The Oil Conundrum: Reduce Taxes vs. Reinstate Price Controls

Global oil prices are rising, but still only half of their record high at $75 a barrel. However, the price of petrol and diesel in India is the highest that it has ever been, causing quite a bit of distress to consumers. The knock on effect of high diesel prices, mainly used in transportation, can also be significant. It can have an inflationary effect on the commonly consumed goods and of course makes the visit to the petrol bunk all the more painful for owners of motorbikes and cars.

With many state elections around the corner and the general elections next year, the government is feeling the pressure to restore the price controls on fuel. Early in 2014, the government had decided to remove all subsidies on diesel and free up the prices on diesel and petrol, in an effort to reduce the massive subsidy bill.

Simultaneously, in 2014, oil prices came crashing and the government decided not to pass on the entire reduction in prices to the final consumer. Instead, it decided to levy a tax on fuel, which is still in place. Now, with global oil prices rising, and the tax still in place, consumers are feeling the pinch.

So, the government has two options – reduce the tax, which roughly amounts to 50% of the price of a litre of fuel or go back to price controls. The government is preferring the second one. The government has gotten addicted to the revenue that excise duty and other fuel taxes bring – estimated to be about 2.5 trillion rupees for 2018-19. Reducing taxes might severely affect its fiscal health and is thus, favouring the second option of partially reinstating price controls.

Taxes on gasoline is far higher than many parts of the world. It accounts for a bit more than 50% of the final price. There are union and state level taxes on gasoline. Excise duty, one of the major components of federal tax, was hiked nine times between 2014 and 2016. To get an idea, of the Rs. 75 final price of petrol in Delhi, nearly Rs. 39 are taxes.

Price controls on fuel would again damage the finances of the upstream oil companies. In the previous regime of price controls, the finances of HPCL, IOL, etc were in a bad shape. If their bottom-line gets affected, it is again the citizens who will pay for it. It might also worsen the debt situation of these companies, which will affect an already fragile banking system. To give a taste of this, when the fuel subsidies and price controls were lifted, the debt burden of the oil companies reduced by as much as 50-65%. A reversal is not in the public interest.

P.S: Back in 2016, I had written a blog on the break-up of petrol price in Delhi. The main image from that blog is reproduced here and shows the price break up of a litre of petrol costing around Rs.60:

 

Newton and the Free Speech Apple

News18 reports:

Rajkummar Rao’s Newton, which was India’s official entry for the 2018 Oscars’ Best Foreign Language Film category, earned widespread critical acclaim across the globe and received numerous awards and nominations. However, what was Indian cinema’s pride for some has hurt sentiments of a CRPF officer, who has filed a complaint against the makers of the film seeking deletion of a few scenes allegedly portraying the India’s Central Armed Police Forces in a bad light.

You might read this and think, what kind of man would file such a complaint? What’s wrong with him?

The problem here is not the man, though, but the fact that we don’t do enough to protect free speech in this country. There are many laws that can be used to muzzle free expression, and they cannot be challenged on constitutional grounds, because the constitution does not protect free speech. Article 19 (2) allows grounds on which free speech can be muzzled such as “public order, decency or morality” and “defamation,” all of which can be interpreted widely.

We have a whole bunch of IPC laws that make it a crime to offend someone — and people can be offended by anything one says, which makes it all a bit of a joke. The producers of Newton have enough money to put their lawyers on the job, and this case is just a minor nuisance for them. But these laws are liberally use to strike out at dissenters, and they have a chilling effect on potential dissenters.

What’s worse is that it is not just the laws that are messed up. Most people around you — unless you move around in a self-select elite circle — will agree that there need to be these restrictions on speech. That makes it not just a political and legal problem, but also a social one.

Okay, I’ll shut up now.

The Kennedy-Klobuchar Bill – Updates from a Post-Zuckerberg Congress

(This post is part 1/n of what’s happening in the US Congress post the Zuckerberg testimony.)

If (like me) you spent hours watching Zuckerberg testify before the US Congress, then you’d remember how several legislators promised Facebook they would be tabling bills to regulate social media.

Well, it’s just over two weeks after Zuck’s testimony, and the first such bill is already tabled before the Senate. Sponsored by Democrat Senator Klobuchar and Republican Senator Kennedy, the Social Media Privacy Protection and Consumer Rights Bill, 2018 centers around important principles of user consent and compulsory breach notification.

