Self-inflicted

The problems that the government has faced in announcing price hikes in a variety of petroleum products""to reflect their current cost""are entirely the government's own creation.

Mani Shankar Aiyar, no great believer in market economics, decided when he came into office a year ago that the dismantling of the administered pricing mechanism (APM) should be formally undone and prices determined once again by high political authority.

In effect, he brought politics back into the economics of petroleum pricing. The result today is that the government is hostage to the Left parties, on whose support it survives, and which do not seem to understand the simple logic that energy costs money and those who use it must pay what it costs.

The Prime Minister has had more than one meeting with them on the subject, and if public statements are anything to go by, the Left has not bought the government's position""citing, if reports are to be believed, the forthcoming Bihar assembly elections.

There is an instructive history to the political pricing of petroleum. Rajiv Gandhi's year-long honeymoon with the Indian public ended in January 1986, when some petroleum product prices were raised""provoking a sharp backlash and then a rollback. VP Singh was finance minister at the time and quick to absorb the political lesson.

So when he became Prime Minister in 1989-90, he hesitated to raise petro-product prices even though these had gone through the roof as a result of the Kuwait crisis. It was only when this inaction became completely unsustainable that he finally raised prices, and that added to his troubles.

This is why it made eminent sense for the government to formally take the decision, in the second half of the 1990s, that the government-administered pricing system would be dismantled in 2002 and oil prices would move up and down like everything else, in response to demand and supply.

With advance notice, and with oil prices low at the time, the APM was dismantled on schedule and hailed as significant reform. The problem was that Ram Naik, petroleum minister at the time, replaced the APM with his personal price control system: no public sector oil company (and to hell with the "navratna" business) could raise prices without the minister's say-so.

Mr Aiyar, on succeeding Mr Naik, improved on this and formally brought back the APM""with all its opaqueness, and with discriminitary treatment of oil-producing and oil-marketing companies, and of private and public sector firms.

In the year since, as oil prices have climbed to record levels and stayed at the new heights, there have been skirmishes on oil duties (Mr Aiyar argued, correctly, that the government was earning windfall tax gains on the record oil prices and taxes should be lowered).

Mr Chidambaram obliged half-heartedly, and refuses to do any more correction. Both ministers have landed the problem in the Prime Minister's lap. And Manmohan Singh is therefore left with the joyless task of having to teach Marxists the basics of the price system.

While one wishes him success, the lasting solution lies in Mr Aiyar retracing his steps and ending petroleum price control in the same way that it has been ended, to everyone's relief, in steel, paper, tyres, cement, toilet soap, hotel room tariffs and other essential products and services.