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November 9, 2011

Protect the poor from price hikes

Protect the poor from price hikes

By: Derek O'Brien, MP, Trinamool Congress

The Trinamool Congress is not wedded to an ideological straitjacket. We are neither free-market fundamentalists nor communists married to one unchanging economic model. Government calls for pragmatism and flexibility. The focus needs to be on bettering life for the common citizen, not on fulfilling some theoretical shibboleth.

We have to ask ourselves why petrol prices have risen in India. To say it is a global phenomenon is lazy analysis. In the West, there is concern about a double-dip recession. Demand is slackening and world oil prices are softening. If oil prices have gone up in India, it is because the rupee has lost value vis-a -vis the dollar.

Why has the rupee lost value vis-a -vis the dollar? It is because government and RBI have raised interest rates. Why have they raised interest rates? To fight inflation, they say.

Consider: raising petrol and diesel prices will only fuel inflation, leading the RBI to raise interest rates even higher. The rupee will depreciate even further. We are entering a spiral situation. This is what the Trinamool Congress has been warning the government against.

We cannot 'fix' inflation by such short-term mechanisms that only end up making life more expensive for the poor. Actually, the criticism being made by corporate India – that inflation cannot be fought by simply driving up interest rates indefinitely – looks at the same issue from another prism.

It is important not to be ideological about the word 'control'. It is not as if the Trinamool Congress is the only entity standing between India and a completely control-free economy. The value of the rupee and its convertibility is controlled. Administered prices for agriculture are, in a sense, controlled.

If a similar cushioning is provided to the poor and the genuine middle class by safeguarding them against rampant oil price surges – for reasons they are not responsible for and don't comprehend – then it makes for good politics, sensitive economics and, broadly, wise government.

Of course, if those who buy subsidised diesel for their fuel-guzzling SUVs are asked to pay more, the Trinamool Congress would support that. But that's another story.

Courtesy: The Economic Times