For the party in power, it prescribes that it will not use government employees for election purpose nor will it monopolise media and public places. In particular, the following is stipulated:
The party in power whether at the Centre or in the State or States concerned shall ensure that no cause is given for any complaint that it has used its official position for the purposes of its election campaign and in particular:
(v) Ministers and other authorities shall not sanction grants/payments out of discretionary funds from the time elections are announced by the Commission; and
(vi) From the time elections are announced by Commission, Ministers and other authorities shall not
(a) announce any financial grants in any form or promises thereof; or
(b) (except civil servants) lay foundation stones, etc, of projects or schemes of any kind; or
(c) make any promise of construction of roads, provision of drinking water facilities, etc; or
(d) make any ad-hoc appointments in Government, public undertakings, etc, which may have the effect of influencing the voters in favour of the party in power.
Broadly, these say that the government should not take any new action or initiatives that can have an impact on the election outcome. The government should continue with the policies it is following.
The monthly increase of 45 paise in diesel price was an announced policy of the government. In fact, over the past year or so, diesel price has been increased 13 times. When the existing policy required that the price of diesel be raised, not increasing it is, in my opinion, a change in policy. This will affect the outcome of the election. It favours diesel-users and amounts to giving them a grant. It is not clear if the Election Commission forbade the government or the government sought its concurrence and the Election Commission permitted it not to raise the price. Thus, the Election Commission itself has either made or permitted the government to violate the code of conduct. Either the Election Commission has been influenced by the government or it has not realised the consequences of its action.
How much subsidy the rich owners of fuel-guzzling sports utility vehicle (SUV) owners get Today, the difference in price of diesel and cost of supplying it is R6.5 per litre. The diesel-run SUV owners also benefit from the difference in excise tax between petrol and diesel, which is around R6 per litre. Thus, the difference in petrol and diesel price is R12.5 per litre. The two prices should be more or less equal. In most countries they are so, and in some countries diesel is more expensive. An SUV owner is likely to consume around 2,000 litres of diesel per year. Thus, she will get a subsidy of R25,000 per year.
This freeze on diesel price has serious consequences for the country. Diesel is subsidised and public sector companies are required to sell it at a price lower than the cost of supply. The under-recoveries (the difference between sales revenue and cost of supply) on diesel account will be larger than what would have been otherwise. The burden of under-recoveries falls on oil marketing companies such as Indian Oil, upstream companies such as ONGC, and the government. This will put more financial burden on public sector oil companies, whose finances are already stressed.
But what is worse is that it derails the whole process of diesel price deregulation. The next government will think twice before increasing diesel price, whereas if the policy of monthly price increase were continued, it would have found it difficult to stop periodic price increases.
The burden of under-recoveries was R1,61,000 crore in 2012-13, and despite the price increases, had come down to R1,40,000 crore in 2013-14. The under-recoveries on account of diesel were more than R62,000 crore in 2013-14. The current subsidy on diesel is R6.5 per litre. If the process of price increase had been carried out uninterrupted, the diesel subsidy would have been wiped out by the end of 2014-15 and the under-recoveries for the whole year would have been lower by some R25,000 crore.
While people are concerned that raising diesel price will increase cost of truck transport and lead to inflation, it is worth recognising that not raising price and continuing under-recoveries also have impact on inflation and growth rate of the economy. The under-recovery has to be financed. It will raise fiscal deficit, which in turn will lead RBI to increase money supply, resulting in inflation. With higher inflation, RBI will raise interest rate, which will lower investment. The growth rate will come down. A detailed study we had carried out at IRADe has shown that not raising diesel price results in a higher inflation and lower GDP two to three years down the line. Thus, not taking a decision is also a decision and one cannot escape the consequences.
The decision not to raise diesel price is often justified in the name of the poor. Here also, the IRADe study showed that the impact on the consumption expenditure of raising diesel price by R4 per litre would be less than R2 per person per month on the poorest 10% of people in both rural and urban areas, which is less than half a percent of their expenditure.
One only hopes that the new government would accelerate the process of diesel price reform.
Kirit S Parikh
The author is chairman, Integrated Research and Action for Development (IRADe), and former member, Planning Commission