Kirit Parikh, well-known for having headed an official committee whose recommendations on pricing petroleum products were “bad for the country and worse for the aam aadmi,”[1] says in a Times of India opinion piece titled “A Crisis Too Good to Waste”[2]:
The country is in an economic crisis. The growth rate is coming down. The current account deficit (CAD) has reached 6.7%. A crisis provides an opportunity to take much-needed decisions that one could not otherwise take.
Parikh’s candour is refreshing. (Indeed, he seems to have taken Naomi Klein’s Disaster Capitalism[3] as a how-to manual.) He notes that the finance minister has identified the imports of coal, oil and gold as the main reasons for the high CAD. Parikh’s solution? “The sensible response to the CAD and coal crises would be to denationalise coal completely and let coal price be market determined. Only then can we expect the private sector to come in in a substantial way and introduce new technology. That is the only way we can avoid the import of 185 million tonnes [of coal] in 2016-17 as envisaged by the 12th Plan.” This is more or less along the lines of his recommendations for the petroleum sector too. In January this year, the Government set itself on a course of hiking diesel prices every month for 18 months. This in a country where access to modern commercial energy is among the lowest in the world, lower than many sub-Saharan countries, and where, in terms of purchasing power parity, the Indian prices of petroleum products are among the highest in the world.
Since coal and petroleum are inputs into virtually all goods and services, the impact of such measures on prices, and thereby on real incomes, would be devastating. Most governments, even those particularly attached to private investors in the energy sector, would hesitate to carry out two such inflationary and anti-people measures in the year before general elections. Leaving aside the prime minister and the finance minister, most Congress leaders must hardly be relishing the prospect. This is where the CAD crisis comes in: it provides a cover to private interests in oil and coal, including foreign capital, to press their agendas even in the face of widespread opposition.
While recommending measures on the coal and oil fronts that will cause mass distress, Parikh does not see the CAD crisis as an “opportunity” to place serious restraints on the huge gold imports being made by the rich, either in the form of outright restrictions or even higher customs duties. (In 2011-12, net gold imports, at 3 per cent of GDP, accounted for most of the CAD of 4.2 per cent of GDP.) Instead, he recommends feather-touch measures to attempt to lure the rich away from gold imports (for example, through the issue of bonds denominated in the international gold price and tradable on exchanges at the prevailing gold price).
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