Deregulation of Petroleum Products in India: Half-Baked Economics

Following exactly the same economic philosophy of UPA government at the centre that inspired it to deregulate the price of petrol, NDA government very recently left the determination of diesel prices to the mercy of market. Notwithstanding certain explicit gains visible at a glance in the immediate term, this move will become catastrophic in the long term on account of two reasons. First and foremost, this policy is based on the traditional economic philosophy that unfettered competitive market is the best mechanism to achieve efficiency in the distribution of resources. Therefore, government must not intervene in the functioning of the market through subsidy or taxation so that both producers and consumers will be free to enter and exit such a market. This kind of freewheeling system will supposedly determine efficiency and therefore, government can get rid of the head-ache caused by subsidy and consequent macroeconomic implications.

However, the champions of this philosophy knowingly or unknowingly neglect several important factors that reign the market for petroleum products. Among them, the most crucial thing is either negligence or ignorance of the fact that market is like a scissor with two blades equal to each other in all respects. The true purpose of a scissor can only achieved if it is designed keeping in view the compatibility of two blades to each other. Therefore, even if we accept the view that market alone can guarantee efficiency, for the sake of argument (because truth is that market alone cannot work efficiently as has been proved time and again, for e.g. US economic crisis in 2008 and also considering our metaphor of scissor, it will not cut on its own if somebody does not make use of it), a close look at the existing market for petroleum products shows that it is like a broken scissor. That is, two sides of the market namely demand and supply is suffering from fatal shortcomings.  Let us consider the demand side first. With this new policy government of India wanted to make market for petroleum product like petrol and diesel competitive as well as unfettered. Of course, that is the way government must have gone to achieve the goal of making a market competitive to the extent possible. However, the designer of the scissor should pay attention to the design of one blade while designing the other one so as to avoid incongruity. Here what we have seen is complete neglect on the part of government to look into other side of the market, supply side, while designing Indian demand side of the market for petrol and diesel.  

What I mean is that the supply side of petroleum products is completely out of the control of Indian policy makers and it is fully controlled by international oligarchs which are best examples of the imperfect markets. Thus, our government is preparing ground here to make it perfectly competitive on the demand side while the supply side is imperfectly competitive in toto. In other words, government of India is striving to design only one blade (demand) of the scissor under its control in a perfect manner to enable it to deal with a broken and often self-indulgent other blade (supply) of the scissor like oil producing and exporting countries (OPEC). The ultimate result can be easily presumed that perfect blade will be blunted in the process of dealing with the broken blade and finally the system will collapse and people of India will only be true losers.    

Of course, as I pointed out at the outset, there would be certain fringe benefits in the short term in connection with this deregulation. As reported widely in news papers, given the opportune timing of the introduction of this policy at a time when international oil price was falling, this move has immediately resulted in the decline in the price petrol. However, we have to wait and watch to bear the true brunt of this policy.  It is here, the second important factor namely geopolitics in the Middle East comes to picture. Nobody believes that dust in the Middle East air will settle soon especially in the face of an ongoing violence and if Middle East politics is on fire, so will be the economics of crude oil. Thus, the deregulation policy of union government will be put into test in the days to come and if ongoing volatility in the Middle East explodes further, government will have to review its current policy decisions at some point of time in future. After having said all these methodological and philosophical lacunae, I acknowledge that nobody can justify wastage of public resources disbursed in the form of subsidy to undeserving segment of the society. Therefore, looking in that way, this policy is a welcome step provided that government ensures that subsidy reaches the needy as market would not take care of the issue of equity. Also government must pay attention to reduce India’s reliance on imported energy products for which plenty of available domestic sources with an emphasis on renewable energy sources must be tapped.  

Modi’s 3 Ds

Prime Minister Narendra Modi in his chat during his recent visit to USA had referred to three Ds: Democracy, Demographic Dividend and Demand as India’s mascot in the future. A careful scanning of this abbreviation seems to suggest that it is a carefully crafted long term vision taking a realistic picture of present India’s opportunities and challenges into consideration and thereby it makes immense sense from the point of view of overall development of the country. These three Ds signifies three different formidable issues in the contemporary India which are symbiotic in nature and each bolstering the other as described below.

First D of democracy signifies the relevance of true democracy with people in the driver’s seat and thereby providing country a long-term roadmap to solve its basic issues. Basically, the biggest challenge India faces today is the absence of charismatic leadership with a long term mission and vision to take the country forward through troubled waters. It is as clear as day light that even simple homogenous system cannot be expected to reach its logical conclusion without proper planning, let alone India’s wholly complex system. It is here we have to subject the way Indian democracy and politics is moving ahead to a careful scrutiny. Indian democracy even after sixty years of independence is still highly fluid in the sense that i) drivers of Indian politics are yet to come to terms with the necessity of designing a long-term vision taking India’s potential as well as challenges into consideration, ii) also yet to comprehend the necessity of ensuring continuity in the governance of, at least, fundamental issues. No system can thrive until it operates within a framework designed with emphasis on the ‘long-term planning and continuity of planning’. Unfortunately, given the short temporal dimension of electoral democracy coupled with all socio-economic evils of a third world country, Indian democracy is in a sense constrained to plan only for five years and thereby we failed miserably in the past on focusing ‘planning with continuity’.

