The subsidy darlings

Earlier this month the government finally took a bold step to bring down the subsidy bill. It announced increase in price of diesel and a cap on number of subsidized LPG cylinders to just six per year (in some congress ruled states it is since revised up to nine per year). The news enraged the Facebook using Indian middle class. The twitterati went berserk with innovative tweets and the country shut down for a day in protest. Well, almost. However, of all the people upset by diesel price hike, people driving diesel SUVs were the worst hit.

Please do not snatch our crutches 

According to the ministry of petroleum and natural gas, in the year 2010-11, the government gave a subsidy of USD 637 million on Public Distribution System (PDS) Kerosene and domestic LPG (Liquefied petroleum gas). On top of this the oil marketing companies made an under-recovery of USD 17.1 billion. The under-recoveries were paid for by the government cash assistance to the tune of USD 8.995 billion (52%), by upstream NOCs (oil exploration companies) for USD 6.647 billion (39%) and the oil marketing companies paid for USD 1.512 billion (9%). Half of the money was paid for by the government in cash assistance on top of the subsidy.

The cash assistance of USD 8.995 billion must have been financed by tax money or borrowing. Now the interesting thing here is that India is running a huge fiscal deficit. For the year 2011-12 it stood at 5.8%, way above the budget target of 4.6%. The target for this year is 5.1%, which is unlikely to be met, thanks largely reduced economic activity. Ideally the government should look at reducing cost (like most corporations do) to bring the deficit down. Doing away with the subsidy is one of the many steps the government can take.

Often there are emails and Facebook shares suggesting how Indians are being crushed under expensive fuel prices while our neighbours enjoy fuel at less than half of what we pay. The truth however is

Country	Petrol	Diesel	LPG
India	68.46 (Delhi)	46.95 (Delhi)	400/14.2 Kg (Delhi)
Pakistan	55.55	52.19	786/11.8 KG
Sri Lanka	59.72	48.4	881/12.5 Kg
Bangladesh	57.60	38.61	443/12.5 Kg
Germany	114	103.3	-
U.K	111.4	114.79	-
USA	51.87	51.87	-

India still has the lowest diesel and LPG prices in the region, while the highest petrol prices are the highest. Petrol prices in India are 15 – 23% higher compared to our neighbours, having said that we should also look at the impact of subsidised prices on their economies. All three neighbouring countries are running virtually on international aid money. The local currency is weak. International donors like IMF (International Monetary Fund) and others are putting pressure to reduce the subsidy burden in order to receive further aid money. There have been recent hikes in fuel prices in order to placate the donors. Pakistan has an erratic supply of fuel despite low prices and natural gas which is abundant in Baluchistan is sold at a price of Rs. 53, while it is sold at Rs. 38.35 in Delhi.

Subsidies might ease the burden on our pockets but in the longer run will ruin the economy. India needs large scale reforms, which includes elimination of subsidies. While it is fun to be treated as subsidy darlings, it is in our long term interest as a country to pay the market prices and use the resources judiciously.

All prices quoted in Rs are in Indian Rupee and converted as per prevailing rates of 4-10-12 (xe.com)

India and its global ambitions

Yes, no, maybe…

The weeks that followed the fall of Mr Dominique Strauss-Kahn as the chief of International Monetary Fund and the subsequent world tour by Ms Christine Lagarde to drum up support for her election to the office, India joined the chorus of developing countries to have adequate representation. The bloc of developing countries (India, China, Brazil, Mexico, etc) was challenging the tradition where IMF was always headed by a European. Briefly Mr Agustin Carstens, governor of Mexico’s Central Bank tried to rally support from developing countries including India. However, none of the developing countries managed to arrive at a consensus and Ms Lagarde, was eventually elected to the office. In the mean while China decided to support Ms Lagarde’s candidature in return of a larger responsibility for China in the IMF.

India is often viewed as unprepared when it comes to multilateral decisions which have global implication. We have seen this in case of the EU-India free trade agreement, WTO’s Doha round and more recently the climate change summit. Long winded processes which seem to take for ever, due to lack of preparedness or vested interests or some time misplaced sovereign pride. India which has done remarkably well on bilateral fronts is severely lacking on multilateral fronts. That being the case, India’s global ambitions are only growing. For the past two decades India has been pressing for a reformed United Nations Security Council (UNSC) with a permanent seat for itself. India along with Brazil, Germany and Japan formed an interest group known as G4 to push for the reform and subsequent expansion of the UNSC. All countries on the permanent council support India’s candidature; however any reform in the near future is a remote possibility.

Running the extra lap

It is a well acknowledge fact that India has arrived on the global scene in the past two decades. It has acquired an enviable position of upholding democratic values and churning out a fast growing large economy from a country which was on brink of sovereign default. Most of the recent global initiatives of India have been largely trade and commerce centred. The world is yet to see India take an assertive and sustainable step in global diplomacy, some thing that the established and emerging world powers have already shown. India has traditionally shied away from any matters which can potentially (some times falsely assumed) upset its diplomatic equilibrium.

In the past India has given the excuse of having its hands full with housekeeping activities and establishing order with in the country. In the past two decades much has changed, both within India and outside. Indian diaspora is now much more active around the world, Indian trade and commerce has spread to once far off countries and Indian views are listened to around the world. India’s inclusion in the G-20 has further raised its profile. India’s contribution towards handling of the recent financial crisis has proved its abilities as a mature economic power to the world. Both the developed and the developing world see India in a different light now. It’s no longer an aid seeking and famine struck country of the 60s.  

The tiger sleeps on

With so many changes, India has surprisingly lagged in international diplomacy. It has always taken a reluctant and meek stand on matters of international importance. The latest being the abstention from the UNSC resolution 1973 approving a no-fly zone over Libya. India’s excuse was that armed intervention should be the last resort after the efforts of UN appointed envoy fail, which was not yet implemented. In a situation where a despot is hell bent on killing his own countrymen an armed intervention is more of a humanitarian effort than military one. People opposed to UNSC resolution can argue that past military interventions (Iraq and Afghanistan) have proved anything but useful. For every person sighting Iraq or Afghanistan there is Rwanda and Srebrenica where armed interventions have brought an end to genocides. No-fly zone over Libya was the best possible action at a time when Mr Qaddafi was killing his own country men. India missed the boat.

On other sensitive issues like nuclear proliferation too India has no consistent stand. India’s concern on nuclear proliferation ends at Indo-Pak border. To some extent India’s reluctance stemmed from sanctions imposed by the west after its operation “Smiling Buddha” in 1974. But in the aftermath of international recognition of India as an official nuclear power (in shape of Indo-US nuclear deal) it should now take a firm stand on the issue. It should have a clear policy on Iran and North Korea. So far nothing has come forth.

One thing that India has failed to leverage to its benefit is its unparalleled achievement in nurturing and maintaining democratic standards. India should play its democratic card at international forum to establish itself as a mature country, which believes in fair play and respects public involvement. This will help it balance against its biggest rival, China. While the Tibetan government in exile has its seat in New Delhi, India does not use it like China uses stapled visas for people living in Indian states of Jammu & Kashmir and Arunachal Pradesh.

Its time India metamorphose itself into a country which has more than just cheap labour, growing auto market and consumers hungry for foreign products. Time has come that it takes on the world stage with confidence. It should stop bothering itself with myopic electoral gains while shaping its foreign policy. India has already lost time in catching up on the lost opportunities. The present reactive policy of India should shift to proactive and a widely thought through policy, which can support India’s claim to international institutions like UNSC, IMF or possibly G6 (G5 + 1).