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Old 14th May 2012, 09:28   #571
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Originally Posted by shankar.balan View Post
Not really. Personal transport is generally more expensive. It is made prohibitively so in cities like London, by the congestion taxes and parking costs, in order to ease traffic chaos and encourage people to use more public transport, which anyway is very efficient, clean and comfortable overall.
+ 1 to that. So is the case in Singapore, Japan and several other developed countries/cities. And if someone does want to use a car, they opt for rentals.

Btw OT point, the oil companies are seeking to go for the kill - a increase of 8 Rs to take care of "revenue losses".

Another fuel price hike on the rounds
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Old 14th May 2012, 09:39   #572
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

A wild idea:

One very good way to get things cracking will be to ask the govt to implement the former MOeF's suggestion on the politicians. Not SUVs for them, nor any swank cars. They (and their entourage) must be made to travel in the Nano! It will help improve the roads as well. Also, reduce a lot of road menace.

As for Govt officials they are all in receipt of a Conveyance Allowance which is Rs.3200+DA (~Rs.5000). They are NOT supposed to use their official cars for going from home to work and back. Only exceptions are those with Z+, Z (any may be Y) security. How many follow this rule?
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Old 14th May 2012, 10:04   #573
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

Well in bangalore I'm witness to cops everynight going around in their brand new mahindra boleros collecting hafta as low as Rs 10/ shop by shop and then for free drinks at a watering hole. The lower grade cops on bajaj pulsars do the same and god knows how much fuel is spent in this way for collecting hafta.

So it's a never ending cycle basically. Subsidy or no subsidy.
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Old 14th May 2012, 10:04   #574
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Originally Posted by sgiitk View Post
A wild idea:

One very good way to get things cracking will be to ask the govt to implement the former MOeF's suggestion on the politicians. Not SUVs for them, nor any swank cars. They (and their entourage) must be made to travel in the Nano! It will help improve the roads as well. Also, reduce a lot of road menace.
A wild idea indeed. A lot of people would give up the idea of running for office if such privileges are taken away. Add tranparency and zero corruption to the whole debate and we'd be looking at the extinction of politicians.

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As for Govt officials they are all in receipt of a Conveyance Allowance which is Rs.3200+DA (~Rs.5000). They are NOT supposed to use their official cars for going from home to work and back. Only exceptions are those with Z+, Z (any may be Y) security. How many follow this rule?
Then why aren't we surprised when the officials and politicians use their official cars for personal use? Flashing lights, sirens wailing, traffic diverted and all that included for good measure. I doubt if they'd really be concerned about what fuel their alloted vehicles run on.
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Old 14th May 2012, 11:31   #575
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

Hello,

Read the news in today's Times of India that Oil Marketing Companies are planning Rs. 8+ hike in Prices of Petrol to cover the losses incurred since December 2011 (when the Prices were increased last time).

Why are they not asking for de-regulation of Diesel Prices? Why are they not presentating the statistics on increasing consumption of Diesel in India?

Also no price hike will be possible before President Elections.

Why is any Political Party of Oil Marketing Company taking of Diesel Price hike? Why is everyone shying away from reality? Or will it be once again the Petrol Consumers who will bear the cost of subsidized Diesel.

Thanks,
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Old 14th May 2012, 12:32   #576
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

Lets try to put together things from a different perspective:

- OMCs are listed companies
- Govt. pushes OMC to take losses for the political motives (first UP elections, then finance bill, now presidential election..).
- The losses affect the OMC shareholders (shows up clearly in share price) apart taking down the country's macro economics.

What are the "independent" directors doing? Isn't this supposed to be a free economy? How can an autonomous body take loss for (ruling) party's political gains? Who compensates the OMC shareholders?

Hope some PIL activist reads this and files it to SC!

(If petroleum prices increase, it would increase the inflation; but that is far better than having a pa(u)per Govt, devalued currency and paying the deficit from salary as tax!).
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Old 14th May 2012, 13:15   #577
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Originally Posted by babu.sundaram View Post
(If petroleum prices increase, it would increase the inflation; but that is far better than having a pa(u)per Govt, devalued currency and paying the deficit from salary as tax!).
Hello Babu,

You have summarized the entire situation very well. Appreciate.

That is exactly for what we are all frustrated - Who is actually independent? Seems nobody & Free Market is only on Paper. One thing I have never understood is if Economics is so simple for us (common man) to understand, why are those experts taking Economic Decisions not able to understand this? Or it seems their hands & mouth are tied by vested insterest (read political parties here)?

It is Tax Payers & Petrol Consumers who are paying for Deficit & inefficiency of Oil Marketing Companies.

Why should Petrol Car Owner pay for subsidy given to Diesel, 15% of which (Diesel) is used by Passenger Cars.

