The government was dragging its feet for long on the subject of freeing diesel pricing and eliminating subsidies but when it did act last week, it got its policy all wrong. Oil companies have been given the freedom to charge market price for diesel supplied to bulk consumers such as the railways and state transport corporations while prices at the pump level will move up marginally. Retail prices will eventually catch up with the market, assuming that the oil companies raise prices at regular intervals. Market pricing for bulk consumers may prune the subsidy bill of the government significantly but it is a perverse policy because those who deserve the subsidy — the poor and lower classes who use public transport — will now be forced to part with more money for their daily commute or travel. State transport corporations will have no option but to pass on the higher fuel costs to their passengers given their already fragile financial state and the inability of fiscally-strapped State governments to reduce excise; the Railways have already increased fares and train tickets will anyway cost more from today. The perversity of the government’s decision will be evident if one considers that those who drive passenger cars — including high-end SUVs — that run on diesel engines will continue to enjoy the subsidy and pay at least Rs 10 a litre less than the bulk consumers. At the best of times, this is not a segment that deserves to be subsidised by the government. But for rich motorists to benefit when poor commuters are penalised upends all notions of equity.
The government seems to have gone for a politically expedient and administratively simple solution as opposed to other, more contentious but equitable options to reduce its subsidy burden and keep its own finances in shape. A cess or higher excise duty on diesel cars and SUVs that guzzle up subsidised fuel would have addressed the twin issues of reducing the fiscal burden of subsiding diesel while also eliminating the economic rent derived by passenger car manufacturers who price diesel vehicles at a high premium to petrol ones. This rent is a direct product of the higher demand for diesel cars compared to petrol due to the large price difference between the two fuels. Alternatively, the government could have seriously examined the feasibility of introducing dual pricing whereby trucks and cars can be charged differently with the former alone enjoying the subsidised price. The final option, of course, would have been to free prices across the board with only the Railways and state transport corporations allowed supplies at a subsidised price. Such a move would have ensured equity by ensuring that those who use public transport are protected while private, individual transport is made to pay the market price.
For Russia and the United States, this year began with a new row that revived the atmosphere of a Cold War and deepened the political crisis in Russia.
As 2012 drew to a close the two countries adopted legislation penalising each other for alleged human rights abuses. Shortly before the New Year, U.S. President Barack Obama signed into law a bill that blacklists Russian officials allegedly implicated in the death of Russian lawyer Sergei Magnitsky and in other “gross violations of human rights.” The 37-year-old lawyer, in 2009, died in a Russian prison where he was sent to by some Interior Ministry officials after blowing the whistle on their multi-million tax scam.
Russia hit back by adopting an “anti-Magnitsky” law that not only mirrored American sanctions but also banned U.S. adoptions of Russian orphans. It is for the first time in the history of their relations that Russia/the Soviet Union and the U.S. have resorted to blacklisting each other’s citizens on the basis of their human rights record.
In the opinion of Russia’s Foreign Minister Sergei Lavrov, the Magnitsky Act was a Republican conspiracy to destroy Mr. Obama’s “reset” policy of constructively engaging Russia. The U.S. Congress adopted the Magnitsky Act on the same day it finally repealed the four decades-old Jackson-Vanik amendment, which required Russia to undergo every year a humiliating certification of its human rights record to qualify for normal trade relations with the U.S.
Russian President Vladimir Putin called the U.S. move a “slap” in Russia’s face.
“Why does one country feel entitled to extend its jurisdiction to the entire world? This undermines the fundamental principles of international law,” he told a press conference last month.
Americans, who “keep people jailed for years without being charged” at Abu Ghraib and Guantánamo and who “have legalised torture in their own country,” have no business lecturing Russia on human rights, the Russian leader said.
Leaving the door ajar
Despite Russia’s anger, its response to the Magnitsky Act was largely a symbolic gesture that did not really hurt U.S. interests. Hardly any American officials will be harmed by not being able to travel to Russia or keep their money in a Russian bank. Analysts were quick to note that if Mr. Putin really wanted to hit the U.S. where it hurts he could have imposed restrictions on American companies in Russia or shut off U.S. logistics lifelines to Afghanistan that run through Russia. By sparing U.S. interests, Mr. Putin sent a signal that Moscow is still open to doing business with Washington.
