Dr. Sanjiv Agarwal

What a week it has been – first the Government infused a bitter pill on the citizens of the country by two non-populist steps in increasing diesel rates by five rupees a litre and substantially enhancing the prices of cooking gas over six cylinders in a year (three for the current year). This was followed by yet another bold decision of allowing foreign direct investment (FDI) in retail and aviation, which is being opposed by most political parties, besides ruling congress’s own allies and members. 

The actual hike in prices of diesel or gas is going to be more for it is excluding the value added tax (VAT). With this, the Government cannot claim that there is a loss on excise duty cut on petrol in recent past. In fact given the huge consumption of diesel against petrol, the Government will eventually end up with income.

The impact is going to be severe and deep. With income side not likely to go up and continuous mounting inflation with no hopes of interest rate cuts, public at large will suffer. The travel by all modes is going to be costly. The higher freight by rail or road will add fuel to fire of inflation. The cost of house hold items and industrial inputs will go up and even the prices of articles like milk, vegetable, consumer items, groceries etc. will arise. All in all, it is going to be indeed tough for all except the politicians and those with incomes generated out of corrupt practices.

While in civil aviation, 49 percent FDI is allowed, it may infuse a new life to the ailing sector, it has approved 51 percent FDI in multi brand retail and 100 percent in single brand retail. As politicians feel and are worried, it may adversely impact the domestic retail sector, more particularly in similar towns. It also decided to allow foreign investment in power exchanges and cable satellite distribution. While all this may make India a better investment destination so far as FDI is concerned, the economy and social network of India does not warrant for substantial FDI in retail sector. It may impact small retail outlets and would tilt the consumer market in favour of mighty ones who could afford huge financial commitment and large inventories. Given the changing consumer habits in India, retail consumers may shy away from the street corner retail vendors, whose existence has so far been considered as an essential part of society itself. Disinvestments in milking PSU’s is nothing but like eating out of capital which ought to be done only in case of non-blue chip PSUs for having more autonomy.

These bold and aggressive steps are followed by a classic movie barfi as sweet after the bitter  dose of diesel and cooking gas price hike. The barfi comes as a sweetner on the weekend, soon after the price hike bomb shell dropped by the Government. Barfi has a hero who has no dialogues and yet it is being praised by one and all, a pleasantly different yet entertainer. So forget diesel or gas for the time being but have a taste of barfi in days ahead.

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