Modi takes election year gamble on prices of fuel, cooking gas
With the fiscal deficit soaring, the Modi government has little room to reduce fuel prices before next year's election
In India, onion prices are known to bring tears to the eyes of politicians, who are all too aware that interfering with a staple dietary item can bring down political parties.
However it seems that Prime Minister Narendra Modi’s nationalist Bharatiya Janata Party (BJP) is avoiding the populist path as it heads to a general election that must be held by May next year.
Before that the BJP faces a crucial “semi-final round” of provincial assembly elections in three Hindi-speaking heartland states – Rajasthan, Madhya Pradesh and Chhattisgarh. In all three states, which are BJP strongholds, there is always a fear of voter backlash against the incumbent party.
India may have come a long way from the “Garibi Hatao” (remove poverty) slogan, coined by Congress leader Indira Gandhi in her bid for prime minister in 1971, when she swept to power with a two-thirds majority. However soon afterwards, following the global oil crisis of 1973, she faced street protests and a wave of unemployment. That led to her suspending civil rights for a period of emergency rule that lasted 19 months, and which eventually caused her defeat in 1977.
Recent history seems not to faze Modi, even as the country sees a wave of protests triggered by a fresh surge in world oil prices. State-owned refineries have raised the prices of petrol and diesel, giving much-needed political ammunition to an opposition led by the Congress party.
Critics say Modi failed to take advantage of the low energy prices when he came into power, when global oil prices fell from US$100 a barrel in 2014 to under $35 one year later. This gave the federal government a wonderful boost as it managed India’s fiscal deficit.
But the government did not pass the benefits on to the consumers. Instead, it raised a commodity tax (excise duty) on petroleum products to boost revenues. Now, even in the face of protests, the BJP is ruling out any cutbacks in the excise duty, saying it will increase fiscal deficit. The party is even tweeting graphics suggesting fuel price hikes under the BJP are slower compared to previous years.
On Monday, the Congress party led a nationwide general strike to protest against rising fuel prices. The party has pointed out that the BJP government has raised the excise duty on diesel no fewer than twelve times, even though it is used by truckers and railways to transport everything from milk to food grains and vegetables. The government seems unperturbed by the knock-on effect this has on the prices of everyday food items, hurting household budgets and swaying voter sentiment.
The BJP’s big bet seems to be that either voters will understand its sophisticated economic jargon or that fuel prices will not play a big role in upcoming elections. The latter would be a first in Indian politics.
Modi’s party has been more vocal in fueling sentiments linked to its Hindu base, like imposing restrictions on beef consumption or a crackdown on cow slaughter, with the act being declared illegal under provincial laws. The BJP is also gambling on dozens of impressively branded schemes that promise an India with more rural toilets, digital connectivity in remote villages and easy loans for small entrepreneurs.
India’s trade deficit, meanwhile, has been worsening and crises in other emerging markets such as Turkey, Argentina and Venezuela have cast long shadows on the local currency. The rupee fell by 12% this year, reaching new lows and compounding the fiscal challenge caused by surging oil prices.
None of which seemed to trigger much political concern at the BJP national executive meeting last weekend. Its president Amit Shah, a long-time accomplice of Modi from his native state of Gujarat, thundered that many rival groups were ganging up against his party, even as 126 development schemes administered by the federal government were set to touch 500 million people in the nation of 1.25 billion. He said the opposition was only spreading “falsehoods” and “illusions” among the people.
The big question, though, is whether schemes such as one to provide cooking gas cylinders to poor housewives or a yet-to-be detailed health insurance scheme, will work electoral wonders in a nation where onion prices have historically mattered more at the ballot booth.
The affordable health insurance scheme dubbed “Modicare” may face considerable procedural challenges if it is to be rolled out soon, but it aims to cover 100 million poor families. Its official name is the Prime Minister’s People’s Health Scheme and it is due to be announced in detail on September 25.
In July, consumer price inflation stood at 4.17%, a fairly benign figure by Indian standards. Modi’s government must hope that the cascading effect of increased diesel prices will not cause inflation to surge again and upset voters. As of last month, the central bank was expecting consumer price inflation to end the current fiscal year at 4.8%. A plunging rupee and higher oil prices, however, may change things.
Analysts have also been talking of stalling farmer incomes and stagnating rural wages for farm workers. Opposition parties also say Modi’s years in power have not delivered enough jobs for common people. The government did announce increased support prices for some commodities in July, but farm unions say it is not enough.
If Modi has guessed correctly ahead of the 2019 election, cooking gas cylinders and health insurance could take precedence over jobs, farmers and household budgets at the ballot booth. If so, it would mark the beginning of a new phase in India’s populist politics.