Wednesday, August 09, 2006

Free Lunch?

The finance minister remarked sometime last year that there cannot be good economics without good politics. Fair point. Especially in a democratic setup like India with all sorts of motley parties joining hands to form the government. However, there sure can be bad economics,even with good politics.
The Govt. has shown a strong unwillingness to confront truth, with its adhoc policies on the market prices of petrol/kerosene/LPG. In the last couple of years, even as crude moved from $40 pb to around $75+ pb, wishful thinking still dominates.All we have seen so far is arbitrary redistribution of the losses faced by the oil marketing companies.Redistribution between upstream,downstream,the Govt. and the consumers. It is another matter that at the end of the day, it is the tax payer who is footing all the bill one way or other. But it is important to ensure that the USER foots the bulk of the cost and not all taxpayers in general. Govt. intervention and hence distortion of market prices should be removed as early as possible. Otherwise, the consumers have every incentive to overconsume hydrocarbon fuels as long as they are not made to pay market prices.It is another matter that Indian citizens are as such paying a subsidised price of anywhere around $4.00-$4.5 per gallon of gas - a price that makes even the consumers in developed economies howl.But then that is another story

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