Wednesday, May 23, 2012

Middle classes groan and moan over rise in petrol price, but why do political parties defend the stupid class? Why not let market decide the price of petrol as well the rupee-dollar exchange rate? Why is the middle class so faint-hearted?

The middle class is angry. The petrol price has been hiked by Rs 7.50 per litre. It will affect all those who own cars and the number of car-owners in this country now runs into hundreds of millions. This is often cited as a fact of pride by those moronic defenders of the market economy. The car manufacturers would perhaps want a petrol subsidy so that they can sell more cars. This is called a subsidy which no one talks about even as they protest against subsidies to the farmers.
What is interesting is that political parties are protesting against the petrol price hike. The communists, Mamata the populist, the DMK, the AIADMK and the BJP. There is some justification for the BJP because it is a party of the greedy middle class, and which is one of the reasons that the BJP will never become a national party. The middle is just one-third of the population, which is a great figure in absolute numbers. The population of the Indian middle class equals that of the population of the entire United States and a great part of the European Union. Of course, the ordinary middle class person in the US and in Europe might be slightly better than the standard of living of the average middle class family in India. But the infrastructure in those countries is certainly different and better. For the ordinary Indian middle class family the car is more than a status symbol. In the absence of decent public transport, public education, the middle class forced to live in far-flung suburbs and commuting from one end of a sprawling city to another for work and for children's schools and colleges, the car becomes a necessary burden.
But the middle class which resents subsidies to the poor wants subsidies for itself. That is the irony.
Now, let's look at the government and at the oil marketing companies. The government on the one hand says that petrol price has been deregulated -- it was, in 2002 -- but it does not allow the public sector oil marketing companies to manage the price on their own. The oil companies were not allowed to raise the price and by the time the consent is given, the proportional hike rises sharply and hugely. Secondly, the oil companies must raise and bring down the petrol price according to market fluctuation. This would lend a certain transparency to the whole process. The oil companies would argue that they are forced to pay quite a high rate of excise duty and it is for this reason that they have to raise the prices so much. Not a good argument enough. The oil companies are not honest enough in their petroleum pricing policy.
CPI-M's Sitaram Yechury argues that the costs of refinement of crude in India are much less than those in Gulf and in Western countries, and that the government is using the petrol prices to fill up its own kitty. This suspicion would be dispelled only if the government takes its hands off the oil marketing companies, so that the oil companies can manage their operations much better and respond to the market demands.
This is not however a calamitous situation. The government and the political class are getting embroiled in a controversy which has nothing to do with them. If the petrol prices are kept too high for too long the demand will go down and along with it sales. The oil companies will be forced to tweak the prices suitably to stimulate demand and increase sales and keep the profit margins.
The rupee-dollar exchange rate is again facing a volatile situation. The market maniacs in the government must stop pressing the panic button and let the rupee fall before it recovers. The stupid argument that the rupee is falling because FDI in multi-brand in retail is not being allowed. This is the abysmal intelligence level of free market intellectuals. If the rupee continues to fall, then the country will prune its imports, increase its exports and fall back on domestic savings to stimulate domestic demand. That is the only way to do it. This idiotic starry-eyed belief in the magic of FDI has to stop and economic rationality must be restored.


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