Therefore, India requires a democracy giving emphasis to ‘continuous planning’ combined with a political culture of bringing such an emphasis into practice through ‘shared democracy’ rather than ‘personal democracy’ as seen today. In other words, there must have an implicit unanimity across political spectrum on the priorities to be carried forward or achieved irrespective of who is in power or out of power. That is, planning, execution and governance must be independent of electoral politics so that continuity can be assured. If so, successive governments can ensure that concerned stakeholders involved in the promotion of the cause of the country like private investors are not betrayed with change in guard which is essential in the efficient utilization of resources. Instead, in an individual(s) centric political environment, country will miss above  factors in the pursuit of development as those individuals who wield power today need not be in power tomorrow and so their policies as well. For, given differing perspectives of different individuals, policy decisions will be varying according to preference of individuals in power and thereby lacking a clear direction in the governance. Therefore, true democracy lies in decentralization of power at different levels and governing the country by taking all on board.

True democracy with long term planning is imperative to make use of the second D- demographic dividend- to the maximum possible extent by providing quality education and thereby enhancing skill and employability of the youth. Nowadays we can see everybody boasting of a young India as more than 60 percent of Indians is below the age of 25 years. Of course, it is a matter to be celebrated in this knowledge era. However, the real issue is how we are going to deal with this sort of historic human treasure or do we have required arms and ammunitions in our armory to make use of this historical opportunity. For, if we did not strike at the opportune time now, we will miss it and let us not forget the long term implications of missing this kind of historic opportunity. It is not simply a matter of missing the opportunity before us. Rather, it is more about how we will deal with this young population in the future when they grow old without getting adequate life saving training. That is, a young India not truly trained and educated will be a socio-economic burden to the society in the future. Therefore, today’s young India should be directed to surge ahead along a path which is so identified to equip them to meet elevated expectations that country has bestowed upon them in the process of making India strong.   This can only be achieved if we ensure that our educational system is reformed and refined to provide quality education to the young India.

In this knowledge era the full potential of young India can only be achieved if we train them through education. Nobody would contest the view that present educational system as a whole is devoid of a proper direction other than simply reducing them to certificate and degree producing centers. This has to be transformed into a system where students are trained through education in the respective fields of their choice and thereby make them skilled employable folks. Several initiatives must be undertaken to refine current educational system in India. First and foremost, we must shun our belittling attitude to basic school education in the form of, for instance, meager compensation to school teachers especially at the primary or secondary level, less financial support to build infrastructure etc. It is worth reminding us here that developed countries like Japan or South Korea gives utmost importance through all means to the school education. How can we develop strong higher education on a feeble basement laid at the school level? Therefore, we must give due consideration to develop a quality school education system by way of attracting best talented experts with highest qualification  to equip our kids and thereby help them to lay down a strong foundation in the basic education. Once so trained children moves up in the ladder of education, their performance will be highly efficient, concrete and result-oriented. Thus, fine-tuning of basic school education will automatically pave way to the greater refinement of higher education provided that other required physical facilities are also guaranteed. This kind of a holistic change in the education system today depend upon the determination of Ministry of Human Resource Development (MHRD) to lead the country in this revolutionary movement.   

Having said all these, we should not misconceive that demographic dividend can be reaped simply with education and training. Instead, policy makers must ensure that so trained and educated young is not left in the lurch without employment opportunities. It is here the third D enters the scene signifying not only the demand for goods and services but also demand for trained young talents. Hence to accomplish third D, government should spur the quantum of investment in areas such as basic physical infrastructure, modernization and expansion of primary, secondary and tertiary sectors of the economy. This kind of a focused systemic approach to increase investment will, on the one hand, expand production and distribution of goods and services in the economy and on the other hand, guarantee direct and indirect job opportunities for its citizens including trained educated young Indians. Going by British Economist John Maynard Keynes’ economic rationale, Increase in employment opportunities and subsequent increase in the purchasing power of the people will help spur the aggregate demand and push economy forward. And expansion of production of goods and services will help arrest sky-rocketing of prices as the impact of rising demand for goods and services on price level can be nullified with corresponding increase in the supply of such goods and services enabling government to check shooting up price level in the economy and therefore, the real value of the income earned will be higher which will indirectly help to boost demand.  Here Modi brand of ‘make in India’ and Micro, Small and Medium Enterprises (MSME) initiatives will be of immense use to increase job opportunities and thereby tackle the menace of unemployment in general and among educated in particular, provided that such initiatives did not remain to be paper-tigers. Thus, it is obvious to figure out an explicit link between second D (Demographic Dividend) and third D (Demand) of Prime Minister Narendra Modi. That is, to make use of full potential of today’s young India and thereby avoid a heavy burden of  old India in the future, they should be trained and educated to help them to improve their skills, talents and employability in this knowledge era so that they can contribute their bit in the process of nation building on the one hand and on the other hand, government must also prepare the ground creating new large number of job opportunities so that unemployed people can be absorbed swiftly in the economy. The reinforcement between quality education and subsequent increase in the purchasing power of people will undoubtedly increase quantum of demand for goods and services including the demand for educated folks.