The bill stresses on drafting the terms and conditions in simple English so that users know exactly what data the website wants to collect, store and process. It also puts the ball back in the user’s court by allowing her to delete her social media data once she becomes aware of a breach.

Well-intentioned as it is, it looks like the Kennedy-Klobuchar bill retains a “Take It or Leave It” binary. It proposes solid user protection and rights, but most of them are squarely based on the power of the data collector to provide only two polar options to the user – to opt-in to its terms, or to opt-out of the platform completely.

If you’ve been so bored that you’ve read your favourite app’s terms and conditions, you will know that several of them today are a binary.

These are called “Take it or Leave It” clauses – so, if a user does not agree to a particular clause her only option is often to not sign up on the platform at all. While this provides simple, easy to understand options to the user, it is also a problem because it may make the user accept terms she is unhappy with. This is why, one of the suggestions data privacy advocates make is that companies collecting data devise smarter, non-binary ways in which the user is assured while still making their platform available to users.

Simplifying these terms and conditions, while still allowing the user multiple options other than to “Take It or Leave It”, as well as being a fast moving service provider at the same time is bound to incredibly tough for the social media company. The good news is, there are some effective ways to do that. However, as the Kennedy-Klobuchar bill rests on the correctness of this approach, its impact is automatically limited.

That said, the Kennedy-Klobuchar bill is an otherwise significant proposal. It looks out for the user by making the data collectors responsible for communicating terms and conditions in a simple manner.

The nerd in me is super excited to do a clause-by-clause breakdown of the bill, but until then, here are some neat summaries of what it talks about:

Senate privacy bill gives Facebook what it asked for.

Senators introduce bipartisan internet privacy bill.

Blogging Is Not Dead Yet

In the first episode of this weekly podcast, Amit Varma and Hamsini Hariharan discuss the launch of Pragati Express, and their favourite pieces for the week. Here are some of the pieces that were spoken about in this podcast:

  1. The Freedom Fighters of Pakistan by Chintan Girish Modi
  2. Breaking New Ground by Manoj Kewalramani
  3. A Strong Law is Not Enough by Rishi Majumdar
  4. We Will Not Protect You by Alok Prasanna Kumar
  5. I Want My Free Sub by Gaurav Sabnis
  6. The Future of The Internet on the Seen and the Unseen

 

Closure of Bars on Election Day Reflects Failure of Democracy

The Election Commission in Karnataka has been overzealous in enforcing the model code of conduct, with special regard to sale of alcohol. Election times are generally a pain for owners of liquor stores and bars, but this year seems to be a whole lot worse.

The EC has issued directives and guidelines for owners of bars and other establishments selling liquor. They must maintain diligent accounts of every sale of alcohol. The specific order that has many bar owners worried states: “If there is more than 10 per cent difference in sales compared to the previous year, such outlets will have to face inquiry”. This is ridiculous.

The 20th of April in 2018 was a Friday, when sales generally tend to be high and in 2017, the date fell on a Thursday. The discrepancy could easily be 10 percent.

There will also be a flying squad constituted by the excise department which will patrol the city. It can visit any shop at any time and ask the owners to produce the accounts and sale details. This makes it ripe for rent seeking and discretionary abuse of power. Consider this:

Till Tuesday afternoon, 303 excise licenses have been temporarily suspended in the city alone, and a total of 793 establishments have been temporarily shut till the polling day for various violations across the state.

Further, there has been a lot of seizure of alcohol stock by the excise department, the flying squads and the Election Commission’s vigilance units. In less than a month, these entities together have managed to seize a total of 3,65,388 litres of alcohol seized since March 27.

There are also restrictions on how much alcohol a retail store can sell to an individual: no individual can be sold more than 2.2 litres of beer, or 750 ml of hard liquor. Again, these limits are ridiculous. Is it impossible to imagine a person buying two full bottles of alcohol for a private party he is hosting at home?

Finally, the biggest problem I have with all of this is that it curbs economic freedom. How is it fair to restrict the business of one type of commercial establishment? How is it fair to close down bars and disrupt business on election days? The election day closures are a feeble compensation for state failure and on a larger scale, failure of our democracy. If people vote based on liquor they receive, the problem is not with whether bars are open or not. Finally, I would argue that it is on the election day and the day of results that I could really use a drink.

