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Are the untested first-time ministers capable of reading the riot act to a headstrong civil service?

If I were to plot the price of petrol on June 2, 1998 on a graph, the result would look like Mount Everest -- a steep upward curve and an almost equally precipitous descent. How could all this happen in just a few hours? The answer is a tale of an utter lack of coordination combined with a headstrong bureaucracy.

On the night of June 1, 1998, Finance Minister Yashwant Sinha was quite content with the reactions to his maiden Budget. Despite the predictable croaks from the Opposition benches, Indian industry and trade were cautiously optimistic with the direction.

Sinha's pleasure was wiped out the moment he saw the newspapers the next morning. The headlines announced hikes in petrol prices working out to roughly four rupees a litre. Yet the previous evening he had announced a raise of merely one rupee per litre.

The finance minister's first reaction was to call his revenue secretary, N K Singh. The revenue secretary, like his boss, had gone to sleep fairly late, thanks to the incessant demands to appear on one post-Budget television discussion after another. When Yashwant Sinha's call woke him, he too was utterly taken aback upon hearing of the huge rise in prices.

How was it possible that petrol prices were hiked so steeply without the finance minister or any of his senior officers getting to hear of them? The lapse is so serious that the prime minister has ordered an enquiry. But the broad facts are already known.

The issue of raising prices was discussed well before the Budget, when the finance minister proposed cutting the import duty on crude oil by five per cent. It was decided that the excise duty on petrol would be raised to compensate the loss.

Several bureaucrats weren't happy with this. They wanted an across the board hike in the price of all petroleum products -- not just petrol, but also diesel and kerosene. Diesel prices, for instance, would have then risen by between 20 paise and 40 paise per litre. But the prime minister and the finance minister decided to stick to their stand.

Before going any further, some facts should be noted. First, in 1997 the United Front regime made a policy decision that henceforth petroleum product prices would be set by the refineries in consultation with the petroleum ministry. Second, the money raised through the finance minister's proposed hike would go to the refineries, not the Government of India.

So far, so good. The trouble began when the Central Board of Customs and Excise sent a note to the petroleum ministry, noting the proposed hike in the Budget speech and asking for "appropriate action." Unfortunately, it didn't spell out precisely what "action" would be considered "appropriate."

This opened up a window of opportunity to those who had pleaded for larger hikes. Though denied their wish to raise diesel and kerosene prices, they thought they would make up the deficit by boosting petrol rates.

As it happened, on the evening of Budget day there was nobody to rein in the bureaucracy. Yashwant Sinha and his officers had their hands full with the media. Vazhappady Ramamurthy, the petroleum minister, wasn't in Delhi. (And he hadn't asked for a clarification on "appropriate action" anyway.) The man on the spot was Gangwar, minister of state in the petroleum ministry.

Somewhere around midnight, Gangwar was presented with a note by some bureaucrats. By then misplaced ingenuity had made the one rupee hike merely the first in a cascading series of taxes, virtually quadrupling the proposed increase. Gangwar, in his first stint as a minister, was out of his depth. He signed on the dotted line.

To repair the damage, the finance minister called in all his officers at 9:30 am on June 2, angrily ordering them to roll back prices to the level he had announced. But by then several thousand consumers had already been fleeced.

Yashwant Sinha shielded Gangwar by accepting the moral responsibility for the mess. But his first Budget had already lost its sheen and no amount of remedial action would repair the damage.

But it wasn't just a public relations disaster. There are graver issues. First, how did communications break down between the finance ministry and a key economic department? Second, are the untested first-time ministers capable of reading the riot act to a headstrong civil service?

All this may sound a little unfair. I just hope that the new ministers are capable of learning from their errors.

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T V R Shenoy