Economy

Fuel Price Hike

Petrol Price
Petrol Price

After much deliberation and delay, Govt. Of India has increased the retail fuel prices – Rs.5 for Petrol, Rs.3 for Diesel and Rs.50 for Household LPG. Though delayed for long we need to praise the Prime Minister for finally biting the bullet – especially with all the political compulsions of coalition politics he has and for getting the powerful finance ministry to agree for deep tax and duty cuts.

On the other side, I am wondering why Government has to be involved in fixing the price of retail fuel. Other than Household LPG, the fuel price should be left to free market. Just like anything else the fuel price has to be determined purely on demand and supply economics. With Oil prices at record levels of $135 from levels of $30 before 4 years, the retail price has to naturally increase. You cannot make Oil Marketing companies loss over Rs.200,000 Crores and make the common shareholders in those companies suffer (Disclaimer: As on date I have no investments in ONGC, IOC, BPCL or HPCL). It doesn’t make any sense to buy oil at ever increasing prices and keep selling it at loss, eventually sinking the Oil companies. Leaving it without a price increase the loss would have been ultimately burdened on the minuscule compliant Taxpayers in India. Somehow political parties in India are of opinion that increase in taxes affects only the rich and any burden on them is allowed – if you keep doing that, there will be no investments by companies and eventually no new jobs.

There is another side to the need to increase the prices and that is Environment. India is consuming Oil at historic levels that definitely has significant greenhouse effects. The logical answer according to me is to increase the fuel price even more so that people feel the pinch and start reducing their consumption, and government can use the increased income to build on war footing world-class mass transport facilities in all cities.

2 Comments

  • Thanks Mahesh.

    I understand that a Re.1 increase in petrol will add lot more in the value chain and to inflation. Unfortunately world’s Oil prices are at record high and you have no other option. If we don’t increase the price more and reduce the consumption, oil prices will keep going upwards – in 2004 it was $34 per barrel, now it is $140 per barrel and in few months it will be over $200 per barrel. Till how long government of india can subsidize this, our GDP itself won’t permit it.

  • Venkat,

    Iam regular visitor of your blog and I like your tech. posts

    I do not agree your statement that "increase the fuel price even more so that people feel the pinch and start reducing their consumption", fuel is not only for people for day to day transportation to offices and other places, its base for everything, this will make an impact of all the products we are buying, one rupee increase in fuel will add more than 300 rupees in middle class family expenses in direct or indirectly.

    Mahesh