The Indian Economy Blog

May 12, 2006

The Wrong Behind

Filed under: Business,Energy,Regulatory reforms — Nitin @ 2:20 am

Attacking targets of convenience won’t bring down the retail price of petrol

In terms of irritation they cause, chain mails rank a notch above mere spam because unlike the latter, chain mails are sent by people you know and thought were sensible. Most chain mails are relatively harmless as they ask you to send money or send postcards to fictitious kids with terminal illnesses. They are easily ignored. (The ones that seek blood donors are an honourable exception). But this one exhorts the recipients to mobilise for action, so it merits a little more attention. If you’ve not received it yet, head over to Ceteris Paribus and take a look.

The would be Howard Beale who started this chain mail is angered by the fact that petrol prices in India are higher than those in Pakistan and Malaysia. He asserts that this can’t be simply because of crude oil prices. The villains, according to our Mr Beale, are “the oil companies” who are presumably fleecing the Indian people. So he calls on everyone (in capital letters to compound the irritation) to boycott the petrol pump on September 22nd, 2006, “stick it up their behind”, make the companies choke on their stockpiles and lose 4.6 billion dollars in one day.

Mr Beale is mad as hell, but also very mixed up. Malaysia is an oil producing country. When those Baloch tribesman are not using the transmission pipelines for target practice, Pakistan has the use of its own natural gas in addition to the oil that it imports (and that the Saudis subsidised until recently). India heavily relies on oil imports, which means that rising prices of crude oil have a much sharper impact on India than in countries that less rely on imports.

Here are a couple of reasons why petrol prices are higher — India’s petroleum industry is not fully open to competition and its government subsidises diesel, farmers, railway passengers and others.

And here’s something that may surprise our Mr Beale — petrol retailers make better profit margins when prices are falling gently than when they are rising. In any case, boycotting the pumps on just one day is unlikely to be very effective. People will just buy extra petrol on the previous day.

It is tempting to look for simple solutions and convenient targets. Instead, Mr Beale would do well to start a chain mail seeking the end of subsidies, cross-subsidies and regulations. If he does, I may even break from my long-standing policy of not forwarding chain mails and irritate my friends.

3 Comments »

  1. Mr Beale would also do well to ask M/s Karat and company why the GOI should subsidise the cooking gas and petrol used by say Mukesh Ambani or Prannoy Roy or Sonia Gandhi or Karat himself for that matter ?

    Why cant the GOI ask TCS/Infy/Wipro/Satyam to develop some web enabled software that can automatically removes the subsidy from someone whos last IT return showed an income of over say 10.00 lacs a year..maybe by saying that gas bookings can be made only by households with atleast 1 PAN Card or some such filter ? It will ensure we get more and more people to get a PAN which can only be a good thing.

    And instead of paying these companies, the GOI can give them an additional tax break so there’s no corruption involved when the cos. need to collect money !

    Once we establish norms for removal of subsidies from those who dont need it we are in a better position to direct it to those who do. But then what can you say of a party whose CM Designate in Kerala despises IT and all that it symbolises like progress, development and efficiency ?

    Comment by ila — May 14, 2006 @ 9:19 am

  2. hi,
    as i recounted to my sister what i had posted here she reminded me that this is country where people will give the pan no. of the lowest earning member to save that extra 100 bucks for lpg and that based on her affidavit for the recent poll sonia g will also be eligible for subsidies…so maybe we should tweak the idea a bit and say that all residents of govt. accomodation (barring class 3 and class 4 employees) will have to pay full price for the lpg delivered to those addresses. as for the pan evaders…i’m out of ideas on how to close that loophole !
    On another note – does anyone know if sonia g or atal b pay for the lpg consumed at their official residences or whether the GOI pays for it ???

    Comment by ila — May 14, 2006 @ 9:46 am

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