Political price

Published : Jul 04, 2008 00:00 IST

Leaders and activists of Left parties at a rally to protest against the increase in fuel prices, in New Delhi.-GURINDER OSAN/AP

Leaders and activists of Left parties at a rally to protest against the increase in fuel prices, in New Delhi.-GURINDER OSAN/AP

The Left responded to the price hike by holding mass agitations and effecting cuts in the tax on fuel in States ruled by it.

LONG before the fuel price increase was announced on June 4, its political dimensions had come up time and again in discussions among partners of the United Progressive Alliance (UPA) government at the Centre. The debate was on even during the run-up to the Assembly elections in Karnataka, which were held in May. The discussions highlighted the global increase in the price of crude oil and the demand from oil companies for governmental measures to tide them over.

According to several UPA leaders, although it was realised that fuel prices would have to be hiked at some point of time there was a consensus that an announcement in the midst of the elections would affect the chances of the Congress in Karnataka. According to leaders of some of the smaller constituents of the UPA, there was also an opinion that a creditable poll performance by the Congress would help the UPA take some tough and unpleasant decisions with greater political authority.

But the Karnataka results, which came out on May 25, were far below the expectations of the Congress and this resulted in further discussions about the timing of the announcement of the tough and unpleasant decisions. The UPA tarried for 10 more days and finally announced the hike with a resolve to face the consequences.

By all indications, political compulsions were under consideration during those 10 days. The Congress has to prepare for electoral battles in Rajasthan, Madhya Pradesh, Chhattisgarh and Delhi, with the Bharatiya Janata Party (BJP), which leads the principal opposition National Democratic Alliance (NDA), in the last months of the year.

There was little doubt that a fuel price hike would affect the chances of the Congress and, as a result, the UPA in these polls, especially since the hike comes at a time when the country is virtually reeling under the highest rate of inflation in four years. Yet, there was no way of putting it off any further. Moreover, sections of the Congress proffered the argument that enforcing the hike now would at least provide the time and space for some rearguard political manoeuvres in the coming months.

However, even a week after the price increase became effective there was no clarity in the UPA leadership about what these rearguard manoeuvres would be. A senior Congress leader from Chhattisgarh told Frontline that a normal monsoon could turn around the overall economic situation by September and this would help the party retrieve lost ground. He also expressed the hope that the Congress organisational machinery would gear itself up to take advantage of the anti-incumbency feeling in the BJP-ruled States of Rajasthan, Chhattisgarh and Madhya Pradesh and convert it into electoral gain.

While these hopes are being expressed sotto voce, the formal political moves of the Congress have come in the form of statements by Prime Minister Manmohan Singh and Finance Minister P. Chidambaram. In a televised address to the nation, Manmohan Singh sought to justify the price hike by pointing out that the international price of oil had tripled in the past four years.

He said, it must be appreciated that what has been done is the bare minimum, adding that if the prices were not hiked, the country would have no money to import oil. There are limits to keeping consumer prices unaffected, the Prime Minister maintained, and suggested that the State governments could reduce the taxes and levies on petro products.

Chidambarams defence came as a response to the BJPs criticism of the governments move. Dismissing it as an exercise in self-deception aimed at spreading disinformation, Chidambaram pointed out that inflation was a problem even during NDA rule. Quoting statistics, he highlighted that in 2000-01, the Wholesale Price Index (WPI) was over 6 per cent during 48 of the 52 weeks in that financial year. In 22 of those weeks, it was over 7 per cent and in 12 of those weeks, it was over 8 per cent.

Chidambaram contended that throughout the NDAs term in office, crude oil prices were benign. He claimed that the UPA government had, in the past four years, managed the economy in such a manner as to record an unprecedentedly high rate of growth, at an average of 8.9 per cent. The UPA government has overhauled the moribund manufacturing sector the NDA left behind and the increased business confidence is reflected in the investments made by both domestic and foreign investors. Even in the agriculture sector, the average growth rate in the four years of the UPA government has been 3.55 per cent, he said.

Chidambaram further claimed that the UPA has a better record in terms of collection of taxes and curtailment of wasteful expenditure. In the six-year period of the NDA, the tax to GDP [gross domestic product] ratio crawled from 9.1 to 9.2 per cent. Starting with 9.2 per cent at the end of 2003-04, the UPA government raised it to 12.5 per cent in 2007-08, and the ratio is expected to reach 13 per cent this financial year.

