One step forward, two steps back

The deregulation of diesel prices would have been a welcome change had it not been for the half-hearted “reforms” that the Union government is intent in showcasing to us. Along with the “bold” announcement of diesel price deregulation, which would substantially hike the market rate for the fuel, the government also announced an increase in the annual subsidised LPG quota from six to nine.

There will be two immediate impacts of the diesel price hike: one, the stock markets will zoom as oil marketers will see their revenues surging; and two, the prices of essential commodities would go up, thereby affecting the overall inflation rate.

If reforms are at the top of this government’s agenda – there is not much evidence to prove it, though – then it should not have raised the subsidy limit of LPG cylinders. India’s subsidy bill is already at a staggering 2.5 per cent of the GDP, most of which is spent in food, fuel, power and fertilisers. The biggest contributor to this bill is fuel which, according to the finance ministry, was at Rs 68,481 crore in 2011-12. This was 78 per cent higher than the previous year, when the subsidy was Rs 38,371 crore.

The government, in its zeal to keep prices of fuel low and therefore please the masses, is actually conning us. It may keep increasing the subsidy bill, but this has had a disastrous effect on the middle class, especially with taxation and inflation.

Effectively, one minuscule part of the population is paying for the rest, while the government does precious little to improve the economic landscape by boosting, for instance, the manufacturing sector where setting up business is still the greatest hindrance. If the government is serious about its development agenda, it should ensure that all-round reforms are implemented and not piecemeal steps that negate each other.

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