It's a constant puzzle to me that so many of the critics of the Narendra Modi government - including, in fact led by, the Congress party - want to blame it for some of the few things it does right on the economy. The current attack on the government's pricing policy for petroleum products such as petrol is Exhibit A here as far as I'm concerned. India's kept on hiking these prices -- in some major cities, a litre of petrol now costs around Rs 75. People complain that this is unconscionable when oil is hovering around $50 a barrel, give or take $5; back in the bad old days of UPA-2 and May 2013, when a barrel of oil cost between $110 and $120, and the rupee was 55 to a dollar and not 64, petrol prices were around Rs 64 a litre. Surely, the Congress says, this is fraud on the people?
Well, only as far as all taxes are fraud. Petrol was a lot cheaper than it should have been back then, and the difference was being paid for by the government - in other words, by us again, except through our taxes. What we couldn't pay for - unsurprisingly, because the fuel subsidy bill was over Rs 1 lakh crore - was being postponed for later; the fiscal deficit, the difference between what the government was spending and what it was collecting through taxes and so on, was dangerously high. And a high fiscal deficit leads usually to higher prices - so the fuel subsidy that ensured relatively cheap petrol and diesel was also one of the reasons for the runaway inflation that everyone complained about incessantly in those years.
To give the UPA some credit, after the shock "Taper tantrum" of summer 2013 when the rupee lost a lot of its value and some began to worry we were on the brink of a 1989-like crisis, it began to correct this problem. P Chidambaram laid out a fiscal deficit reduction path, and the government agreed on a gradual reduction of fuel subsidies. And when Narendra Modi and Arun Jaitley took over in May 2014, they very correctly continued this policy, and quite typically, took full credit for thinking it up as well. (Typically because it reflects exactly how they operated when it comes to, among others, GST, no-frills bank accounts, and Aadhaar.)
Modi benefited massively from continuing this policy because the moment he came into office in May 2014, global oil prices began to crash. (You guessed it, the PM somehow managed to take credit for this as well.) This meant that the government could raise prices at the pump or keep them about the same, while soaking up ever more revenue from taxes on petrol. It is those taxes that have paid for the government's expenditure, and its ability to keep on meeting Chidambaram's fiscal deficit targets. In other words, the government's constant declaration that it has stabilised the foundering economy that it inherited is based almost entirely on its fuel price bonanza. High taxes on petrol are an important component of its macro-economic strategy.
And, to be clear, a high price for fossil fuel-based energy is a sensible, forward-looking policy. We should use less and less fossil fuels going forward; they're bad for global warming, and they're bad for public health. The best way to ensure this is to tax them. As Chief Economic Advisor Arvind Subramanian has often argued, India is doing more than its share for climate change since it has one of the world's highest proportion of taxes on carbon emissions when its per capita income is taken into account. The government should be proud of its policy here, not ashamed.
But, equally typically, the government is unsure of how it should deal with this. Are they a government of forward-looking reformists who know how to deal with climate change, the fiscal deficit, and fossil fuels? Or are they blatant populists whose hand is being forced by global factors? If you listen to Petroleum Minister Dharmendra Pradhan - not to mention the BJP's lumpen internet warriors - you would think it's the latter. The BJP IT cell convenor, Amit Malviya, released a long apologia on Twitter for higher petrol prices blaming them, in succession, on Hurricanes Harvey and Irma in the United States, state governments (of which you'd think the BJP ran perhaps one or two, instead of almost all), and the flawed structure of the GST.
The question is: will the government stand firm? If it gives in and starts reducing taxes on petrol -- or, worst of all, starts subsidising it from the exchequer again -- it will risk destabilising the economy and loses one of its bragging rights as compared to the UPA, the only thing it really cares about anyway. On the other hand, if it ignores the grumbling about petrol prices, it may fear it will pay a political price.
But, to be frank, anyone who actually pays for their own petrol is probably voting for Modi anyway in 2019. Pradhan, the BJP's IT cell, and so on, should just ignore the complaining. Better still, they should instead make the argument that high petrol taxes are important to India, and important to India's future.
(Mihir Swarup Sharma is a fellow at the Observer Research Foundation.)Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.