Thursday, June 25, 2020

Petrol-Diesel price hikes will result in spectrum wide price rise

An IOC Pump in Bangalore. Photo courtesy: Wikipedia
etrol and diesel prices were always high in India. Tax revenue from petroleum products is one of the biggest income streams for union government; probably the biggest for state governments (apart from union government’s contribution) we well. Administrations keep on milking this cow whenever the hole in the budget is not manageable. If the price is increasing in international market, then that delta is transferred to customers; if price is decreasing, then, government increases the tax to keep it at the same level.

One may argue, hike is required to address the enormous gap in government’s balance sheet. I cannot agree with that. If we are relying on additional tax revenue from petroleum products to address the hole; then, we are no different than any country which depends on petrodollar for everything. We need to focus on other income streams as well and need to reduce the enormous wastage in government services. 

Many argue that hike affects only the rich; since they are the ones who own cars and luxury vehicles. This argument is older than independent India. People become happy when government imposes an extra tax on super-rich, but they often forget the fact that the same tax might affect them more than the targets. By the way, a car is no longer the privilege of the super-rich. Same case with bikes as well. Sub 160cc bikes are used heavily by common people. 

Then comes lorries. Lorries move commodities across India. Even if it is transported by plane or train, last-mile delivery is often through lorries. As a matter of fact, lorries run on diesel. So, a hike in diesel price will be reflected in prices for items transported by lorries – which essentially is everything. 

Then there are diesel-powered power plants that generate electricity and supply to the grid. Those government-owned generation companies may not be able to raise the price of electricity they produce; but then, after a while, those companies' balance sheets become so bad that government may end up giving budget support to it - again from public money. 

Since petroleum products are used in almost every field of human life, a price hike will result in spectrum wide price rise. In this pandemic era when economic activity is down this is not good. It is not that in international market prices are going up and up and government is forced to do the revision. After the outbreak of COVID-19 oil prices in international markets were crashing; but in that situation instead of passing the benefits to customers, government increased the taxes so that price remained the same. Now, when the price is stabilized government is increasing the price not once or twice but for 18 straight days. 

Government should rethink increasing prices indefinitely. Unfortunately, there is no opposition that can take on government in this issue, and even a rally on the road is not possible because of COVID. India-China border issue and COVID took over all prime-time debates (is that really debate!!!). 
You remember seeing people on the road asking for money or food? Due to COVID, there is hardly much crowd visiting temples/churches/mosques and not many people on roads. Whoever is there often reluctant to go near them due to social distancing. I often saw a lot of them buying Parle-G’s smallest pack and give to their kids using the money given by devotees etc. Now a smaller number of people giving them money and price of food items will increase due to diesel price hike… double strike!!!


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