Petroleum Products - Price Hike

The Indian government has increased the prices of petrol by Rs. 3:50, kerosene by Rs. 3:00, diesel by Rs. 2:00, and cooking gas cylinder by Rs. 35.

Now, nobody likes prices going up and hitting their monthly budgets. But let me congratulate the team at the Center for this bold move. One, for the mere fact that this was a bold move, per se. How many parties can think beyond votes and take such a measure which is definitely not a populist one. There are parties who give cows, goats, hen to people and try to get votes. I really salute you for taking such a bold decision.

Now if you are asking, Ramesh, have you gone mad. Wait a minute. I did a little research and found out various details. Let me discuss those. Let me just break up this news further.

Before I begin, let me also tell you that I don't support any political party in particular. Will write about everybody - good if they’ve done good, bad if they’ve done bad. Of course, individually I do like a few politicians from all the parties. Okay, let me leave that for another day.

Weren't we all very happy when recession did not hit India at least the way it did US, Europe and others? If we need to see that again in the future, we need to bear these small pains. India's fiscal deficit last year was around 8%. Right now one of the prime targets for the Center is to bring down this to their 2010-11 target of 6%. Yes, the government did win a lot to its kitty via the 3G and wireless broadband bids. Now this is another way for them. And this news has been doing rounds since long. But who will bell the cat was question. Just like nobody dare to touch the caste reservations (though all know it is high time to take them off - but votes!!!!), this also was something like who will do it. Finally, Team Pranab Mukherjee has done the so call inevitable.

Indian government has been subsidizing petroleum products spending to the tune of $16 billion a year. Something like a shopkeeper buying an item for Rs. 10 and selling at Rs. 7. How long will he be able to run is business is anybody's guess. Of course, petroleum companies were also bearing the brunt. OK, now something is subsidized to help the poor, not the rich. Let's scrutinize each of today’s news separately and see how it affects the poor.

1. Increase in cylinder price by Rs 35:

The Kirit Parikh Committee actually has recommended Rs. 100 increase per cylinder to the government. I guess the remainder is on the way. How many of us know that around Rs. 250 subsidy is given by the government for each cylinder? Does this subsidy help the poor? Less than half of India's population uses cooking gas. And that of course will be the middle class and upper class. So what logic in this subsidy?

2. Petrol Price increase by Rs. 3:50:

What point in giving subsidy to people who own cars and bikes and who get this subsidy? Where does the poor come into picture here???

3. Kerosene price increase by Rs. 3:00:

Here of course, poor comes into the picture, but again not much. Most of the kerosene is bought by middleman at subsidized rate and sold again at higher rates outside the government's control. Yeah but of course a small (very small) number of poor people will be affected by this move. The govt. should consider this fact. Though remember, the really poor still use firewood today.

4. Increase of diesel price by Rs. 2:00:

One of the issues that this Govt. is trying to tackle (and they have been failing miserably) is the issue of inflation. When food inflation maintains an upward trend, this move might further take it up. This is an area govt. needs to be really careful. It's all better if govt. takes this back for the time being, wait till the inflation drops, and then take an appropriate decision.

5. Deregulation of petrol prices:

Meaning companies will now have the say on the price of petrol and that will be directly related to the international crude price, a move intended to bring down heavy loses incurred by the petroleum companies, which of course is a good thing. But was just wondering if we will get to see some price tariff wars between the companies and consumers finally emerging the ultimate winners, just as what has happened in the telecom industry! Well we’ll have to wait and see.

So, all in all, not bad moves, though some, as I mentioned, needs a re-look at this time.