Fuel Price Hike and can we do something to keep it control............

Government of India has decided to hike the prices of petrol and diesel – a logical step that must follow if the prices of input increase. The input here being crude oil and taking into account, the kind of fluctuation in the global crude oil prices, the price hike, barring a governmental move to absorb the rise, is almost inevitable. This kind of an increase, I believe, is true for any country, which is largely dependent on the external sources to meet its fuel demands and more so in case of India where crude oil constitutes a fair share of the total imports. It has to be understood that governments and the oil marketing companies too have certain constraints and so eventually the consumer also would have to share a part of the burden. In India, it is this fact, which raises a lot of eyebrows and a certain bone of contention particularly for the opposition and to those who have a control over the survival of the ruling government.

A lot has been/is being debated about the price hike and the impact it could have on the common man. This line of argument does carry merit. Though the hike might seem marginal it would, in fact, have its effect on product pricing. For instance a hike in transport costs for the producer will affect the whole cost structure as it flows through various levels and finally come to the consumer at an increased cost. The way fuel is priced in India is unique. Many might not be aware of a concept called cross subsidy that is being practiced in our country when it comes to fuel needs. The most striking example of this practice is the LPG cylinder, which is an integral part of every household. In a free market, the LPG cylinder should cost almost twice the price we pay. The differential cost is being compensated in form of the tax that is levied for petrol and diesel. The rationale behind such a set up could be to keep cooking gas price affordable even to those who cannot afford an own vehicle. The section that demands that taxes be cut or reduced to keep the price under control often doesn’t highlight this point.

Is reducing the tax the only way to keep the prices under control? There are talks about using CNG or bio fuels in place of petroleum so as to reduce the dependency on the fast shrinking global oil resources but those alternatives do not come without a price and realising their full potential may not be mature enough to be in the immediate picture as yet. There is one other dimension to this pricing story that is being neglected (deliberately?), i.e. the consumption angle. A reduction in consumption would have its impact on product pricing and any layman could understand that logic. If the demand is more, the price has to increase correspondingly and to some extent we are also to be blamed for this.

A sample calculation would make things more evident. For a 100 crore strong population, let us assume about 5 crore people use some form of a vehicle and thus require fuel. If each of us can reduce the consumption by 2 liters each week by using other forms of transport, it would work out to be an interesting equation. The 2 litres is, by any yardstick, very nominal but for calculation purpose let us assume it to be so. Every week, the reduction in consumption would be to the tune of 10 crore litres and translated to current market prices, it would figure at savings of about Rs. 450 crore/week, approximately. The total savings would work out close to Rs 1500 crore a month, which if again reflected in the price, could to some extent bring down the price.

The proposition may be crude and not backed by appropriate data but is definitely worth an attempt. It could well be a means to take this issue of controlling the price directly to people rather than debating about it endlessly in the office rooms. Almost in all the previous occasions of a price hike, invariably it was used a political weapon. The events that generally follow the hike would be protests, agitations so on and so forth by all other parties except the ones at the helm, which always tries to defend its stand. Instead, if there were an attempt made to reduce consumption, it would surely reflect in the overall scenario for demand supply is the main driving force behind a free market economy. It doesn’t sound impossible or impractical right? But I guess it is highly improbable. Those who have the ability to influence masses should lead from the front, but in a situation where a cultural occasion or a marriage etc are being used as a showcase of wealth and sheer wastage of resources by the same leaders, the chances that this will set an example are bleak.

Remarkable progress in the recent years as a country and as an economy has given rise to a burgeoning spending class (sometimes more conspicuous of nature), which naturally has resulted in increased demand for everything including fuel. A normal household has graduated from one two wheeler not more than 2 decades is now brimming with at least 2 or more of them and in many cases a family car is also quite visible which means the fuel usage has increased manifold while the family or the number of people remain the same. The same situation exists in relation to electricity too but that story is even more pathetic. It is always easy to play the blame game and criticize those who are in power or those who are answerable by virtue of their official position but before that a little self-introspection would be good. People must be aware or made aware of the consequences of their various activities, which would be the most effective weapon while combating critical issues like this nature.

2 Comments:

cookie™ said...

im afraid theres nothing we can do!
maybe public vehicles serves the cause!

suren said...

one thing - the most effective thing - we can do is to think and to make people think.... once that happens those who are responsible would become accountable to the public at large