It remains to be seen whether the logical reasoning offered by Chidambaram and Manmohan Singh about the factors that compelled the price hike would win praise from the people and change their perception of the UPA government. These statements have, however, had no impact on the Left parties led by the Communist Party of India (Marxist), whose support the government needs for its survival. The Left parties launched mass agitations in the wake of the announcement of the hike, describing the governments action as totally unjustified. They pointed out that had the suggestions put forward by them been taken into account, there would have been no necessity for the fuel price hike.

The Left further pointed out that the astronomical figures for under-recoveries of the Oil Marketing Companies (OMCs) that were being projected as their losses were notional figures and not actual losses. It exhorted the government to realise that in a global context where crude oil prices were reigning high, the only sustainable solution lay in restructuring duties on petro products and having a transparent pricing policy whereby the OMCs and the refineries did not retain hefty profit margins.

The Left parties argued that the additional Rs.21,123 crore that the public sector institutions among the OMCs were expected to earn through the price hike could have been mobilised easily through a number of steps, including the creation of a Price Stabilisation Fund from the Rs.7,500-crore collected from the Oil and Natural Gas Corporation (ONGC) and Oil India Ltd annually by way of cess. The Left also suggested a cut of Rs.3 a litre in the excise duties on petrol and diesel instead of the effected cut of Re.1, and pointed out that this would bring a further relief of around Rs.12,000 crore to the OMCs. Another suggestion was to phase out 15 per cent of the huge corporate and excise duty exemptions given during 2007-08, which are estimated at Rs.58,655 crore and Rs. 87,992 crore respectively.

The parties also pointed out that according to the Annual Report of Reliance Industries Limited, its profit from the refining business had increased from Rs.5,915 crore in 2005-06 to Rs.10,372 crore in 2007-08 and that the company had not paid a single paisa of tax out of these profits. The Left parties suggested a windfall profit tax of 20 per cent on such profits from refining and oil and gas exploration. They opined that such a move would help mobilise at least Rs.2,000 crore.

Even as the parties held mass agitations highlighting these points, the governments they lead took measures to provide relief to the common people. The CPI(M)-led Left Front government in West Bengal was one of the first to announce tax cuts in order to lessen the impact of the price hike. State governments run by UPA constituents and those by the NDA followed suit. BJP president Rajnath Singh telephonically instructed the Chief Ministers of the seven States ruled by the party to ease the burden. The information from the NDA-ruled States is that while Gujarat and Bihar were quick to comply with Rajnath Singhs instructions, Madhya Pradesh and Chhattisgarh did not take immediate steps to provide tax relief.

The petro price hike has given the BJP a chance to get into agit-prop opposition mode even in States where it is in power. In the days following the hike, Madhya Pradesh and Chhattisgarh saw aggressive demonstrations by BJP workers. Obviously, the situation has enhanced the organisational vigour of the BJP and its cadre, whose morale is already high on account of the partys victory in Karnataka.

Interestingly, the BJP has adopted this rule and struggle tactics even in Karnataka, where it has been elected to power only recently. Here the party is highlighting the increasing scarcity of fertilizers. The farmers of Karnataka have been agitating for some time over this issue. Former BJP president M. Venkaiah Naidu has blamed the Centre for creating this situation. Chief Minister B.S. Yeddyurappa even undertook a trip to New Delhi. He met the Prime Minister and sought immediate steps to solve the fertilizer crisis. A senior BJP leader told Frontline that the party leadership was convinced that this new tactics would help the party consolidate its gains and occupy new political territories.

As the BJPs organisational machinery is thus moving ahead decisively, the Congress hopes seem to lie on two committees it formed in the wake of its Karnataka debacle the Introspection Committee led by Defence Minister A.K. Antony and Future Challenges Committee headed by former Karnataka Chief Minister M. Veerappa Moily. The committees are expected to finalise their reports by the last week of June. They were constituted before the fuel price hike was announced. But in the context of the political situation following the hike, the committees may have to add a few more not-so-positive points to their frame of reference.

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