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Old 14th May 2012, 13:18   #578
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Originally Posted by ninjatalli View Post
+ 1 to that. So is the case in Singapore, Japan and several other developed countries/cities. And if someone does want to use a car, they opt for rentals.
Sure. The day I see a safe and effective mass transportation system, I will give up my vehicles. Unfortunately dont see that happening as even for these projects a lot of cuts would be involved thus escalating costs.

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Originally Posted by coloneljasi View Post
A wild idea indeed. A lot of people would give up the idea of running for office if such privileges are taken away. Add tranparency and zero corruption to the whole debate and we'd be looking at the extinction of politicians.
Perhaps this will bring the genuine do gooders into this field. Anyone for a Lal Bahadur Shastri?

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Originally Posted by sgiitk View Post
One very good way to get things cracking will be to ask the govt to implement the former MOeF's suggestion on the politicians. Not SUVs for them, nor any swank cars. They (and their entourage) must be made to travel in the Nano! It will help improve the roads as well. Also, reduce a lot of road menace.
Good idea. Also nanos should be allowed only inside the city for them. For intercity transport they should be mandated to use state transport buses or second class non ac rail travel. If they think it is good enough for the common man, it should be good enough for them.
That should rationalise fuel use too.
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Old 14th May 2012, 22:08   #579
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Quote:
Originally Posted by babu.sundaram
- Govt. pushes OMC to take losses for the political motives
- The losses affect the OMC shareholders (shows up clearly in share price) apart taking down the country's macro economics.

What are the "independent" directors doing?
Very well said. The amazing thing is that Petrol prices are supposed to be deregulated, but the IOC CMD, in criminal violation of his fiduciary duty to all shareholders, waits for a ministry directive to raise prices. Thuggish behaviour, which would land any private cos CEO in jail if done so blatantly.


Quote:
Originally Posted by babu.sundaram
Hope some PIL activist reads this and files it to SC!

(If petroleum prices increase, it would increase the inflation; but that is far better than having a pa(u)per Govt, devalued currency and paying the deficit from salary as tax!).
Unfortunately, most "PIL activists" are communists, who only take up all the wrong causes.

As said before, the inflationary effect of hike in diesel prices is a complete red herring. That can be proved with a simple example. Take cement, a classic low value, high transportation cost commodity. Truck freight is currently about Rs. 2 per tonne km, so freight cost in shipping cement 500 kms (a typical distance) is Rs. 1000 per tonne or Rs. 50 per bag. Given cement prices of over Rs. 250 per bag in most markets, freight is about 20% of retail price. Assuming a 25 tonne GVW bulk truck being used, and payload of 15 tonnes, the truck owner realises about Rs. 30 per utilised km. With a fuel efficiency of 4 km per litre, diesel cost at Rs. 45 per litre is about Rs. 11 per km. If diesel prices were increased to Rs. 60 per litre (a 33% increase), diesel cost would rise to Rs. 15 per km, and assuming is passed through, the truck owner would need to realise Rs. 34 per utilised km. (viz a 11.5% rise in freight costs). This would imply freight cost for cement rising to Rs. 1150 per tonne, or Rs. 53 per bag, which would lead to a Rs. 3 per bag or c 1% rise in cement prices. In an economy with 10% inflation, and the risk that unchecked deficit spending could cause hyperinflation, the "inflationary effect" of diesel prices would not even be noticed (except by those industries who illegally use subsidised HSD for heating or power generation).

So let's be clear, raising diesel prices to levels equivalent to petrol will not hurt the Indian economy. it would however hurt certain vested interests significantly, and it is certain that the flow of bribes from those vested interests is a significant reason for the reticence of governments in raising diesel prices. (apart from ill informed media reactions, that is)
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Old 15th May 2012, 10:40   #580
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Originally Posted by Hayek View Post
So let's be clear, raising diesel prices to levels equivalent to petrol will not hurt the Indian economy. it would however hurt certain vested interests significantly, and it is certain that the flow of bribes from those vested interests is a significant reason for the reticence of governments in raising diesel prices. (apart from ill informed media reactions, that is)
Hello Mr. Hayek,

Thank you for explaining with example of Diesel Price Hike on Cement Prices & Inflation.

The problem here is that we can probably understand Economics very well & truly understand that Diesel Price hike will not lead to very big spike in Inflation. But it seems either the Economists advising the Government are not putting true picture to Political Leaders or there are vested interests who are generating large Profits from Subsidized Diesel not allowing the Government to increasing Diesel Prices.

To me the second point seems very real possibility. Let us hope that the sense prevails & Diesel Prices are hiked before Subsidy figures out of control.

