Wednesday, June 04, 2008

Fuel price hike

Finally the decision to hike fuel prices has been taken.
When the input costs double, I believe it takes 2 years to take the decision to raise the selling price. But this is the super efficient UPA government with highly learned Prime Minister and Finance Minister, highly honourable Gandhi family to sanction the government decision and the Left provide some much-needed policy help. Thus, the government finally managed to hike the price by 10% and reduce the central taxes to a certain extent.

The subsidy burden which stood at 2.45 trillion rupees will reduce by 0.45 trillion. The PSU oil companies will bear a loss of 0.65 trillion and the rest 1.35 trillion will be borne by the government.
Now for the reservation-premi government, 1.35 trillion can easily set-up 15 IITs and even provide them with working capital for years to come. Also, the subsidy goes down the drain whereas these IITs will produce engineers who will be productive in their future life.

The worst part of the subsidy and taxation structure is that it totally distorts the energy consumption pattern. Diesel that HPCL buys in Mumbai is costlier than petrol. But, the retail price of petrol is a good 40% higher than Diesel. Higher you consume higher is the subsidy that you get and more the noise you make on news channels to continue with the subsidies.
No money to oil companies means no new exploration, no city gas distribution projects and no search of the alternative to oil. Indian bio-diesel policy is waiting to be finalised by the cabinet since 5 years. Dr APJ Kalam had announced the bio-fuel mission in 2003. Countries like Brazil have changed their energy mix. All new cars use 85% ethanol.
But, in India with the distorted pricing mechanism there is no incentive to search for the alternatives.

Even the BJP is behaving like a bunch of idiots. The fuel price hike is inevitable, demand-supply law has to take precedence in a market-economy. I am also surprised as to can the average Indian be so stupid to expect the government to keep on bearing the subsidy? Government finances are not invented money like that of entrepreneurs, money given to one cause means money deducted from somewhere else. I started this post with the decision making, it remains to see how many months it takes for BEST to raise the bus fares.

As for the usual pic that accompanies the post, since Varun could not fully appreciate the last pic, this post contains none, he has to relook at the old one and see its beauty. The beauty is in the face of the girl and not the surroundings.