Friday, 11 February 2011


I got a forward from my dad the other day asking all of us to bring the government to account on rising fuel prices. As comparison, the forward offered a comparison of fuel prices in Malaysia and Pakistan. It's an email that made me seethe quite a bit.

To my mind, the argument offered in that mail is not only flawed, but it is this expectation that price must be artificially controlled without finding solutions to the root problem that is dangerous. Asking the government to intervene and set an artificial price sends a clear signal to the government that it can get away with populist measures which have no long term sustainability. India saw the result of a highly controlled and subsidized economy in 1991 when we had foreign exchange reserves enough to afford only two weeks of imports. And it seems to me that we haven't learnt.

Yes, fuel prices impact a lot more than just the cost of driving your car around. They affect some of the most basic things such as food prices and the cost of public transport. It is an all round pain to have fuel prices go up repeatedly. But there is a reason that fuel prices are going up around the world consistently. The reason is the way we consume energy, especially energy generated out of fossil fuels. It would serve us better to look at how we as individuals consume energy and ask for the government to invest in infrastructure and public transport development and into research on cleaner, more efficient utilization of fuels rather than asking for price subsidies. Yes, it doesn't have the immediate impact of reducing one's expenses and hence, may seem "impractical" or "unattractive" as a solution but what about the fact that government investment in infrastructure and R&D will create new jobs, increase per capita GDP, make current fuel prices more affordable and in the longer run, reduce fuel prices as well.

So, yes I wish we'd think about the things we ask for when we protest, the results we want to see and spend our energies in getting lasting results as opposed to sending mass mailers asking for a price cut!

PS: a friend raised a valid question about taxes and the fact that the government could easily reduce those to cut fuel prices without giving a subsidy. I admit I hadn't researched that. And the conversation with him has made me start reading a fair bit on taxes. So post on that coming up soon. Hopefully, better researched this time :)


Unknown said...

I know the fwd you talking about!
And yes, I totally agree with you here.

Ketan said...

You're quite right about how the government must not intervene in such matters as price control of fuel. But such expectation arises, simply because the government levies such heavy direct as well as indirect tax.

In India, governments have traditionally made the common people look at it as some kind of savior by interfering in most areas of personal affairs on pretext of protecting some or the other interests. Of course, all that's been done under the garb of socialism and serves as a very good excuse to siphon off tax money.

Fuel prices have great impact on electoral outcomes - at least that's what seems to me as the UPA had decided to lower the prices just before 2009 general elections.

However, finding solutions to energy crunch is not going to be simple. Research in this area is not easy. It has to be also remembered that in a nation like India with such high population density, it is not just the fuel that is scarce, but land is also a scarce resource. Solar and wind energy, in my understanding, are sort of over-emphasized upon given how expensive and space-consuming respectively they are.

Hydroelectricity generation can be associated with change in course of rivers and thus might cause unanticipated flooding and drought.

I see some hope in growing of cash crops like sugar cane and using them for generation of alcohol, which can be used as a 'clean' fuel [not for the human body, though! ;) ].

Also, India's condition when it comes to any kind of research is very poor. There is little encouragement for those with innovative ideas and vigor. Also, those who enter sciences hardly seem to be truly passionate about research. It's more of job-security, reputation, etc., that drives them into the field.

Lastly, I've read somewhere that actually the fuel reserves are not that scarce, but the oil producing countries tightly control its production to keep the prices artificially high. Of course, that's something that Indian government cannot do much about. :)