India, in its effort to drive economic growth (using a fundamentally flawed development model), has removed one of the key control systems that has thus far dampened the effect of global instability upon both the country and its citizens.
In effect, the government has flung the average Indian to the winds of the highly unstable global hydrocarbon market. This is an industry plagued by limited resources (Jeff Rubin) and security threats (John Robb).
The immediate pain will be felt by consumers: effective Friday midnight, you will have to shell out Rs 3.50 a litre more for petrol, Rs 2 for diesel, Rs 3 for kerosene and Rs 35 for each cylinder of cooking gas.
This follows the Centre’s decision to decontrol pricing of motor fuels and prune the dole on kitchen fuels to check losses of state-run oil marketing companies and reduce its subsidy burden.
Energy drives the entirety of the rest of the ecosystem. Cheap, plentiful energy yields growth and prosperity (though societal structure has radically concentrated this process). Unstable, expensive energy halts growth and encourages churn . (Refer to the work of Joseph Tainter for more on this.)
It’s not so much that prices will increase (economies can adapt within a certain envelope), it’s the instability that matters. Unfortunately, the decision seems to have been made without any firm understanding of this fact:
Finance minister Pranab Mukherjee on Monday said the the hike in prices of petroleum products will have some inflationary impact in the short-term but price pressures will moderate from the middle of July.
Mukherjee’s prediction is predicated on energy prices staying constant. This is simply bizarre given that his decision removed the ability to do exactly that.
Also, since Nepal is totally dependent on India for its energy, the ripples from this decision will cascade across borders.
