Its Out...Finally!....After weeks of deliberation and pussyfooting around, the Ministry of Finance and the Petroleum Ministry have got together and reached a consensus on the fuel price hike. The announcements today include:
Hike in Petrol - Rs. 5/ Litre
Hike in Diesel - Rs. 3/ Litre
Hike in LPG - Rs. 50/ cylinder
NO Hike in Kerosene
Customs Duty on Crude - Down to 0% from 5% (Ad Valorem)
Customs Duty on Petrol and Diesel - Down to 2.5% from 7.5%
Customs Duty on Other petroleum products(including ATF) - Down to 5% from 10%
So after doing all these permutations and combinations, balancing everyone's interests and keeping their own face, the government has anounced this move. Predictably, politically, they are being stoned. BJP calls it "Economic Terrorism" and CPM cals it Unacceptable. But the fact of the matter is that the so called aam aadmi seems to think that the government is walking a tight rope. World Crude oil prices have gone up by 100% in teh past one year and it is NOT possibe for the government to insulate the final consumer from this. Which is fair enough. I couldnt agree more. But this is where my agreement with this situation ends.
For every litre of petrol/diesel sold, the government gets 50% in the form of some or the other tax/duty. That means in Pune, against every litre of petrol sold, the government gets Rs. 25(before the hike) in their kitty. Thus for every increase, half of that is going to back to the exchequer anyways. Highway robbery?
Also, why should the oil marketing companies be profit oriented units? Why should they be listed on the stock exchange and their performance be monitored? Petrol/Diesel is the one of those rare commodities whose demand is inelastic..It doesnt follow the standard demand curve. So whatever the enviornmental factors, the market for these oil companies (PSUs) is going to to remain static at the least. But looking at the data of the number of vehicles being put out on the road every year, there is only one way the demand is going..UP!! So they have no performance pressures. They are bound to attain a Year on Year growth and sustain themselves.
If you want to treat these companies like any other company, then there should be no sops handed out to them. If they are running losses, they have to look at ways in means to resurrect themselves. And iam sure they can. Otherwise, delist these companies off the stock exchange, make them into non profit organisations and then see the difference.
Reducing the amoount the government gets from the sale of these products will ensure that everyone(except the fat cats in the government) are happy. The oil companies get a just price and so does the consumer. But then how will each MP go on a foriegn trip each year? No sir..The taxes stay!
The Prime Minister today felt the need to address the nation regarding the fuel price hike. Seeing that address made me feel like I was sitting for a infomercial of the UPA government. The honourable PM went on rambling about all the successful missions/programs that this government has put out in its tenure. This was like trying to soften the public up before he dealt the blow of the fuel price hike. Also, he appealled to the public to "co-operate" with the government and reduce our consumption of fuel. Well Dr. Singh, I think giving two bit MLAs a convoy of 15 cars is THE way of conserving fuel. Bravo!!
To conclude, as i mentioned in my previous blog, the classical economic equation is not being followed by our great economists. The government is increasing expenditure and then looking for ways to generate additional income. Doesnt the quation work in reverse? Ateast, thats what i was taught..Pity, theory never gets applied in practice!
Hike in Petrol - Rs. 5/ Litre
Hike in Diesel - Rs. 3/ Litre
Hike in LPG - Rs. 50/ cylinder
NO Hike in Kerosene
Customs Duty on Crude - Down to 0% from 5% (Ad Valorem)
Customs Duty on Petrol and Diesel - Down to 2.5% from 7.5%
Customs Duty on Other petroleum products(including ATF) - Down to 5% from 10%
So after doing all these permutations and combinations, balancing everyone's interests and keeping their own face, the government has anounced this move. Predictably, politically, they are being stoned. BJP calls it "Economic Terrorism" and CPM cals it Unacceptable. But the fact of the matter is that the so called aam aadmi seems to think that the government is walking a tight rope. World Crude oil prices have gone up by 100% in teh past one year and it is NOT possibe for the government to insulate the final consumer from this. Which is fair enough. I couldnt agree more. But this is where my agreement with this situation ends.
For every litre of petrol/diesel sold, the government gets 50% in the form of some or the other tax/duty. That means in Pune, against every litre of petrol sold, the government gets Rs. 25(before the hike) in their kitty. Thus for every increase, half of that is going to back to the exchequer anyways. Highway robbery?
Also, why should the oil marketing companies be profit oriented units? Why should they be listed on the stock exchange and their performance be monitored? Petrol/Diesel is the one of those rare commodities whose demand is inelastic..It doesnt follow the standard demand curve. So whatever the enviornmental factors, the market for these oil companies (PSUs) is going to to remain static at the least. But looking at the data of the number of vehicles being put out on the road every year, there is only one way the demand is going..UP!! So they have no performance pressures. They are bound to attain a Year on Year growth and sustain themselves.
If you want to treat these companies like any other company, then there should be no sops handed out to them. If they are running losses, they have to look at ways in means to resurrect themselves. And iam sure they can. Otherwise, delist these companies off the stock exchange, make them into non profit organisations and then see the difference.
Reducing the amoount the government gets from the sale of these products will ensure that everyone(except the fat cats in the government) are happy. The oil companies get a just price and so does the consumer. But then how will each MP go on a foriegn trip each year? No sir..The taxes stay!
The Prime Minister today felt the need to address the nation regarding the fuel price hike. Seeing that address made me feel like I was sitting for a infomercial of the UPA government. The honourable PM went on rambling about all the successful missions/programs that this government has put out in its tenure. This was like trying to soften the public up before he dealt the blow of the fuel price hike. Also, he appealled to the public to "co-operate" with the government and reduce our consumption of fuel. Well Dr. Singh, I think giving two bit MLAs a convoy of 15 cars is THE way of conserving fuel. Bravo!!
To conclude, as i mentioned in my previous blog, the classical economic equation is not being followed by our great economists. The government is increasing expenditure and then looking for ways to generate additional income. Doesnt the quation work in reverse? Ateast, thats what i was taught..Pity, theory never gets applied in practice!
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