To sum up, Prime Minister, Narendra Modi’s brainchild of 3Ds is certainly coined at the right time now keeping in view both opportunities and challenges faced by modern India. Undoubtedly, since there exists a symbiotic relationship between these three Ds as outlined above,  if necessary policy prescriptions are put into practice as outlined above in a coordinated manner along with political determination and tenacity, a great deal of India’s burning issues can be effectively tackled and therefore, I do personally believe that union government must roll out a comprehensive agenda soon to deliver on these three pillars of present India and swiftly plunge into business on a war footing.    

Monopolistic Competition in the market for Political Religion

In the standard economics, monopolistic completion is one of the prominent structures of the market in which product sold is differentiated in the sense that the product brought into market by a particular producer is differentiated from the product of others in the same market by of changing, say, its appearance without any substantive change in the quality or ingredients of the product. Firms, therefore, incur enormous amount in the form of advertising expenditure to promote their product and thereby enlarge their customer base. Examples are soaps, soft drinks, tooth paste etc.

A close look at the enterprise of political religions in vogue today reveals that an analogy can be drawn between this enterprise and monopolistic competition. At the very outset let me make it clear that by the term political religion I mean those folks or groups who are out there in the street to mobilize innocent common man  under the banner of religions often misconstrued in a manner to serve their either political or economic or personal agenda. In other words, the term political religion has nothing to do with those people who have inculcated the true spiritual and moral spirit of religions as a means of enlightenment, salvation, brotherhood, self-purification and thereby cracking the mystery behind the universe etc whom we will not see in the streets and on the dais.  

Before justifying the analogy I have drawn here, it is interesting to reflect that ‘political religion’ is a normal good. Economists define normal good as a good for which the demand increases with increase in the income or purchasing power of the people. Thus, political religion or the products they try to sell in the religious market can be said to be a normal good implying that with the increase in the standard of living or general material prosperity of the people today, the demand for their product has been witnessing increased demand. For instance, the number and frequency of religious sermons or electronic and digital varieties of religious programmes has witnessed an unprecedented increase in the recent years. Nobody will contest the view that the number and frequency of religious maneuvering like gathering staged mostly on the streets and bazaar or products like CDs in the past was not as much and frequent as it is today. That is, with increase in the well-being today, people can financially afford to enjoy such religious products or services in complete contrast to the past when people were even struggling to find food, let alone CDs. Also it is much more interesting to observe the fact that how modern economic and commercial principles and strategies have deeply influenced the forces behind this political religiosity. For example, the external cover of products like CDs marketed by such forces reads like this: ‘coming soon to the market’ signaling to their customer base that a new product is in the offing and hence be prepared to purchase it. This sort of marketing strategies are extensively found in our day-to-day life in the form of display of canvass or flex board which reads ‘opening shortly’ in front of commercial shops looking forward to commence their operation soon.

Now coming to the task of justifying my analogy, let us first consider the concept of product differentiation which is the hall mark of monopolistic competition and illustrate it with the previous example of electronic product like CDs. A close observation of such products reveals that they are all concerning various topics under the broad umbrella of a particular religion sold by either one individual or a group of individuals like firms in a monopolistic competition. Thus, the act of producing such products concerning various topics under a particular religion is the example of the product differentiation in the market for political religiosity. Along with this, we must take the fact into consideration that each  religion   is highly divided between various inter and intra groups and sects indicating that there exists tremendous competition among themselves to both maintain their prevailing customer base and expanding their customer base to others, if possible. Essentially it is this high competition prevailing among various individuals and groups and the resultant fear of being ousted from the scene or market or leadership in the face of existing or fresh competition, inspire them to keep on producing new products and services like CDs concerning various topics (product differentiation) and selling it in the market with enough advertisement either through local news papers, visual media, announcement at religious centers, organizing formal display of such products at related gathering etc. To strengthen my argument I would like to draw the attention to the fact that the same market would certainly have dealt with such products concerning the same topic by someone in the past. If these champions of political religiosity are sincerely interested in the propagation of the religion as called upon by their supreme leaders, they, instead of bringing their own version and product from time to time , must have alerted the common man of the existence of such products and services already in the same market and avail its service. Instead they find it as an opportunity for a fresh niche market to sell their differentiated version of the same debate.  Apart from this, the product differentiation also sometimes takes the form of pinching the old dogmas with latest wisdom and knowledge. For instance we can see a tendency on the part of these political religions to relate their ideas with the scientific revelations of the modern scientists in an effort to increase the scientific acceptability and validity of their dogmas.

Thus, let me conclude that political religion today is a monopolistic competitive market in which political theologians (firms) sells ‘differentiated normal goods’ namely political religiosity in the form of CDs, Sermons etc.

(I have written these personal views in an academic spirit and  in no way I have meant to hurt the religious sentiments of anybody)