The hike in diesel prices was in the offing for some time. The government had increased petrol and LPG prices last year in a bid to signal the entry into another phase of reform. Then came the issue of 51 per cent stake of FDI in retail and in spite of the initial shocks and tantrums of a few of its allies, the government managed to keep itself afloat. Now, they had to go for diesel because it’s the continuing subsidy offered on the wholesale and retail price of diesel that causes the maximum bleeding of the government’s accounts. The government could not have bled and let it fiscals go for a toss. So comes the decision to not only increase the price of diesel but also to deregulate it, which effectively means that the government is going to let its price be determined by the market. This also means that price of diesel is most likely to go through small hikes every month. Clearly the government is showing new confidence in pushing the last frontiers of reform. Prime Minister Manmohan Singh had reiterated last year, when announcing the earlier reforms, that if his government has to go down, it will go down fighting. It is clearly in that spirit that the government has now stepped on the gas, literally.
From the point of view of the government and its tottering fiscals this could be sound logic. But what if the real reason for aggressive reform initiatives are not fiscals but corporate profit and greed? Also, the government at the end of the day is answerable to the people. A deregulated diesel price will mean that the price could be, in effect, be regulated by profiteers in the market, who will cook up the case for price hike every now and then. Not only does the cost of diesel increase but also the effective price of commodities. The pocket of the common man, heckled by all round price rise and inflation as well as rise in price of essential commodities, foods and railway fares, will pinch like never before. And the government seems to be confident that it can handle the backlash. For the time being the government is trying to parry the initial reactions with a hike in number of subsidised LPG to each household (from six to nine) but it is certain that once the reactions to the diesel price hike get muted, the government will take no time to revert to the 6 per year norm. Or may be even less. The point is that as far as energy prices are concerned, pragmatic economic logic must meet humane governance somewhere because that is exactly what the government is for. If it controls nothing and takes no responsibility of and interest in the common man, then the government need not even exist. How it balances its new and aggressive reform push with its logic of governance will doubtlessly decide the future of UPA.