Fuel Price Hike

Two days ago, The Government Of India announced a hike in the prices of Petrol, Diesel and LPG. As expected, the announcement was followed by a number of protests from all the corners of the country. One thing everyone was repeating was that, it affects the common man. Who is this common man? I do not think that any of the political parties know who a common man is. They are just repeating it for the sake of publicity.

The Background

The crude oil prices in the International Markets have witnessed a sharp increase in the last few years. Most of the countries depend on imported oil for their daily use. Hence this price change has affected most of the people. The changes to the oil prices are determined by International Market forces and the fact is that Government of India or any other government simply can not do anything to influence the prices in the International Market. The last time fuel prices were hiked was back in February 2008, when the oil prices touched $100/barrel.

The Present Scenario

Now, International Oil Prices stands at ~ $130/barrel. The government had no other option, but to raise the fuel prices. But what followed afterwards, although expected, was ugly. Most of the state Governments have responded to the price hike by reduction in the sales tax of the fuels. This is another controlling mechanism which reduces the effect of the price hike, although by a small amount.

Another interesting fact is that, fuel prices in India are directly controlled by the government. What it means is that if the International Prices go up or down, it does not reach the end customers until the government decides to do so. In most of the countries, this is not the case. When there is some price movement in International market the customer ends up paying for that almost immediately.

The Effects

The Government is already trying to tame inflation, which has gone out of the control. This would add more fire to the inflation and it is going to soar up. What it means to an end customer is that, prices of commonly used items would go up. Now wonder if inflation hits double digits!

I would like to recommend Kerala model to more and more states. Although it was an idea of some useless heads in Kerala, The Hartal, it ended up in saving some fuel. For those who do not know about Hartal, it is a festival in Kerala, trying to replace Onam as the National Festival of the state. Everyone in the state is forced to stay at Home and no one is expected do do anything except destruction of public properties. I will dedicate another post for this festival.

The Oil Companies would be breathing some air now. They were forced to incur massive loss on every liter of fuel they sell. Still they are in big loss, but they got a breather for the time being. The loss incurred by our public sector Oil Companies is as follows as on June 2008 (Before the price hike).

• Petrol – Rs. 21.43
• Diesel – Rs. 31.58
• Kerosene – Rs. 35.98
• LPG – Rs. 352.98 / Cylinder

The government has not increased the prices of Kerosene, which is used by very poor sections in the society. But as usual, the most affected will be the middle class.

What Can I do?

We can not do anything to influence the International market and bring the oil prices down. What we can do is to reduce the usage of the such fuels directly. Try to take a walk for small distances rather than hiring a taxi. All these add to our own little discomforts, but essentially we are doing something to bring our oil import bill down.