Says the economy can absorb the increase without triggering an inflationary spiral
Prime Minister Manmohan Singh today said there would be no rollback in the increased prices of petrol and diesel, saying the economy had the capacity to absorb the increase without triggering an inflationary spiral.
Singh also made it clear that following populist fiscal policies for long would harm an economy, two days after key United Progressive Alliance allies, the Trinamool Congress and DMK, made a strong pitch for the rollback.
“Any increase in prices does hurt some people, but we have to take a long-term view,” he told reporters on board his special aircraft on the way back home from Saudi Arabia, when asked about growing concerns over the recent increase in oil prices and the ripple it might have.
The direct effect on the Wholesale Price Index would be no more than 0.4 per cent, he said.
Quick to strike, but afraid to wound — this seems to be the conviction of the Congress party brass about its allies, while it faces their protests over the oil price rise.
According to top sources, the finance minister is likely to meet the grumbling allies — Trinamool (19 MPs) and DMK (18 MPs) — to explain why the government had to take the ‘tough but necessary’ decision. The brass of the coalition leader, however, ruled out any rollback of the Budget announcement.
A senior minister of the government told Business Standard the government perfectly understood that allies like the Trinamool and the DMK had to make “politically correct” noises over the touchy issue of oil prices to serve their political base. But, the bold conviction that the allies would eventually back and pass the Budget came from the assessment that both DMK and, especially, Mamata Banerjee’s Trinamool Congress are heavily dependent on the Congress in the coming elections.
In Tamil Nadu, the DMK is currently running its government with the help of the Congress and others; if the support is withdrawn, it will collapse. The DMK has 98 seats and the Congress 36 in the 235-seat legislative assembly.
In West Bengal, Banerjee’s spectacular success during the last Lok Sabha election, followed by those in municipal polls and assembly by-elections, would not have been possible without its alliance with the Congress. In the coming municipal poll series and finally the 2011 assembly election, too, Trinamool’s ambitions are firmly harboured on the helping hand of the Congress. Tamil Nadu also faces an assembly election in 2011 and coalition compulsions may not allow M Karunanidhi’s party to bite the Congress over the issue of price rise. Karunanidhi, the chief minister of Tamil Nadu, had initially hailed the general budget in a statement.
The third biggest ally of the Congress in the second UPA, agriculture minister Sharad Pawar’s NCP, had already come out in support of the decision on oil prices. Pawar had said his party would do nothing to affect the UPA’s stability. His party and the Congress run the coalition government in Maharashtra.
“We are part of the decision-making process. NCP will not take any decision that will affect the stability of the Government. We will explain to our colleagues who have different views and try to convince them about the larger national interest,” Pawar had said.
Mukherjee also pointed out that the states also stand to gain by the decision, as they will get one-third share of the excise duty. Mukherjee told Business Standard, “In our calculation, almost Rs 8,000 crore will be the states’ share. The political parties may cry foul but the state governments tend to gain.”