Is the US immigration policy an opportunity for India?

Earlier in the day, we discussed the impact of a tighter US immigration policy regime on India. At the margin, will it lead skilled Indians to return to India? Nitin Pai in The Print gives a conditional yes as an answer.

Even if pay scales were equivalent (say in terms of purchasing power parity), few NRIs would trade the comfort, security and quality of life in a developed country and come back and face the challenges of daily life in India. Despite sentimental links, patriotic feelings and family connections, most NRIs prefer to live abroad. It won’t change because of government schemes, no matter how attractive they are on paper.

This idea can be conceptualised as two forces acting in the opposite direction. One force is a “India” premium — the extra salary that would compensate for the returnee’s lower quality of life in India. A force in the opposite direction is the “motherland” discount — the discount arising out of patriotic and familial considerations, leading people to stay back or return to India. It is the interplay between these two forces that will decide the direction of skilled labour flows.

As of today, the “India” premium is way larger than the “motherland” discount. Closing this gap is necessary to convert US immigration policy into an opportunity for India.

Enemies With Benefits

The Times of India reports:

Congress on Thursday alleged conspiracy and lodged a complaint with the Karnataka police over what it called “unexplained malfunctioning” of the 10-seater Dassault Falcon 2000 aircraft (VT-AVH) carrying party president Rahul Gandhi to Hubballi from New Delhi.

According to the complaint, filed by Rahul’s close aide Kaushal K Vidyarthee, who was travelling with him, the aircraft suddenly tilted heavily on the left side and the altitude dipped steeply, combined with violent shuddering of the plane’s body, during the course of the flight.

Apparently Narendra Modi called up Gandhi after the incident. I imagine his concern was genuine. These two men should love each other, because they need each other. Modi needs Gandhi because he wants to destroy the Congress, and a weak leader like Gandhi is helping the process along. Gandhi needs Modi because he does not have the skills to come to power on the basis of his own personality, but an anti-Modi wave could get him there.

Basically, the relationship between Narendra Modi and Rahul Gandhi should have BFF-status. You think they send each other cat videos?

India’s plagiarism policy is facepalm

I could’nt believe my eyes when I read in this week’s Science magazine. Here’s an excerpt from Pallava Bagla’s report on UGC’s new plagiarism policy:

The new policy creates four tiers for addressing plagiarism, which is defined by UGC India as “the practice of taking someone else’s work or idea and passing them as one’s own.” The first tier, for what it calls “similarities up to 10%,” would carry no penalty. The second tier, in which 10% to 40% of a document is plagiarized, would require students to submit a revised manuscript and force faculty members to withdraw the plagiarized paper. In cases where 40% to 60% of the document is plagiarized, a student would be suspended for a year and the faculty member would forfeit an annual pay raise and be prohibited from supervising students for 2 years. Students who plagiarize more than 60% of their thesis would be kicked out of the program, while the penalties for faculty members would be extended to a loss of 2 years of pay increases and a 3-year ban on supervising students.[Science]

This is not lenient. It’s breathtaking. By failing to seriously penalise persons who copy as much as 40% of their work, the UGC is effectively condoning massive levels of plagiarism. Whether or not universities are able to catch and act against those who plagiarise, the signal this sends to students and the academic community is perverse. It’s telling them — “it’s okay to copy!”

Now, plagiarism is rampant in Indian academia, a manifestation of the rot that has set in our education system and intellectual life. Instead of attempting to stem that rot and turn things around, the UGC seems to have decided that it might as well legitimise the copying culture. This, to put it mildly, is not expected of the regulator of higher education.

Plagiarism is theft. Condoning theft perverts the settings of the moral compass of young minds. The cascading effects of this will be disastrous for Indian society.

What should the UGC have done? Set the plagiarism threshold very low. The tiniest plagiarism fetches a warning. At 10% you get kicked out. Then announce a transition window of two years to allow everyone to understand and adjust to a new, stringent regime.

As it stands, the proposed plagiarism policy is not, as V S Ramamurthy asks, merely “a joke”. It’s a license to copy.