Thanks,
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Old 15th May 2012, 12:32   #581
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Originally Posted by Hayek View Post
Take cement, a classic low value, high transportation cost commodity. Truck freight is currently about Rs. 2 per tonne km, so freight cost in shipping cement 500 kms (a typical distance) is Rs. 1000 per tonne or Rs. 50 per bag. Given cement prices of over Rs. 250 per bag in most markets, freight is about 20% of retail price. Assuming a 25 tonne GVW bulk truck being used, and payload of 15 tonnes, the truck owner realises about Rs. 30 per utilised km. With a fuel efficiency of 4 km per litre, diesel cost at Rs. 45 per litre is about Rs. 11 per km. If diesel prices were increased to Rs. 60 per litre (a 33% increase), diesel cost would rise to Rs. 15 per km, and assuming is passed through, the truck owner would need to realise Rs. 34 per utilised km. (viz a 11.5% rise in freight costs). This would imply freight cost for cement rising to Rs. 1150 per tonne, or Rs. 53 per bag, which would lead to a Rs. 3 per bag or c 1% rise in cement prices.
This models works assuming all the loads being moved have similar volumes. But the moment you change the same to food and agricultural products (High Volume), the difference becomes significant. A truck of 25 tonnes will probably carry only 1 or 2 tonnes of Tomatoes while it can carry 15 tonnes cement

Transport item worth 1 lakh over the 100kms distance, impact of any price rise in diesel will be marginal. But transport items worth 25k or less for the same Volume, price rise will drastic. Rise in the price of essential commodities is the worry here. India still has lot of people who still need to calculate every rupee. The impact of fuel prise rise will be felt across the chain.

Heavy users of diesel in India are Railways and Public transport. When Railways increased the price of AC Class fares, there was a lot of Hue and Cry. And this section can actually afford to absorb the impact.

If diesel use by private cars is seriously affecting, then the best and straight forward solution in the hand of government was to tax them when they are manufactured. Tax cars proportionately based on car price, fuel efficiency(Nano cannot be taxed as swift or a Benz)

Last edited by indian21r : 15th May 2012 at 12:34. Reason: typo
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Old 15th May 2012, 16:05   #582
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Originally Posted by indian21r
A truck of 25 tonnes will probably carry only 1 or 2 tonnes of Tomatoes while it can carry 15 tonnes cement
Sorry but this is incorrect. A large tomato occupies about 350 cc space (treating it as cube), and a 20 foot container with about 43 cubic metres space would hold about 125,000 tomatoes that would weigh about 10 tonnes (assuming a dozen tomatoes weigh a kilo). Plus tomatoes sell for Rs. 30 kilo vs Rs 5 per kilo for cement, so transport cost would be even smaller here. I picked cement as it is the classic low value commodity. There could be some things that are more materially affected but they would be unlikely to travel long distances.

To the other point, the economy is hurt by the diesel subsidy in general and not just by that on passenger cars, so taxing passenger cars further makes no sense
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Old 15th May 2012, 17:17   #583
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Originally Posted by Hayek View Post
That can be proved with a simple example. Take cement, a classic low value, high transportation cost commodity. Truck freight is currently about Rs. 2 per tonne km, so freight cost in shipping cement 500 kms (a typical distance) is Rs. 1000 per tonne or Rs. 50 per bag. Given cement prices of over Rs. 250 per bag in most markets, freight is about 20% of retail price.

who is going to buy cement everyday?
who will regulate and enforce the new commodity prices?
Rs 3/- extra / truck every day for each and every eatables and other daily used commodities would be insane.

P.S : I own a petrol car!

Last edited by GTO : 17th May 2012 at 13:39. Reason: Please quote ONLY the relevant bits of a post. Quoting an entire long message inconveniences our mobile users
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Old 15th May 2012, 17:56   #584
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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who is going to buy cement everyday?
who will regulate and enforce the new commodity prices?
Rs 3/- extra / truck every day for each and every eatables and other daily used commodities would be insane.
P.S : I own a petrol car!
Hello Eyesice,

I too own a Petrol Cal & that is not my only concern. The concern here is the Government in name of Poor & Middle class is not increasing Diesel Prices, which is hurting the Economy & the common man even more.

The real fact here is that marginal increase in Inflation figures will not matter much because the real inflation faced by Indian public is much more than government released figures of 6% - 7%.

Ask any female member of your home about vegetable prices & you will be surprised to know that most vegetables are selling at Rs. 60 - 80 per KG.

The fact we are pointing out is Transportation cost would be maximum 10% of most of the Products selling Price. Thus if Diesel Prices are increased & Transport Prices go up by 20%, the real increase in Products Prices will be only 2% which we Indians can easily bear.

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Old 15th May 2012, 18:03   #585
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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The fact we are pointing out is Transportation cost would be maximum 10% of most of the Products selling Price. Thus if Diesel Prices are increased & Transport Prices go up by 20%, the real increase in Products Prices will be only 2% which we Indians can easily bear.
That would be theoretically correct. However in our middleman infested transportation system, each layer is lkely to buffer up their profits by using the diesel price hike as an excuse. So eventually the retail price hike impact would not be anywhere in single digits.
Apparently veggie prices have shot up by 61%. So this added hike, thoroughly essential as it is would have to be the bullet we have to bite.
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