India Insight

Bold moves, smart timing on rail fares, diesel proposal

(Any opinions expressed here are those of the author, and not necessarily of Thomson Reuters)

The railway budget in India is usually presented in parliament a few days before the main budget in February. In a rare move, the railways minister on Wednesday announced an across-the-board increase in passenger fares starting Jan. 21, the first such step in nine years.

The increase is significant. A ticket for an air-conditioned coach with three-tier sleeping berths in a mail or express train from New Delhi to Mumbai will cost 1,205 rupees, up 13 percent from 1,065 rupees.

Former railways minister Mamata Banerjee and some political parties panned the government’s move, but reactions have been muted among the media and the public. There was little criticism even on Twitter, with the fare increase not making it to the day’s trending topics.

It seems that the government timed its announcement perfectly. Here’s why:

The Indian media is preoccupied. Be it legal proceedings in the Delhi gang rape case or the border skirmish between India and Pakistan or the arrest of Muslim leader Akbaruddin Owaisi for hate speech — the media has a lot to do. It’s the best time to ensure the railway fare increase is not overplayed in newspapers and on television screens, unless politicians take it to the street.

India and the art of the 24-hour economic reform

It’s not every day that India makes such a dramatic move as raising diesel prices, or allowing foreign direct investment in its debt-walloped passenger airlines. It’s certainly not every day that it caps this 24-hour period by allowing foreign investment in retail businesses.

In short, big international companies like Wal-Mart will be able to start their own shops in India, or will be able to buy up to 51 percent of existing retail businesses. This could affect small grocery stores like Nilgiris in southern India all the way down to local street vendors.

The Indian government made all these moves as part of increasingly urgent efforts to firm up its sagging economy. While the diesel price rise of 5 rupees a litre and the retail moves are sure to cause a lot of anger and pain on the part of many Indians, the government has suddenly revealed a desire to think about the collective future of the country.

Bold move on diesel, but hold the rollback

Sometimes the government does what it promises. India raised diesel prices by 5 rupees per litre on Thursday in a move guaranteed to alienate the common man, but please foreign investors, oil marketing companies and ratings agencies.

Opposition parties and key government ally Mamata Banerjee expressed their expected disappointment with the decision. The BJP called it a “cruel joke” and “mortal blow,” while West Bengal Chief Minister Banerjee planned a street rally on Saturday and said she was “shocked“.

So… on with the protests and demands to lower the prices. But let’s think for a minute about why that might be the wrong thing to ask for.

Diesel strategy: merely old wine in new bottle?

Planning to buy a car? Seeing petrol prices head northwards, chances are high you would have changed your mind and now intend to buy a diesel-powered vehicle. That might be a smart move given the government’s reluctance to tinker with diesel prices in the face of stiff opposition. But there are plans afoot to deter you.

After considering raising diesel prices at one point, the government is now mulling a proposal of higher duty on diesel vehicles and even thinking of increasing diesel prices only for cars and sports utility vehicles (SUVs) — something that has been debated earlier.

The aim of these alternate proposals is simple — to reduce the consumption of diesel in India which would ease the strain on the government’s finances, and stop wealthy SUV owners from reaping the benefits of state subsidies.

It’s time India bites the diesel bullet

“81 rupees?” asked an astonished TV anchor when an irate Bengaluru-based consumer called in after the recent 7.5-rupee hike in petrol prices. Perhaps cars that run on milk are now needed, the anchor suggested — when the caller said the dairy product costs around 30 rupees a litre.

While milk-powered automobiles might be a distant dream, the reality remains that those relying on petrol vehicles will now need to do their budgeting again. If a falling rupee and high inflation were not enough, this steepest-ever rise in petrol prices will surely pinch.

The fact remains that petrol prices were decontrolled way back in June 2010. That move gave oil marketing companies (OMCs) freedom to revise prices and also gave the government some saving grace as ministers can now easily say that petrol prices are market driven.

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