The '70s mindset

Last week, when the government decided to ignore the Left parties' demand to lower diesel prices along with those of petrol, most read this as a sign that the Manmohan Singh government was beginning to assert itself""after all, diesel prices were still lower than the international parity price, and so there was no real reason for lowering the price any further.

But Wednesday's decision to roll back the earlier (November 4) decision to hike prices of LPG cylinders by Rs 5 every month until the price charged to the consumer matches production cost, reinforces the view that the Left parties retain a virtual veto on some kinds of decisions that the government might otherwise take, and that the UPA government remains hostage therefore to its parliamentary allies.

It is useful to keep in mind that the subsidy on LPG is still around Rs 150 per cylinder; so, had the Rs 5 monthly hike been allowed to go through, cooking gas would have remained subsidised to some degree for 30 months before the oil companies were able to charge consumers the full price.

Bear in mind that no one who is poor uses cooking gas; the investment in gas burners and cylinder deposits defines the consumer as belonging to the middle class. So a cooking gas subsidy is a classic case of misdirected spending, and of state capture by vocal pressure groups.

The rollback and the misdirection of subsidies underscore the point that oil companies have no freedom to determine prices, and that prices remain politicised. Indeed, the government has also postponed (by transferring to a group of ministers) another tough decision on the need to hike natural gas prices""the public sector ONGC loses around Rs 8,000 crore each year due to its present below-cost pricing.

If ONGC is to be allowed to recover part of this large loss, both power and fertiliser prices would have to be raised significantly. Of course, in this case, the subsidies are being borne by a public enterprise and not by the government.

That these moves should coincide with the government's decision to not pursue the Bill (pending in the Rajya Sabha) on allowing the private sector into coal mining reinforces the view that the government is fighting shy of major reforms that pit it against any vested interests.

Ironically, just a few days before the minister of state for coal and mines made this decision public at an exhibition in Kolkata, the Prime Minister had expressed concern over the poor coal production in the country.

Private mining so far has been restricted to captive units; clearly, nothing more is going to be allowed in the foreseeable future and coal will remain a laggard sector.

Given how the steel minister, Ram Vilas Paswan, has been trying to impose price controls on steel companies, and how he now seeks to fix wholesale and retail margins in the pharmaceutical sector, there is a clear manifestation of the 1970s mindset that spawned price controls and mistrust of markets, not to speak of a penchant for keeping things in the public sector and under the ministerial thumb. Thirteen years after the reform process began, this is testimony to how unreformed India's political class is even today.