Wednesday, May 23, 2012

Hike in Petrol Price – A Welcome Move

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The other day a German Professor visited our University. I was taking him around different places in and around the University and he noticed the acute power shortage experienced in Tamil Nadu. He made a passing comment “When you (government) give something (power) so subsidized, this is what is going to happen in the long run. Government will not have resources to build new power plants and power shortages will be order of the day”
Yes we enjoy lot of subsidies and most of the time believes that it is our birthright to enjoy these subsidies. It is high time we change our view on subsidies especially those people who earn a six digit monthly salary.
If there is a shop, where a product is procured for Rs X and the same product is sold for Rs (X-5), can that shop survive for long? Not at all. That is what is happening in the oil sector also. Petrol prices are linked to the global market and government cannot always buy the product at market rate and sell it at a much lower price. Yes, for the economically weaker section the government has an obligation to provide some subsidy but for people who can afford why should they be given subsidy?
Same should apply to all subsidies. Right now government is providing close to 50 % subsidy on cooking gas cylinders. There are lots of people who can afford to buy the gas cylinders at normal market rate. Why do they be given subsidies and in turn burden the government? There was a proposal few months back to limit the subsidy to 4 gas cylinders which was a great move. I am not sure what has happened to that bill but I feel such rules should be made into law.
If one wants to see India as a super power, it is essential that all the subsidies be phased out. It is good to start with the petroleum sector and in this regard the hike in petrol prices is a step in the right direction.
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20 Comments:

Blogger vivekstanley said...

1) We do enjoy subsidies, but are we not heavily taxed?

2) Do we really need the government to do everything; from generating electricity to buying oil? Had the government restricted its responsibility to protecting the property and life of its citizens, we would have had a more efficient & effective system. (The current system anyway being a fail in helping the needed, the poor can be helped with voluntary contributions.)

3) The current fuel price rise is due to the fall in rupee, which is due to our trade deficit which got exposed because foreign investment halted. The responsibility for that belongs to UPA II and its governance deficit!

May 23, 2012 8:54 PM  
Blogger സുശീലന്‍ said...

But there should be accountability, how come Sreelanka and Pakistan which does not have any oil refineries in their land able to provide petrol at a less price. Last week oil price was lowest but now we are paying almost 100 rs for petrol. Is there any measures to check how oil companies are running on lose.

May 24, 2012 3:48 AM  
Blogger സുശീലന്‍ said...

But there should be accountability, how come Sreelanka and Pakistan which does not have any oil refineries in their land able to provide petrol at a less price. Last week oil price was lowest but now we are paying almost 100 rs for petrol. Is there any measures to check how oil companies are running on lose.

May 24, 2012 3:48 AM  
Anonymous Adel Anwar said...

Well fuel in India was never subsidized. Do you have any idea how much tax we pay for a liter of petrol? We're one of the few nations that pay a high price for fuel.

May 24, 2012 3:53 AM  
Anonymous Anonymous said...

So are you a Congress supporter or you drive a Diesel car .Or is it both

May 24, 2012 3:59 AM  
Blogger lumiaprice said...

So Mr. Nair what about schemes like MAHANAREGA and food security and all these things?
why not scrap off these too... thse not helping any cause of poor in India, are they?

May 24, 2012 4:00 AM  
Blogger Jay Jani said...

After all this gaga on subsidies, how the hell do you suggest the hike in price is a good move ??
Its a complete failure and mismanagement of policies that is putting a heavy burden on the common man.

May 24, 2012 4:07 AM  
Anonymous Udit Seth said...

Sir
I do appreciate your views, yet having certain reservation.

Firstly, supply subsidy to the ones needful and not who want the subsidy. In my opinion, on a policy level, it is not a simple task to bifurcate the two above. Not easy to understand who need it and who wants it. Moreover, such a bifurcation is violative of Article 14 of our Constitution. I've known supposingly rich people, surviving on LOAN. Should we, or can we classify these people as the ones needy of subsidy. Such will result to disparity among the two groups. Further, now people are craving for SC/ ST/ OBC tag, the new bifurcation will result to further chaos.

Then on aspect of price of petrol. As far as my limited reading goes, substantial tax is levied on petrol, thereby leading to most of the high price. Since tax and export is dealt by two exclusive departments, the funds are not going where they should. Most of the tax is state imposed, hence the differentiation in various state petrol prices. Goa it is 60, Karnataka it is 78.

I too support high Petrol prices, but by an angle of Piguvian Tax.

For a common man, who earns a wise living for his family, petrol prices are a hinderance, but why should a rich lad, riding his low mileage bike to his college is suffering. Petrol is both a nessity and a luxury.

May 24, 2012 4:22 AM  
Anonymous Kaushik Ghoshal said...

Mr. Brijesh, prima facie you are right. But, at the same time you should also come up with an article on how our money, tax payurs money is efficiently/inefficiently utilised by the government. Check what percentage of intended mass is benefitted by it and reasons behind. Remember hikes always effect middle class, doesn't effect the lower and six digit or more strata of society. And, there has to be a limit to this. Every hike on single product has cascading effect on many layers of daily life and that becomes unbearable for a common man.

May 24, 2012 4:27 AM  
Anonymous rahul said...

good one brother

May 24, 2012 5:07 AM  
Blogger Abinas Bangalore said...

Trust me!"Hike in petrol price gonna increase the value of rupee against dollar,hence it gonna bring down the inflation rate!!

May 24, 2012 6:03 AM  
OpenID polevaulterdonkeyman said...

