India is the first major economy to present an annual budget since the disruption of oil production in Libya. Plans for the economy in 2011/12 revealed earlier today surprised observers by making no provision for volatile oil prices.
Finance Minister, Pranab Mukherjee, is bound to be challenged for speaking for almost two hours without a single reference to the subject. The price of oil has increased by more than 35% over the last year.
Like many countries with predominantly poor populations, India holds down prices of food, fuel and fertilizer through subsidies. In the last financial year these subsidies accounted for 12.5% of government expenditure, rising sharply in recent months as the oil market spiked.
Representing the world’s largest democracy, the Indian government is acutely aware that 80% of its population of 1.2 billion survives on less than $2 per day. Rampant inflation in food and other essentials means almost certain political death at the hands of the electorate.
Last Wednesday New Delhi was the scene of noisy anti-government protests organised by the trade union movement. Failure to combat inflation by negligent and corrupt government ministries was the call to action.
Annual food price inflation in India is already running at 10%. Rising fuel prices may make matters worse through higher transport and fertilizer costs.
Many observers anticipated that Mr.Mukherjee would make provision for increased subsidies to assist the poor, taking the risk of a deeper fiscal deficit.
The minister is gambling that good harvests in 2010 will be repeated this year. In his speech he departed from traditional budget rigour in conceding that: “like last year, I seek the blessings of Lord Indra to bestow on us timely and bountiful monsoons.”
Other developing countries may be less trusting to fate. But they will also look to India for pointers on the shared challenge of reducing dependence on oil. The budget speech did hint at a new emphasis which may alarm environmentalists.
As for many countries in Africa, the cheapest and quickest escape from oil for India is to accelerate exploitation of its ample coal reserves.
Such a move would undermine the country’s pledge to the UN Framework Convention on Climate Change to reduce the energy intensity of GDP by 20% between 2005 and 2020. Coal reserves also tend to be located in protected forest regions.
India does not lack for alternative advice on how to kick the oil habit. Towards a Green Economy is the title of a major report published by the UN Environment Programme last Monday.
It encourages developing countries to abandon subsidies of fossil fuel products and grasp the nettle of low carbon investment. UNEP claims that “the report comprehensively challenges the myth of a trade off between environmental investments and economic growth.”
The events of a busy budget week in New Delhi suggest rather more nuanced thinking by the Indian government. “A developing country like ours must find ways to strike an appropriate balance between environmental imperatives and developmental needs,” warned Indian President Pratibha Patil.
Her speech marked the ceremonial opening of the parliamentary budget session which took place on the same day as the UNEP report was released.
Mukherjee repeated this sentiment in his budget presentation and then went further: “A Group of Ministers has been set up to consider all issues relating to reconciliation of environmental concerns…..including those related to infrastructure and mining,” he said.
These statements are ambiguous in their intent but the choreography appears to be circling the embattled champion of India’s environmental movement, minister Jairam Ramesh. Famous for enforcing environmental laws in the teeth of powerful business interests, Ramesh has lately been accused of choking off economic growth with his green principles.
Within the Indian cabinet, this argument is most vigorously pursued by the Minister for Coal. Shriprakash Jaiswal is unhappy that Ramesh has banned the development of 203 coal blocks located in sensitive forest areas.
“Saving forests is indeed crucial, but not at the cost of compromising with the nation’s industrialisation and growth,” Mr. Jaiswal told a press conference on Wednesday.
Greenpeace India is alarmed that the environment minister may be unable to withstand an ambush by his colleagues. A staff blogger claims that Ramesh “has drastically reduced the areas demarcated as No Go zones.”
“What do you want: forests or coal?” is the current lead campaign of Greenpeace India. As the complex interaction between poverty, food and energy evolves over coming months, the question will have to be answered.
this article was first published in the OneWorld section of Yahoo World News