Of skyrocketing fuel prices, fiscal prudence and its electoral effect

Since it has been famously said by Arun Shourie that the Government of India is run by two and a half men — Mr Narendra Modi, Mr Amit Shah, and Mr Arun Jaitley, in that order — no layperson driving home to office and back is likely to be familiar with the name of Mr Dharmendra Pradhan, the minister for petroleum and natural gas.

Mr Dharmendra Pradhan’s background does not justify his current position. He has a MA in anthropology from Utkal University, Bhubaneswar. His official profile also adds, not without a touch of pride, that “he has been working on several issues concerning the youth, such as unemployment and lack of skill-based education, rehabilitation and resettlement of farmers, displaced persons and other backward classes…” He is a great believer in Lord Jagannath, of whom he tweets off and on.

From his own self-approved official “Meet the Minister” note, it is not clear what he is doing in the petroleum ministry. Or why he is there. And he has been there since May 2014, coinciding with oil’s great upward slide. In this context, though being a full-fledged Cabinet minister, Mr Pradhan still happens to serve the half of the two and a half men in the government — Mr Jaitley. And this works —for both Mr Pradhan and Mr Jaitley.

For his part, Mr Jaitley, who is in charge of managing the country’s finances, is of the grand and airy view that rising oil prices are good for everyone except those who drive a car or buy a tomato grudgingly. In recent interviews, he has been quoted as saying that “reducing taxes on fuel could push India towards unmanageable debt”. He did not make any reference to the inflationary impact of the rise in oil prices.

Mr Jaitley has pointed out that — always seemingly avuncular and sensible — that “states charged ad valorem taxes on oil, and so, if oil prices rise, the states earned more”. Mr Jaitley believes this is “fiscal prudence”. Fiscal prudence is often a cliche that rationalises measures which are hard on millions and millions of utter strangers who populate the country — till elections knock on the door. At which point, fiscal prudence gives way to empathy and understanding of people’s needs.

Given Mr Jaitley’s well-documented position on the price of oil and related commodities, which essentially boils down to managing the economy through surging oil prices, Mr Pradhan will continue to be the great Yes Minister material which the Narendra Modi government’s backbone consists of.

A recent Bloomberg Business article said that the government could still “slash fuel taxes, which account for about half the per-litre price that people pay. But that would mean a major loss to government revenues. Excise duty and additional taxes are estimated to fetch the government about Rs 2.5 trillion in the year ending March 2019, according to the Union Budget document. That’s 77 per cent more than what it collected five years ago. For a government which is struggling to meet its fiscal gap goals, any reduction in taxes would stretch its finances”. The alternative, the article said, was that the government could reinstate price controls, partially or fully, which were lifted some time ago.

The cascading effect of '80 per litre of petrol and diesel at Rs 71 will have a deep political impact. With Madhya Pradesh, Rajasthan and Chhattisgarh going in for Assembly elections towards the end of this year, the demons of demonetisation out at large and the free-falling rupee, high-sounding phrases like fiscal prudence are certain to go out of the window. The fact is emerging that the Narendra Modi government has bungled on many fronts — all at the same time.

Mr Pradhan, using his anthropological knowhow, in all likelihood will soon sign documents that effect a tempering of the oil rates. Nothing brings down the prices of things as swiftly as impending elections. India is only second in the world to Nigeria in hosting the poorest population in the largest numbers. Close to 300 million people subsist on an income of less than $1.25 (in terms of purchasing power parity) a day. One can be sure that fiscal prudence, or whatever that goes in its name, is after a fashion practised at their expense.

Ministers like Mr Pradhan are survivors, content in their anonymity. And bosses like Mr Jaitley are good with that. Because they can be seen as the faces of the government and milk a little fame on the way. But when a department like petroleum is run without a proper head, the person on the street tends to wonder why tomatoes cost Rs 40 a kilo, and at whom he or she can throw a rotten one. In this case, it should be Mr Pradhan. But who knows what he looks like?