India fuel reform at mercy of rain and politics
NEW DEHLI:
India’s government is hoping monsoon rains will soon give it the political cover it needs, to start cutting costly fuel subsidies, but reforms will have to proceed slowly to keep reluctant coalition allies on board.
A panel led by Finance Minister, Pranab Mukherjee, postponed a decision on reforming fuel pricing on Monday, after two key ministers from small coalition partners failed to attend in a clear signal of their reluctance to be associated with a policy that may improve India’s finances but will also cost votes.
The finance minister appears determined not to give up, however, and the cabinet will set a date soon for another bid to agree on the issue.
Waiting 10 days or so will give the government a better sense of the strength of the oncoming summer monsoon. If it is normal, as expected, this will bolster farm output and give respite from food price inflation. And that could give the government a window of opportunity to cut fuel subsidies.
Submitting fuel to full market pricing would bolster India’s fiscal health as fuel accounts for a quarter of its estimated subsidy bill of INR1.2 trillion.
It would help state-run energy retailers such as Indian Oil Corp, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd operate profitably.
And it would fatten profits for Reliance Industries and Essar Oil, private sector players which captured almost 15 percent of the retail fuel market between them 5 years ago, before they were hit by subsidised sales by state firms.
But public and political opposition in the face of looming state elections means fuel reforms will be gradual at most.
The ruling Congress party coalition does not have the will to risk alienating its mostly poor and rural support base by exposing the price of cooking and motor fuels to market forces.
“We will be forced to cut down on household expenditure such as food if the government hikes cooking gas prices,” said Rama Satpathy, a housewife in eastern India.
By not acting boldly now, however, India may miss a rare window of opportunity for reforms as inflation is forecast to abate, the monsoon is off to a promising start, global crude prices are relatively moderate and the next major state election, in large and impoverished Bihar, will only take place in October.
Published in the Express Tribune, June 10th, 2010.
India’s government is hoping monsoon rains will soon give it the political cover it needs, to start cutting costly fuel subsidies, but reforms will have to proceed slowly to keep reluctant coalition allies on board.
A panel led by Finance Minister, Pranab Mukherjee, postponed a decision on reforming fuel pricing on Monday, after two key ministers from small coalition partners failed to attend in a clear signal of their reluctance to be associated with a policy that may improve India’s finances but will also cost votes.
The finance minister appears determined not to give up, however, and the cabinet will set a date soon for another bid to agree on the issue.
Waiting 10 days or so will give the government a better sense of the strength of the oncoming summer monsoon. If it is normal, as expected, this will bolster farm output and give respite from food price inflation. And that could give the government a window of opportunity to cut fuel subsidies.
Submitting fuel to full market pricing would bolster India’s fiscal health as fuel accounts for a quarter of its estimated subsidy bill of INR1.2 trillion.
It would help state-run energy retailers such as Indian Oil Corp, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd operate profitably.
And it would fatten profits for Reliance Industries and Essar Oil, private sector players which captured almost 15 percent of the retail fuel market between them 5 years ago, before they were hit by subsidised sales by state firms.
But public and political opposition in the face of looming state elections means fuel reforms will be gradual at most.
The ruling Congress party coalition does not have the will to risk alienating its mostly poor and rural support base by exposing the price of cooking and motor fuels to market forces.
“We will be forced to cut down on household expenditure such as food if the government hikes cooking gas prices,” said Rama Satpathy, a housewife in eastern India.
By not acting boldly now, however, India may miss a rare window of opportunity for reforms as inflation is forecast to abate, the monsoon is off to a promising start, global crude prices are relatively moderate and the next major state election, in large and impoverished Bihar, will only take place in October.
Published in the Express Tribune, June 10th, 2010.