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Oil prices: Why the BJP's simple answer will not sell

Tuesday, September 11, 2018
By Jagdish Rattanani

The argument of the BJP (and of several right minded and sincere economists speaking in a strictly non-political context) on the rising prices of fuel at the petrol pumps is simple: The BJP has no hand in this. “Hamare haath se bahhar hai,” said the BJP leader Ravi Shankar Prasad at a news conference in New Delhi, as the Opposition sponsored bandh against the prices took effect across the country. Strictly speaking, this is correct. The BJP is at pains to explain that it can’t do much about global dynamics, about geo-political movements like the oil producing countries cutting their output, oil-producing Venezuela facing political turmoil, about Trump’s sanctions against Iran and about the shale gas reserves that America has so assiduously tapped into but which haven’t kicked in yet to stablise prices. Prasad presented this logic and it seems he and others in the BJP are unable to see why the people can’t get it, and as they might add, see through the gimmicks of the Opposition.

Question of credibililty of party
Of course, the BJP knows it’s not that simple. Politics is not a lecture on economics, and the Opposition parties led by the Congress and the people in general are well within their rights to ask why the man who shouted and screeched and played to the galleries on the issue is now silent when the same issue has boiled over many times over.  So the most potent weapon of the Congress is the video reels of an angry Narendra Modi blasting the then UPA government for the rising petrol prices, which, in fact were at far lower levels than what we see today. The point is only in part about the petrol prices. It raises doubts and questions on a host of other issues on which the BJP has offered tall promises, condemned opposition policies and sold its version of events to telling effect.  In short, it’s a question of credibility of the party and its positions on a range of issues. The credibility issue becomes more pronounced when it is now clear that some of the so-called bold steps of the government, like demonetisation, turned out to be a disaster. It is a deeper dent because on the other side is, back in the arena, Dr. Manmohan Singh now speaking out more effectively and carrying conviction because he is, after all, an economist and whatever else he did (or did not do), we did cruise along without the angry talk, empty promises or sudden swings. It is true that the Congress government gave us monumental corruption and Dr. Singh was mostly a silent spectator, one of the key reasons why the BJP won a thumping majority in 2014. But it is quite natural that yesterday’s sins will look pale in comparison to today’s problems, particularly since the BJP has done precious little to fight corruption and has brought upon itself a host of new allegations as seen in the cases of Nirav Modi or the Rafale deal, not to speak of others. All of it put together gives the picture of the ruling party slowly losing its standing in the eyes of the people. That doesn’t mean that the game is over but the BJP does have a difficult road ahead. It is difficult not because of any specific policy or mistake but because the party, particularly its leadership has invested so much in storytelling and gimmickry that events are being mistaken for policy,  playing smart and clever is regarded as high skill and a certain lack of sincerity and authenticity have begun to permeate the whole being.

Public positions apart, there is another important aspect that is being missed and that is more insidious. Take a look at the Economic Survey 2016-17 (Volume II) issued by the finance ministry in August 2017. In Chapter 4, titled “Prices and Inflation”, the Survey notes: “It has become almost an involuntary reflex to cite geopolitics in the list of risks to oil prices, and hence to domestic inflation. But these risks may well be diminishing substantially. The oil market is very different today than a few years ago in a way that imparts a downward bias to oil prices, or at least has capped the upside risks to oil prices.” It is amazing that a highly cited government survey just about a year ago talks about oil prices being capped, and then builds its arguments on prices and inflation. It is ironic that the government dismissed geopolitics as a risk to oil prices then while today it is this geopolitics that the party seeks recourse to as it faces public ire at rising prices. What does this tell us? How can senior officials at a key ministry build such an argument and make what virtually is a firm prediction on so uncertain a commodity as oil? One explanation is that people are so sure of themselves that they are blind to realities. The other is that there is an agenda at work and the argument is being used to drive in a direction that certainly cannot be sound because the basis on which the direction is being decided is not sound. And a third explanation is that the government does not know what is happening. None of this gives comfort.

India is back to where we were
The survey went on to predict that: “Going forward, therefore, it is not that prices will not be volatile nor is it the case that they will never rise above the USD 50 ‘ceiling’. Rather, shale technology will ensure that prices cannot remain above this ceiling for any prolonged period of time because of rapid supply responses which will take the prices toward the marginal cost of production of shale. The dramatic decline in the cost and prices of renewables will only re-inforce this tendency. In sum, geopolitical risks are simply not as risky as earlier. Technology has rendered India less susceptible to the vicissitudes of geo-economics (OPEC) and geo-politics.”

In sum, we thought India was safe and shining. In reality, we are back to being where we were – at the mercy of the global markets and with our currency under pressure and having to pay through our nose for imports we can’t live without.  

The political parties will put their spin on how the nationwide bandh turned out yesterday. But whether many shops were closed or not, whether the bandh received a poor or strong response from the people, the coming together of 21 Opposition parties is a signal of the angst and anguish.

Surprisingly, many traders shut shop. The BJP leadership says the Opposition is opportunistic and will not stick together. That is probably true. But it cannot be denied that the Opposition has a renewed sense of energy. This energy they get comes not from the work they have done but from the conduct of the BJP.

(Foundation of The Billion Press)
Jagdish Rattanani is a journalist and a faculty member at SPJIMR

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