Saturday, October 25, 2008

Swaminomics: Makes so much sense

Swaminathan S Anklesaria Aiyar had made an interesting case against cutting oil price in his regular column: Swaminomics.

Last week when the price of oil almost fell to $65, the political machinery in India was momentarily distracted, from the usual walk outs, protests and not to mention fattening their bank accounts. All of a sudden, every MP worth his salt was clamoring for a price cut, keeping in mind their larger interest (read general elections).

Feeling the heat, and also keeping the larger interest of the ruling party in mind, petroleum minister Murli Deora announced price cuts for fuel within a week.

Ironically, a few days earlier, Swaminathan had warned against cutting the oil price. History is a great teacher, only if we are willing to learn from it. In the mid 80’s India had built up a cushion in the form of OPA (Oil Pool Account) by implementing controlled fuel prices. When the global oil prices dropped, the Indian govt. maintained the same price, and the surplus money went in to OPA. This cushion protected the economy in the 90’s when the global oil prices shot up. The oil companies were compensated for selling the fuel at a lower price when the global prices were shooting up.

After reading Swaminomics, I was convinced that this is the right way to go about addressing the fuel price issue. Politicians should not give in to ulterior motives and cheap politics. Instead, keeping in mind the interest of the Indian economy against the global recession, we need to build up a cushion again. Make hay while the sun shines. Let’s prepare for eventualities arising out of a hike in global oil prices.

OPEC is already cutting down on the output to shore up the plummeting oil prices. And not to mention the so called environmentalists have been lobbying for heavy taxes on fuel, in order to discourage its wasteful consumption. With the stock prices taking a free fall, companies slashing their workforce to minimize on losses, the last thing I would want is fuel prices shooting up. It may not be happening now. But it will happen eventually. Oil wells are not perennial.

Though the general population will heave a huge sigh of relief if the fuel prices are cut, that is temporary.

I hope someone is listening.

Image Source: Philippe TASTET

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