Indianomics
A blog on Indian Economics and personal interests of its authors

Fuel Prices and its illeffects

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Everyone is up in arms with the back to back hike in fuel prices. To be precise, the Petrol prices.

India is among large importers of crude oil and price of which is so volatile. All Oil PSUs in India are running into losses because of the various subsidies given by the government for all petroleum products. In a way, India is trying to liberalize its economy. The subsidy is basically nothing but the Taxes we pay which comes back as a ‘fake’ relief to us.

Ideally, removal of the subsidy should help government in many ways. One of them, it should end up saving subsidy money which can be diverted to Infrastructure development (and not govt. officials’s pockets). If the funds are properly channelized, I think we can still keep growing as a country in terms of economy and people.

How it is linked to Inflation?

It sounds simple but it is not, trust me. Food products’ prices are the first to go up the moment there is a hike in petrol prices. Reason often cited is the rise in Petrol prices increases transportation costs. One should remember that Government has only raised the prices of petrol and not diesel on which all trucks run and in that sense, it should not affect the food prices at all. It is the middle men who are cashing on the petrol hike opportunity to steal. Manipulating the situation, they make the hay when the Petrol price rise sun is shining.

They bloat up the prices of essential commodities which earn them good money and dupe all of us. Those who are employed do not get a hike in their annual pay on monthly basis and this makes it even tougher for upper and lower middle class. So, what do we say about people who live below poverty line or on it?

Today, for a family of four, a day’s meal can cost anywhere from 150 to 600 depending upon various purchases they do. Fruits costing almost double in last 3 years. And government comes out with a report that an average Indian needs only Rs. 32 a day to eat and live peacefully.

Beware of hikes and reductions!

Every time we see a hike, we start fearing see our food bill going up. Cutting down on other spending is often seen as a way to counter the hike in our food expenses. One thing we should all force and apply is when fuel prices reduce, these bloated up prices should come down too.

A liter of milk now costs more than Rs. 30 and can range from Rs. 22 for a low grade (read more water adulterated milk and vice versa) to even Rs. 35 for the higher grade in certain areas. Cost shouldn’t keep spiraling upwards every time the fuel hike is affected. There should be effective controls placed on essentials commodities.

As an aside, ration supply in India is dogged with serious quality issues. The owners of these ration shops often buy adulterated and low quality commodities from open market and sell it in place of good quality commodities they receive from Government’s Food Corporation of India. The good quality commodity is sold at premium in open market. In the process they steal our right and money. No wonder in India, many do not even pay taxes.

I have heard one of my colleagues from Netherlands once saying that they are happy to pay taxes because their government is giving them enough in returns. Ample and quality infrastructure, good life style opportunities, more people friendly initiatives etc.

So getting back to the topic, any hike and reduction should correctly reflect in our day to day budget.

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