Hartal in TrivandrumAnother hartal in Kerala and bandhs in several States of India caused immense hardships to people and losses to the country’s economy this week. It was over hike in petrol, diesel and cooking gas prices.

We know that Indian Government has little control over petroleum prices. Even if it were forced to bring down prices, the general public would be paying for the losses of public sector oil companies. So, demand of the leftist parties and the Bharatiya Janata Party is that the Government should subsidise the air-conditioned cars of the rich who consume petrol in high quantities!

Now, the Centre has asked States to cut the taxes. The result is the same. The motor-riders would benefit while the State will lose higher revenues that could be used for the benefit of all. (This is in addition to the subsidies some car manufacturers are getting like subsidised land.)

It can very well be argued that the tax rates on petroleum products are unreasonably high. Yet, there is little rational for tinkering with actual prices, provided one takes into account the cost of domestic production, which could be lower. The tax burden can, of course, be partly shifted to items like luxury cars to ease the burden on the general population and economy.

The hartal caused a loss of about Rs. 3 crores to the Kerala State Road Transport Corporation, as it had to maintain its infrastructure and run some empty buses. It has to pay monthly salaries to its employees while it loses a day’s revenue. This is the case with every institution that pays monthly salaries to its work force. On the other hand, the poor daily wage earners suffer because they cannot go for work on the hartal day.

The political parties organised hartal against general rise in prices. The country loses nearly 1/365 of production in several spheres. The result will only be weakening of the economy and increase in prices. Every economist knows that lowering of production by a factor of 1/365 can increase prices. One can see that such hartals are irrational. Many Indians understand that. But the politicians think that they could hoodwink some through such protests. (updated on June 6, 2008.)

Earlier posts
Hartal: the weapon of bankrupt politicians
Hartals galore in Kerala

Hike and double standards