When an incumbent government faces frequent elections, often on its own volition, one should expect politicians in power to take populist measures to appease the voting public. Some of these measures can be counterproductive from a long term development perspective. In the run up to the PC elections scheduled to take place next month, the opposition parties began their agitational campaigns, to win various concessions to the general public .When the pressure was building up against the high fuel price, the government quickly introduced a price reduction to defuse anti-government campaigns. The government also cut back some of the perks given to parliamentarians and cabinet ministers, perhaps as a temporary measure.

Now, if we take the reduction of fuel prices, this can certainly be counterproductive in the long run. It is true that a higher price for fuel enables the government to increase revenue and have more financial resources at its disposal. Yet, if the government uses public funds in an irresponsible and wasteful manner, a high fuel price can only undermine larger public interest. So, one could argue for a higher tax on fuel only if one can be sure that the revenue raised will be used to improve the life chances of the ordinary people rather than offer more perks to an ever expanding and enormously privileged, self-serving political elite.

Just because higher fuel taxes lead to wasteful government expenditure, one cannot agree that the solution is to lower fuel prices and pass the benefit to the consumer. Though the latter might appear to be the case on the surface, in the present global context, lower fuel prices can be damaging to public welfare in numerous ways. This becomes clearly evident if one examines the issue closely and critically.

Firstly, when the fuel prices were very low several decades back, car companies could sell any number of cars they produced, because more and more people could afford private cars. In fact, public transport was more expensive in countries like the United States and Australia. So it is virtually impossible to promote public transport when private transport is easily affordable.

Secondly, when petroleum products are cheap, it is not possible to develop alternative, renewable sources of energy because the latter can be more expensive. The down side of increasing use of petroleum products is the environmental damage it causes. It is not necessary to mention that environmental damage is detrimental to public welfare, a fact that is well established. Thirdly, cheap oil not only prevents the development of alternative, environmentally less damaging energy sources but also retards the development of more sustainable production systems, consumption patterns and systems of transport.

However, when oil price increases steadily as it happened a few years ago, people are forced to cut back not only use of oil but also consumption in general. This naturally contributed to an economic down turn or a recession. It is the recession that in turn, brought the price of oil down again over the last two years. Now the oil is cheap but many people have lost their jobs and /or assets and they can no longer benefit from cheap oil.

What is evident from the above is that the price of oil is integrally linked to many other socio-economic phenomena. It is not just another consumer item that should be given at the lowest possible price. The behavior of the price of oil has many ramifications that need to be carefully analyzed. This is particularly so in Sri Lanka because of the particular conditions prevailing here. We need to handle the oil issue more carefully.

It is natural for consumers to demand that oil should be made available at the lowest possible price. So, when higher taxes make oil more expensive, opposition politicians can easily mobilize the consumers to agitate for a price reduction. This is exactly what happened several weeks ago. Those who are dependent on cheaper oil for their livelihoods run into hundreds of thousands today due to certain unregulated or unplanned developments over the last two decades or so. While there are about 200,000 motor bikes and over 350,000 three wheelers in the country, the number of private cars has reached 850,000. All these people would like to have cheap oil.

The rapid expansion of the fleet of vehicles in the country is partly the result of a major policy failure and partly the increasing incomes of a large part of the population. When public transport services did not expand in keeping with the rising demand, more and more people began to resort to private transport. Instead of waiting for crowded buses and unreliable trains, more and people began to use motor bikes and three wheelers. Liberalization of imports led to a steady influx of transport equipment into the country.

Many people purchased three wheelers and began to hire them, initially in cities and towns, later even in remote rural areas. Today, three wheelers have become a menace in many large and small towns. There are dozens of three wheelers even in small villages with few hundred families. Hundreds of three wheelers are parked along busy streets, making it virtually impossible for pedestrians to freely move around in crowded cities and towns.

Do we know how many three wheelers we need for the country? Today, we have one three wheeler for every 57 persons in Sri Lanka. Thousands of young men who could engage in more productive activities can be seen waiting for hours looking for customers. When there are too many three wheelers, the drivers cannot earn a reasonable income. Since we keep adding more vehicles to the existing fleet, this situation can only get worse. So, the issue is obvious. If we leave it to the market, i.e. companies, we will have more and more three wheelers. No body knows how many three wheelers we nee for Sri Lanka. Per capita income of drivers will continue to decline, leading to widespread poverty among drivers. If they have no alternative jobs, they will continue to engage in the trade in spite of declining incomes.