However, the U.S. sanctions and the Russian retaliation badly poisoned the air between the two countries. Both sides promised to keep adding new names to their blacklists of persona non grata.
“The ‘reset’ is unravelling at the seams,” said political scientist Boris Shmelyov. “The two countries are a step or two away from a new round of the Cold War.”
Adoptions and Putin’s image
The ban on American adoptions of Russian orphans, especially children with disabilities, hardened Mr. Putin’s image in the West as a cruel and vindictive autocrat, who used children as hostages in his political disputes with Washington. Critics said that for tens of thousands of Russian disabled orphans, foreign adoption was the only chance to find a family. Russians almost never adopt such children as they need expensive treatment and rehabilitation that are not available in Russia for free. Children with serious health problems accounted for a fair share of more than 60,000 Russian orphans adopted by Americans over the past two decades.
Mr. Obama will now come under increased pressure from the Congress to put human rights at the top of his Russia agenda. Several European countries are weighing the option of adopting their versions of the Magnitsky Act.
While the Magnitsky Act was driven by U.S. political battles, the “anti-Magnitsky” law had more to do with Russian domestic politics than with foreign policy. Apart from outlawing U.S. adoptions, the Bill allows Russian authorities to ban “politically-active” non-governmental organisations (NGO) that receive American funds or engage in activities that “represent a threat to the interests of the Russian Federation.” It also bars Russians who also have dual Russian-American citizenship from participating in political NGOs. Mr. Putin thereby sought to kill two birds with one stone: strike a blow against his foes and boost popularity among his conservative constituency by stoking anti-Americanism. In a recent poll, more than 75 per cent of Russians said that they supported the ban on American adoptions of Russian orphans.
At the same time the adoption ban met with indignation among the more enlightened middle classes and reignited urban protests that were sparked by Mr. Putin’s decision to reclaim the presidency last year. Up to 30,000 demonstrators marched through central Moscow earlier this month denouncing the ban as “cannibalistic” and branding its advocates “scoundrels.”
Attempt at consolidation
Analysts said Mr. Putin is trying to firm up his grip on power by pitting the conservative working class provinces susceptible to manipulation by state-run television against the increasingly Opposition-minded big cities.
The Kremlin “hopes to consolidate sections of society on the issue of foreign encroachment on Russia’s sovereignty,” said analyst Dmitry Oreshkin. “The Kremlin narrative is: ‘there are enemies all around, so we must rally around our leader’.”
However, Mr. Putin’s tactic had a bad downside: it provoked a split in the Russian elites. For the first time in recent history, several senior ministers, including a Deputy Prime Minister and the Foreign Minister, registered their opposition to the orphan adoption ban on the grounds that it violated Russian and international legislation. The disagreement was apparently not serious enough for any of the ministers to resign, but it may be just the tip of an iceberg.
One section of the elite — modernisers — favour liberalisation and foreign investment to speed up growth¸ while the other more conservative section, dominated by security cadres, fear that greater openness to the world would undermine their positions in power and therefore advocate tightening the screws on the Opposition and building new walls between Russia and the West.
“The conflict that has long been brewing in society has now spilt over to the ruling elite, which until a few months ago was united,” said billionaire Mikhail Prokhorov, who last year ran for President and set up his own party, Civil Platform.
Mr. Putin, who had long played the role of above-the-fight arbiter for rival power groups, is now seen to have joined the conservatives. Experts said his demonstrative refusal to investigate and prosecute the officials blamed for Magnitsky’s death showed how much he treasures the support of security clans, while the adoption ban demonstrated how little he cares for his international reputation and Russia’s relations with the West.
The “anti-Magnitsky” law “is a catastrophe for Mr. Putin. The road taken by the Kremlin will soon lead to a real crisis of his legitimacy,” said Gleb Pavlovsky, a former Kremlin PR strategist.
Driven by political one-upmanship at home, Russia and the U.S. are hitting out at each other with domestic legislation