1. Are you claiming that hike in petrol price is due to removal of subsidies?

2. Petrol has always been taxed to SUBSIDISE diesel & kerosene. The price rise is to subsidise diesel & kerosene

3. Article provides only comparative prices of petrol btwn diff countries. Where is the data regarding subsidies?

4. tax on petrol in Norway is NOK 4.62/l (road use) + NOK .88/l (Co2) = NOK 5.5/l ~ INR 50/l http://t.co/bXyo10wr

5. tax on petrol in the Netherlands is 0.684 e/l + 19% VAT ~ 0.820 e/l ~ INR 55/l http://t.co/ycPrWKpM

6. tax on petrol in Sweden is SEK 6.875/l ~ INR 54/l http://t.co/XGC4Z6tG

7. The article pretends that petrol in India is cheaper because of govt subsidy. The truth is that petrol in India is cheaper because other countries tax the hell out of it. Decreasing the subsidy on a product does not mean increasing the tax on it. Do you mean that a low tax rate = subsidy by government? If so you are essentially implying that any tax rate which leads to consumer retaining any amount of money = subsidy. E.g. if A costs Rs 100 and govt taxes it at 50% = Rs 50 then govt is subsidising purchase of A since it is not charging 90% tax = Rs 90 (i.g. govt is subsidising by Rs 40)

May 24, 2012 6:17 AM  
Blogger Rider on the Storm said...

Unbelievably flawed. What about comparisons with Advanced countries where in petrol prices are < Rs.20pl.

Where is the consideration of salary scales? You fail on this factor completely. Most of the countries have $3000 as salaries with $100 per full fuel tank. Where as we have avg salaries of Rs.15000, with Rs.4000 per fuel tank. Does it even make sense to make such a comparison.

Till we reached similar salary scales, any reference or comparisons to super powers are flawed.

May 24, 2012 6:23 AM  
Anonymous qweqwe said...

I think you need to get your facts right before writing a blog. Subsidy on petrol was removed last year. Now Petrol is taking the bullet for diesel and LPG.

May 24, 2012 6:36 AM  
Blogger Lozil said...

Yes you got Some Juice in the Statements. But Try answering these.

1. Why We pay Tax?
2. Why We Pay Tax again on Petrol?
3. Why Can't government reduce tax on Petrol with the Commodity price Hike.
4. Why We Pay Road Tax for Vehicles?
5. Why are we Taxed at every Place but never get anything other than Scams?

May 24, 2012 6:44 AM  
Anonymous Anonymous said...

I share the same view. Its easy and normal for anyone to register their protest.but nobody thinks what lead to a price rise. And the only solution that comes to our mind is subsidy and tax cut. How can an economy grow without income? The fall in ruppee value, cut down on iranian crude, depleting oil reserves are I believe the prime reasons. And its just going to increase in this manner in the near and distant future mainly due to depleting resources.

May 24, 2012 7:09 AM  
Anonymous Anonymous said...

The long term political scheme of keeping at least 50% of the population poor in order to benefit political parties will suffer with the lift in subsidies. The govt will now be forced to uplift the masses as it will no longer will be afford subsidies. This might just lift a lot of people above poverty line to middle income groups.

May 24, 2012 7:15 AM  
Blogger REBEL said...

May 1,2012 Cost of Brent crude was at $124/barrel and then Re was at Rs50/$1

To import 1 barrel of crude = 50 x 124 = Rs 6200

Today Brent crude is at $109/barrel and Rs/$ is Rs56

To import same 1 barrel of crude = 56 x 109 = Rs 6104

Cost price of petrol per litre is Rs 82, following is the break up of cost calculated by the government.

▪ Basic Price: Rs 40.28 ▪ Excise duty: Rs 19.98 ▪ Education Tax: Rs 0.60
▪ Dealer commission: Rs 1.46 ▪ VAT: Rs 7.66 ▪ Crude Oil Custom duty: Rs 1.53
▪ Petrol Custom: Rs 2.14 ▪ Transportation Charge: Rs 8.35 ▪ Total price: Rs 82

Company Basic Price calculation – Considering that the current price of crude oil is $109 (on 23 May 2012) per barrel, cost of per barrel in RS will be 109*56 ($1 = Rs 56 as on 23 May 2012) = 6104.One barrel consists of approximately 160 liters. So Price of crude oil per liter will be 6104/160 = Rs.38.15.

Now Indian Oil Company makes 2.13 Rs per litre (Rs 40.28-38.15).

Only FM and PM knows how this Re depreciation has forced them to increase the petrol price by Rs8 as per my finding we can see 1.5% price drop since May 1, 2012

Somebody has to ask PM and FM how they are calculating the petrol price.

May 24, 2012 9:57 AM  
Anonymous Rahul said...

Who cares? Petrol is a khaas luxury. It is not the aam aadmi's commodity. People who are fighting against the petrol hike are fighting for the khaas aadmi. There are people in this country who die for want of water. If a few people feel the heat of the petrol hike, so be it!

May 24, 2012 3:38 PM  
Anonymous Arun said...

Petrol is not a subsidised commodity. What the government does is just fix price on petrol for the OMCs to follow. The difference between the so called market price and the price fixed by the govt is not reimbursed to the OMCs by the govt. And this price hike is not because of the so called market driven price but because of the falling value of the ruppee. The value of ruppee falls because of our trade and fiscal deficit. This fiscal deficit is caused primarily by gold imports!!! Who buys gold? predominantly rich people. So in essence by increasing petrol price we are not acting on the problem at hand.

May 24, 2012 3:38 PM  

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