Column Governing by committee

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: The appointment of high powered committees comprised of professionals and bureaucrats to study the petroleum sector and in particular petroleum pricing are a time-tested vehicle for political procrastination. This is not surprising. Petroleum is a political subject and a committee comprised of professionals cannot dig the government out of what is essentially a political hole.

Over the past decade or so, the government has set up many committees to advise on the steps that need to be taken to place the oil companies on a firm financial footing. Four of these committees are notable because of the eminence of their chairman and the quality of their reports. The ‘R’ group committee headed by Vijay Kelkar, currently chairman of the Finance Commission but formerly the petroleum secretary; Arjun Sengupta, former ambassador to the European Union and member of the Planning Commission; C Rangarajan, former governor of the Reserve Bank of India and until recently the chairman of the Prime Minister’s Economic Advisory Council, and BK Chaturvedi, currently member of the Planning Commission but earlier the cabinet secretary and also petroleum secretary. Each of their reports were marked by solid economic logic, analytic rigor and dispassionate clarity. Despite this, all of their efforts have essentially come to naught.

There is a simple reason why the government consistently ignores the findings of such high profile committees. They all come up with a singularly unpalatable recommendation. The price of petroleum products must eventually align with international prices.

The key question here is, why does the government persist in appointing committees comprised of professionals to address what is essentially a political subject. My suggestion is that the next committee on petroleum should be comprised of politicians and that it should come up with bold and practical suggestions on ‘how’ to implement what everyone knows must be done.

Petroleum sits at the nub of every politician’s deepest dilemmas. The dilemma of equity versus efficiency: the poor cannot afford high prices and equity dictates that key commodities like kerosene and LPG should be provided to them at subsidised rates. But subsidies encourage smuggling, the black market and product adulteration. It is a major reason for financial and operational inefficiency. The dilemma of good economics versus tactical politics: the ‘under recoveries’ of the oil companies will deepen the fiscal deficit. The consequential pressure on interest rates will slow industrial growth and the economy. But what is the alternative? A hike in the retail price of transportation fuels and the containment of subsidies to LPG and kerosene. The consequence could be a sharp electoral rebuff. The dilemma of control versus competition: petroleum is a sector of strategic significance. It cannot be left to the vagaries of the market. Government must have overarching control. But it cannot be denied that state controlled ‘dirigism’ has been the bane of the public sector; that competition is a major driver of technical innovation and breakthrough performance; and that our petroleum companies will not achieve world-class standards if shackled to bureaucratic control.

These are political dilemmas that can only be resolved by politicians. These are also dilemmas that lend themselves to empirical study.

The conventional political wisdom is that a hike in the price of petroleum products will inevitably undermine electoral support. I have no doubt that a stand-alone question to a voter, ‘will you support a hike in the price of fuel’, would indeed evoke a strongly negative reaction. But I wonder whether the reaction would be comparably negative if the question were, ‘would you support small and phased price hikes in return for guaranteed product quality?’. Or to the question, ‘would you vote for the person who ‘promised’ subsidised kerosene but was unable to deliver or the person who raised prices but gave secure supplies?’.

Politicians have knee-jerk negative reactions to any suggestion that involves a price hike. However, against the backdrop of product shortages, black marketeering and quality adulteration—all the consequences of our distorted pricing and taxation structure—I wonder whether the fears of politicians are not simply a reflection of their preconceptions and expectations than of voter reality.

The hard truth cannot be swept aside. We are inextricably connected to the international oil market.and volatile prices. Committees can serve a useful purpose in drawing up the consequential route map. But only if there is the political resolve to consider its recommendations seriously.