a half years into the tenure of the man who promised strong leadership and development for all, why is this a question to which we still do not have a clear answer?

The Big Scroll

  • Nitin Sethi and Mayank Jain explain how the Centre can manipulate fuel prices, despite market linking, through the rates of taxes and duties.

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  1. The TINA [There Is No Alternative] factor “may be lulling the Modi government into a sense of smugness and infallibility and the stock market into complacency. Caution is advised. TINA can be a fickle mistress,” writes Udayan Mukherjee in the Indian Express.
  2. “There is an element of psychology that keeps the economy chugging,” writes Ajit Ranade in the Hindu. “The government’s role is as much to provide the right policy environment, as to provide a psychological atmosphere that is conducive to risk taking about the future, and inspire confidence in the people.”
  3. “It is disappointing that India is missing out on the global revival in economic growth, but perhaps even more troubling that it is missing out on jobs growth – a trend that precedes the GDP slowdown but has also gotten worse over the past year,” writes Ruchir Sharma in the Times of India.
  4. Caste Hindus tend to make the same claims as Europeans and Arabs, about a dark period of the past that changed when they entered the picture, with similar consequences: a dismissal of aboriginal cultures, practices and rights today as “lapsed” forms, or the whitewashing of Dravidian history by the fantasy of a permanent “Aryan” presence in what is India, writes Tabish Khair in the Hindu.
  5. Only one in four Indians had planned for retirement as of 2016, writes Vipul Vivek in IndiaSpend, pointing out how dangerous that is for a country that will eventually have a huge population of older people.


Don’t miss

Vijaysree Venkatraman tells us why India’s theoretical physicists owe a lot to Alladi Ramakrishnan’s drawing room in Madras.

“A gifted mathematician and the son of a successful lawyer, Ramakrishnan, a physics graduate and gold medallist in Hindu Law, seemed set to continue with his father’s lucrative legal practice. But after a chance meeting with Bhabha, he began working with the scientist at the Tata Institute of Fundamental Research, which Bhabha had founded in Bombay. They attacked a problem on cosmic radiation together – the student arrived at an elegant solution, but his mentor preferred to pursue his own approach.

So Ramakrishnan went to the University of Manchester to complete his PhD under the statistician MS Bartlett. The elegant solution he had arrived at when working with Bhabha was published in a major journal. While still a graduate student, he attended a conference in Edinburgh in 1949 where he met Nobel laureates like Niels Bohr and Werner Heisenberg, and interacted with other physicists. This resulted in a series of invitations to top European universities. His circle of contacts widened, but he maintained good ties with Bhabha.”

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