June 08, 2006
 

Another petrol price increase

Crude oil prices went above $73 a barrel a few days ago, forcing the government to finally raise prices of petrol and diesel. Petrol now costs Rs. 55.15 in Bangalore, an increase of nearly 9%. Similar percentage increases resulted in other parts of India. However, Karnataka imposes the highest sales tax on petrol, making petrol here the costliest in India.

In December 2004 when I ranted about the bizarre cost of petrol and then wrote some Perl code to help me ensure that I didn't pay any extra money to the retailer, petrol cost Rs. 44.21 in Bangalore. So in 1.5 years, the price has gone up by 25%. That amounts to an increase of 16% per annum.

In contrast, world crude oil prices went from around $30/barrel to $70/barrel over the same 1.5 year period, an annual increase of 75%. The crude oil mix/basket that India imports currently costs around $68/barrel.

The government had little choice but to raise the prices. Yet, it chose to leave LPG and kerosene prices untouched, since raising those prices would apparently affect poorer and weaker sections of society. I don't understand why I'm being subsidized by the government for using a LPG cylinder at home. Even if the government increases the price by Rs. 50 per cylinder, I, and I dare say, millions of other folks who do not belong to the weaker and poorer sections of society, will be able to bear the hike. Effectively, the government's subsidization is untargetted. Those who earn five digit salaries per month and those who barely make a few thousand a month are paying the same for a cylinder of LPG.

The protests by several political parties is entirely expected. If the 'Cretinuous Commies'/'Loony Left', BJP etc. don't agree with the government's decision to increase petrol and diesel prices, what they ought to do is to ensure that prices remain unchanged in their states, by taking a hit on sales tax collections. Will they do that? I doubt it. So much so for empathizing with the people.

This 'Economic Times' report suggests that the government is at last about to let the oil companies take charge of pricing rather than having the government revise prices.

Around 10 months ago, I wrote about how the oil marketing PSUs were spending money on advertising, roping in celebrities as brand ambassadors etc. when the government should seriously thinking of merging the multiple companies into one single entity. I don't think that'll necessarily create a monopoly. In any case, it isn't as though there's perfect competition right now. Having one single PSU would probably create a more competitive playing field now that Shell, Reliance etc. are increasing their market share.

Yet, instead of reacting to international crude price increases, isn't it a far better option to explore alternate fuels? What is the government's strategy towards ensuring that supply shocks (Middle-East, hurricanes, government actions etc.) will not damage the economy? Is a natural gas pipeline from Iran passing through Afghanistan and Pakistan the solution? Perhaps not.

Labels: communist, crazy commies, left, loony left, petrol