And wider concerns
Leaders tend to worry when chronically slow growing and deficit prone economies become too dependent on exogenous factors. But not our leaders. They did not mind squeesing political mileage out of the international oil collapse when the dharna pressure had complicated domestic politics. And they did not, naturally, do much to structurally bolster the economy in a low input-price environment. Not long before that the finance minister took pride in strengthening the rupee – something he had staked his reputation on – because he got the Saudis to park a billion dollars in the state bank’s vaults, and sold it like solid official policy.
But how will they posture as this environment begins to change? It will be a while before the Saudis are in a good mood again, and the rupee is losing ground. And oil, too, just registered a tweak (in the long run) and Ogra was at the finance ministry’s door for the price raise. The government has tried to play good cop by refusing the recommended increase of Rs5.28/litre for petrol and Rs3.34/litre for High Speed Diesel (HSD), settling instead at Rs2.50 for petrol and Rs1.75 for HSD, but the fact is that petrol prices are on the march again. And the government is once again forced into an uncomfortable policy position.
Now the petrol increase will find its way to consumer prices and HSD will have a pronounced effect on agri products, etc. That, of course, means higher inflation. On top of low growth, a worrying deficit, and very little revenue because of stagnant taxes and exports, the price rise will push the N-league into a dark corner. It is already worried because the IMF program is expiring next year, and its best means of income – borrowing – is also drying. It would have helped if it had given some of its campaign promises a little more attention. If we had better tax earnings and more diversified exports, we would not have been so dependent on factors beyond our control. The N-league has wriggled its way through a host of political problems in its third term so far. Hopefully it will not let the economy be its undoing.
