The fine art of blinking first

Well, during the United Front’s time, they found that the subsidies far exceeded the surpluses, and the oil companies were owed so much money (that’s to say the oil pool deficit was so large) that they didn’t have enough money to contract fresh imports. So, the UF decided to free prices of most petroleum products, and to phase out the subsidies on LPG and kerosene.

So far, so good. Except, when the BJP came to power, it decided it didn’t want to increase prices of items like diesel regularly even though global prices were going up. And when they couldn’t do it for diesel, the last thing they wanted was to reduce the massive subsidies kerosene and LPG, though by September the subsidy on these items was close to 100 per cent.

By September, thanks to the BJP’s reluctance to regularly hike local prices in tandem with global ones, the oil firms were owed a whopping Rs 18,000 crore, and couldn’t finance any more imports coincidentally the same figure as three years ago when the UF government had to issue special bonds to the oil companies since they were having a problem financing imports!

What happened after the BJP hiked oil prices in September is well known. Mamata Banerjee went into a sulk, and after a few weeks Prime Minister Vajpayee caved in and scaled back the hike in kerosene and LPG. Apart from the immediate impact on the oil pool account, is the long-term one.

Given Vajpayee’s surrender to the largely empty threat of Mamata pulling out of his coalition, there’s now no question of his government being able to regularly hike prices of items like diesel in tandem with global prices remember this was the genesis of the September crisis. Since September, when crude prices were around $30 per barrel, they’re now up to $36, which will increase the oil deficit by Rs 1,800 crore in a full year. So, in another eight months, we’ll be back to where we started, a panicky government will have to hike prices suddenly, some other Mamata will protest…

(By the way, guess where around 30-40 per cent of kerosene, the so-called poor man’s fuel, is used? To adulterate diesel, since it is much cheaper. In the ’70s, when the government equalised prices of kerosene and diesel to check adulteration, consumption of kerosene fell by a fourth! So, by increasing the price differential between diesel and kerosene, Mamata’s really helped black-marketers instead of just the poor whether she knew this or not, is the difference between her being corrupt or foolish.)

Sadly, Vajpayee hasn’t left his capitulatory ways for Mamata alone. For several months now, he allowed his Shiv Sena allies to put off selling the government’s stake in auto-firm Maruti, even though this stake is losing value each day. Some weeks ago, after Sena minister Manohar Joshi finally came around, Vajpayee had to suffer the embarrassment of cancelling a Cabinet meeting when Joshi changed his mind overnight. Joshi was brought around once again, but the day after the Cabinet meeting announced the in-principle sale, Joshi called journalists to say no such decision had been made! Joshi is so obviously defying Vajpayee the heavy industry secretary who has been asked to initiate a dialogue with Suzuki Motors of Japan is not even doing this as Joshi is opposed to it and yet the Prime Minister can do nothing.

And, earlier this week, Joshi’s leader Bal Thackeray wrote to Vajpayee asking him not to take any major decision on privatisation until Thackeray’s six-member team meet him to further discuss the issue! He also revealed his cards on Maruti he said since both General Motors and Rahul Bajaj were interested in Maruti, Bajaj should be given preference since he’s an Indian.

Clearly, Vajpayee can’t afford to be seen to capitulate so completely and offer Maruti on a platter to Bajaj, more so since this newspaper made the contents of Thackeray’s letter public. What now remains to be seen is whether Vajpayee will allow Joshi and his mentor to delay the Maruti sale, if they don’t get their way. His track record of blinking first is enough to make anyone wary. But we must wait. And pray no other ally tries to extract its pound of flesh as well.