Small Decisions, Large Effects

Do humans make environmental history or does it make us? I recently came across a paragraph in Sunil Amrith’s Crossing the Bay of Bengal which captures the beauty of migration between India and South-East Asia. Here it is,

“Blood and dirt” gave the frontiers of Southeast Asia their dynamism— the human suffering of migrant workers reshaped the land. We tend to think of environmental history as something that happens to us. Environmental history on the largest scale is made by the forces of nature that shape human society: human beings are “biological agents” alongside plants and pathogens, competing for supremacy. Alternatively, we think— anthropocentrically—that environmental history is driven by the state, particularly in its modernist incarnation in a drive to conquer nature and make it productive at any cost. But what would it mean to turn this around, to think of those who crossed the Bay of Bengal as agents of environmental transformation? They crossed the sea to alter the land. Small decisions within families, small acts of coercion—the motive force of debt, or the glitter that adorned the kangany’s promises— accumulated to shift the “metabolic balance” of the Bay of Bengal.

No sermons, no carrots, only sticks

The Reserve Bank of India on April 6th prohibited banks from:

dealing in Virtual Currencies or from providing services for facilitating any person or entity in dealing with or settling Virtual Currencies.

This is not strictly a ban on people from mining bitcoins or possessing them. Perhaps, it’s not even possible for RBI to enforce that ban given the decentralised nature of cryptocurrencies. Nevertheless, prohibiting banks from dealing with any cryptocurrency is symptomatic of how quickly governments resort to blunt policy instruments in India.

Carrots, Sticks, and Sermons has a wonderful classification of policy instruments. It argues that any government primarily has three policy instruments available to it: information (moral suasion, transfer of knowledge, communication of reasoned argument, advice, and persuasion etc), economic instruments (grants, subsidies, charges, fees etc), and regulation (absolute bans, prohibition with exemptions, obligation to notify etc).

Now, which of these three policy instruments should governments choose? The book has this to say:

All other things being equal, in most cultures at least, the use of coercive power is more alienating to those subject to it than is the use of economic power, and the use of economic power is more alienating than the use of information and exhortation. Or, to put it the other way around, exhortation and information tend to generate more commitment than economic instruments, and economic instruments more than regulatory instruments.

The book says that even politically, it is rewarding if these three instruments are applied in a sequence:

politicians have a strong tendency to respond to policy issues (any issue) by moving successively from the least coercive governing instrument to the most coercive. The idea is that over time a policy problem is tackled in three different ways: first by the provision of information such as uttering a broad statement of intent, subsequently by the application of selective incentives, and lastly by the establishment of regulations accompanied by the threat of sanction. The underlying notion is that in solving social problems the authorities employ instruments of increasing strength in successive stages.

But is this order followed in India?

It would take a thorough study to investigate this. But if the regularity of prohibitions is taken as an indicator, it appears that even if this order is adhered to, the predilection in Indian policymakers is to pick the coercive option fairly quickly. And this says a lot about India. It can be taken as a proxy for how liberal political philosophy is stillborn in India. A liberal society would default to a minimal constraint principle – cause as less trouble to the populace as possible. Policy instruments are ends in themselves as they determine the style of policymaking in a polity. So, a high number of bans and prohibitions indicates that at the margin, greater government control is the default in India. Seen through this lens, the RBI note does not surprise.

Inefficiency in Toilet Construction

There have been a series of infographics that have been circulated to show that the NDA government has performed better than its political rival, the UPA. One of these images deals with the number of toilets constructed and the amount of money spent on toilet construction.

 

According to its own data, the NDA government has spent nearly 3.5 times more for construction of one toilet.

If the data is true, the NDA government has clearly done better on both counts. However, what the numbers betray is that the NDA has also spent more money per toilet, thus indicating inefficiency or worse. The UPA has spent Rs.1750 per toilet and the NDA has spent nearly 3.5 times more per toilet – Rs. 6176.

The Real Parliament Washout

It is a national shame that our parliament is not functioning. But does it make a difference when it was made irrelevant in 1985?

The anti-defection law in 1985 made it impossible to vote across party lines. That meant that parliamentary debate was moot, and the quality of our discourse dipped. Why should MPs even be physically present, when one could conduct the vote as per an excel sheet?

That is the case my friend Barun Mitra made in a conversation with me on an old episode of The Seen and the Unseen. Listen in!