The received wisdom is that good economics is never good politics. The ready example is that of petroleum prices. Even in the face of overwhelming compulsions, no government dares to raise petroleum prices. That’s why many experts feel that despite the enticing rationality of the recommendation of the Kirit Parikh committee report that petroleum prices should be determined by the markets, it will not be implemented. The issue is not as simple and it is not always the politicians who should be the butt of criticism and ridicule. There are times when domestic consumers needs to be protected from the wild price swings in the international oil market, especially when they are fuelled by speculation as had happened in 2008. Oil producers had consistently argued at the time that it was not due to shortfall in production. It was only much later that market analysts acknowledged the part played by speculation in the soaring prices. There would be occasions when governmental intervention might make economic sense. It is not a simple choice between administered prices and market mechanism.
There is much common sense in what the Parikh committee report has to say. It has argued that people will be able to absorb a higher price for the public distribution system (PDS) kerosene and domestic LPG. And it has said that there could be a calibrated price increase which could be in step with per capita rural income in the case of kerosene and urban per capita income in the case of LPG. As to petrol and diesel, there is a convincing case for pegging them to international price movements because it will not have a multiplier effect as is generally argued.
Can government then pursue a rational price policy in the case of petroleum products without sacrificing political popularity? It can if it goes to the people and explains the rationale behind the policy. Ordinary people understand the constraints of the economy if it is put forward to them in a straightforward fashion. It is evident that shorn of complications, economy is common sense, and people are only too willing to face up to a difficult situation. The problem with politicians is that they are keen to score points rather than grapple with the situation. People are willing to listen if a politician communicates. It would be wrong as well as unfair to blame people for not implementing difficult and necessary decisions.
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