Showing posts with label Pranab Mukherjee. Show all posts
Showing posts with label Pranab Mukherjee. Show all posts

Monday, August 27, 2012

You did what?!!

The govt deregulates oil prices – and takes the most dangerous step in our economic history to become a disaster prone ‘oil-shock’ economy

Since when did deregulating oil prices become a sensible step towards boosting economic growth? Did we miss some lectures during graduation or were we altogether in the wrong Sheldonian Theatre course? Don’t get us pseudo Galbraithians wrong – we’re not against any oil price hike; in fact, we rabidly support it. But to undertake a flabbergasting decision to blindly deregulate oil prices – in order to allow it to fluctuate according to global oil movement vagaries – is the most dangerous step ever in India’s economic history. The act by India’s Empowered Group of Ministers (eGoM) of the United Progressive Alliance (UPA) to initiate the deregulation process of petroleum products a month back, fails to recognise that all global recessions in recent history have had a common cause for occurrence: energy price rice. Or are the memories of the 2007-08 economic recession already forgotten unbelievably?

Post the eGoM moves, petrol prices have already gone up by Rs.3.50 per litre. Though diesel price deregulation is on hold for now, prices have still been raised by Rs.2 per litre. Similarly, the price of the domestic Liquefied Petroleum Gas (LPG) has also been further hiked by Rs.35 for every 14.2 kg cylinder. Kerosene has got dearer by Rs.3 per litre to cut the government’s fuel subsidy, which stands at around $25.6 billion.

One does honestly appreciate the fact that India’s Finance Minister Pranab Mukherjee is quite serious at reducing the fiscal deficit burden – something he had mentioned in his budget speech with sincerity. To that effect, a calibrated price hike is completely logical, but a sudden deregulation is frighteningly irrational and a spectacularly risky affair. James D. Hamilton, Professor of Economics, University of California presented a benchmark paper drawing a correlation between oil price hikes and subsequent recessions. The recession that America witnessed during 1973-74 was preceded by the 1973 oil crisis when the members of Organisation of Arab Petroleum Exporting Countries or the OAPEC (consisting of the Arab members and Egypt, Syria and Tunisia) called for an oil embargo against US decision to re-supply weapons to the “Israeli military” during the Yom Kippur war. OAPEC decided to increase oil price by 70% to $5.11. Moreover, due to unforeseeable threat with regard to oil import, oil price went up from a mere $3 to a whopping $12 per barrel. The second oil crisis US went through in 1978 was due to the Iranian revolution which disrupted the oil production and supply from Iran. During this period, oil price soared from $15.85 per barrel to the historic high of $39.50 per barrel. This was followed by the Iraq-Iran war that had a huge impact on the severe recession during the 1980s. The relevance of the irrational price rise to the tune of $147 per barrel prior to the recent downturn cannot be given up either. Even the Dubai crash last year was due to the sudden oil price fluctuations. Rises in oil prices fuelled the real estate bubble and the subsequent fall almost brought the economy on its knees.


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Wednesday, July 25, 2012

What Consumer Protection?

You really have to forgive me my cynicism, but as I see the euphoria over the Jan Lokpal Bill begin to wane, I just can't help recollect that old truism – the more things change, the more they remain the same! I am utterly convinced that even if the so called drafting committee is allowed to meet and debate sincerely; and even if by some miracle people like P Chidambaram, Kapil Sibal and Pranab Mukherjee do agree to what civil society activists want, the law that politicians and bureaucrats will finally pass will inevitably make that law an ass from day one. My cynicism is because our rotten system ensures that even the best of intentions and great and progressive looking laws become a farce.

Let me take you back to 25 years ago when a pre-Bofors Rajiv Gandhi regime was trying hard to reform our rotten system where the few always gained at the expense of the many. One of the laws passed during those days was the Consumer Protection Act. I still remember the hype and hoopla raised over the law in those days. Optimists crowed about how the law will enable ordinary consumers like you and me to punish companies peddling bad products and services. It was said that the consumer courts would be truly user friendly, would deliver speedy justice and work in a manner that lawyers won't be required at all. On paper, that tantalising promise made by the law still holds. In reality, millions of aggrieved consumers in India will tell you how that promise is a farce. Did you say no lawyers? Ask consumers who filed substantive complaints and they will tell you how companies often use batteries of expensive lawyers to browbeat them. Did you say swift and speedy disposal of cases? The sad truth is, pending cases in consumer courts have already exceeded unmanageable levels. Do you still dream about mythical David versus Goliath fights and the outcome? Well, dream on.

The same companies who would quake with fear at the power of consumer rights and punitive laws in developed markets treat Indian consumers like rubbish. Take any product or service category and – despite so called competition – companies in India get away with anything and the consumer gets nothing.


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