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Rollback discourse

By C. Rammanohar Reddy

It is simplistic to view any price hike as "anti-people" and, conversely, any rollback as a victory of the democratic process or a sign of a weak government.

`ROLLBACK' APPEARS to have now become an institutionalised decision-making process of the Government. This is certainly suggested by the frequency with which Central Government decisions on prices and subsidies are announced and then the status quo restored in part or in full. What is amazing is that this rescinding of decisions does not seem to one bit embarrass the Government. It has well and truly become an integral part of the functioning of the Government. Even the word, "rollback'', has become a permanent entry in the lexicon of political discourse.

The modification during the past fortnight by the Bharat Sanchar Nigam Ltd. and the Mahanagar Telecom Nigam Ltd. of their tariffs was only the latest example of the rollback process. The Government has taken similar decisions earlier on fertilizers, petroleum products, telecom — and of course taxes.

The regularity and ease with which these "rollback" decisions are taken is perceived in different ways. For some, it demonstrates the victory of popular will over an insensitive Government. Others see such rollbacks as the triumph of politics over economics, a sign that the Government is unable to take necessary but "hard" decisions. Arun Shourie, Union Minister for Telecommunications, said as much in his public comments after being forced to announce the downward revision of BSNL and MTNL tariffs.

The NDA Government's rollback decisions are, however, neither an expression of democracy at work nor symptomatic of a soft state. They are instead evidence in some cases of the Government paying the price for careless decision-making. In others they show that sectional interests, masquerading as acting on behalf of the mythical "common man", are able to force the Government to backtrack. In yet other cases, there is no rollback because there is nobody to speak for the affected.

The price hike of LPG in March 2002 and the subsequent rollback was an instructive episode. The context then was the dismantling of the administered price mechanism in petroleum products, and a planned three-year phase out of the decades-old subsidy on LPG. A subsidy that was relevant when LPG was first introduced in the 1960s, had long since become a hand-out for largely urban middle class households and in the best of times is as much as 25 per cent of the price consumers pay.

According to the 2001 Census, no more than 17 per cent of all-India households (48 per cent in urban areas and just 6 per cent in villages) use LPG as cooking fuel. More than half of Indian homes still depend on firewood. Yet, an uproar in Parliament, the BJP and in the media on behalf of the "common man" meant that the subsidy cut had to be withdrawn. That subsidy continues today and has become a kind of holy cow that no Government can touch. This was clearly one rollback that was not justified but was rammed through only because the affected were the articulate and powerful urban groups.

There are, no doubt, larger issues as well here, viz, can LPG use be spread among the lower income groups without a subsidy for stoves and cylinders? But that was not what exercised the political classes in March 2002.

The issues in the rollback of the fertilizer price hike that was announced in the 2003-04 Union budget (and earlier in the 2000-01 budget) were both similar and dissimilar to the abortive cuts in LPG subsidy. The hydra-headed fertilizer pricing system had come to benefit more the industry and at the same time encourages wasteful and harmful fertilizer use in tracts which do see substantial application of this chemical input.

This subsidy too had its rationale when it was introduced in the late 1970s. But even if a lower subsidy is going to lead to a higher unit cost of urea there is a case for gradually bringing it down to a modest amount. It will encourage better and more careful application and, more importantly, force higher efficiency in the fertilizer industry. Yet, every attempt to reduce this subsidy has failed because it is immediately attacked on all sides as an "anti-farmer" move. Again, a relevant question would be when and by how much the urea subsidy should be removed, an issue that is important if the setting is lower crop prices for farmer. Yet, this is not how the rollback discourse on the urea subsidy is usually framed. Neither the LPG nor the fertilizer price hike fiascos should suggest that the officials in the Finance Ministry are always correct. An accountant's approach often informs decision-making on what is broadly called "user charges", an approach that has been heavily influenced by the World Bank-IMF-ADB talk about prices of goods and services always covering full costs.

The limits of an accountant's approach were fully felt with the so-called rationalisation of PDS prices in 2000, carried out in an attempt to reduce the food subsidy. That was when prices for ration-card holders below the poverty line were raised by 66 per cent and for the non-poor by more than 20 per cent. The result was that off-take from the PDS collapsed. And because the appeasement policy in setting procurement prices continued as before, it set off a massive accumulation of stocks during 2000-02, which started winding down only when PDS prices were lowered, new schemes launched and entitlements increased.

What is significant about the PDS price increase of 2000 was that this was one decision that was not rolled back. The classes affected by the huge price increases — essentially the urban and rural poor — did not have powerful lobbies to campaign on their behalf and so the price hike stayed. It took a couple of years for the Government to realise the foolishness of its policy (the food subsidy actually increased after 2000) and modify its decision. The situation was similar in 2002 when kerosene prices were increased at the same time as LPG prices. When kerosene is not being used to adulterate petrol/diesel, it is used by the urban poor as cooking fuel and by the poorest of the rural poor for lighting. Yet, while the uproar then was all about the "common man" being affected by the LPG price hike, there was not a murmur of protest in Parliament, the BJP or the media about the kerosene price hike. The price increase was never rolled back.

The telecom tariff issue is in a category of its own. The issue here is if BSNL can survive as an independent entity, or will it be bled to death only to be eventually handed on a platter to a private company? The loss of surpluses following the evaporation of its monopoly pricing power on long-distance tariffs meant that the company had to look elsewhere for compensation. This should, in theory, come from larger volume of long-distance traffic. But until that time as this happens there is no escaping from a modest increase in higher local call charges.

Yet, because BSNL and MTNL felt this would not be politically acceptable, the two companies chose to make huge increases in landline-to-mobile tariffs. This may have seemed politically more acceptable, but it was not. Now the forced rollback will make the two companies bleed, but not for the reasons Mr. Shourie emphasised. The companies will bleed because they decided to take the short cut of increasing only a certain category of tariffs and chose not to make a case for and implement a modest (and perhaps temporary) increase in local call charges. The eventual sufferers will be those now without a phone in India's hinterlands.

All these cases indicate how very simplistic it is to view any price hike as "anti-people" and, conversely, any rollback as a victory of the democratic process or a sign of a weak government. In each sector, the situation is different. Sometimes there are entrenched lobbies which are able to successfully resist the privileges in price that they enjoy. In others, a subsidy has a more than useful role to play but there are no voices to speak on its behalf.

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