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Old 14th September 2012, 11:10   #856
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Originally Posted by antz.bin View Post
Well, if it helps, I had a chat with a few truckers on my recent Leh ride. The guys I talked to told me that the FE of a 22-ton capacity trailer is 5kmpl when going empty, 3.5kmpl when going at full rated load of 22 ton. But these people, as a rule, always overload it to around 60-70 tonnes at which point the trailer returns about 2kmpl. When overloaded to over 100 tonnes it returns figures of ~1 kmpl. The trailer I saw up close had 2 fuel tanks, one of capacity 150 liters, and a supplementary (aftermarket) tank with a capacity of 300 liters. This is secondhand info of course, but I have heard it from the horse's mouth.

Taking this fact in consideration, could we redo the math? Since many others here are better than me at this particular calculation, could you please take over?
Here are my 2 cents. At the outset let me tell you I am with you on this so let me rant a bit.

A lot among us in this forum are pretty disconnected from reality and spend their time propounding theories and explaining away the economics of living in India with formulas that never work in reality. I doubt any of them have ever stepped out of their homes to monitor the prices on the streets. Although the perceived claim of the resultant price rise of essential commodities is 1-2% shown through these glorious formulas in reality you would see that commodities have shown at least a 10-20% price increase if this price rise is going to stay. For example a kilogram of potatoes that cost Rs 15 would be easily going up to Rs 18 or more. Now that would mean its a 20% hike in reality where all these grandstanding economic theories and accompanying formulas propounded from the comfort of conference rooms fall flat on their face. Alternate excuses then come up regarding inefficiencies of supply chain, unstructured nature of market places and what not. Those are generally created to confuse the common citizen more and more and browbeat them to accept the sacrifice they must make to ward off imaginary monetary catastrophes that might happen in an alternate reality. I am not debating the worthiness of this price increase with respect to controlling India's deficit but more at a more generic level. In India cronyism and corruption probably contribute to more than 1000 times to that deficit figure but those crimes are more pardonable than the common man not bearing the brunt of helping bridge the deficit gap by shelling out more of their hard earned income.

Well enough of this rant from my side but frankly I have given up debating all the deficit hawks out here who hold pretty dogmatic theories and refuse to consider alternatives or nuances due to varying circumstances. Its just my personal view but I feel a sense of apathy towards the common citizen from those who pronounce that these half measures will result in tremendous success although there is very little evidence to prove the same. I don't want to even have a debate here because it would be pretty OT here. Frankly speaking, trying to debate them and make them see your point of view is worse than milking a bull.

Cheers.

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Old 14th September 2012, 11:11   #857
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

Certainly not the route to be taken. why not reduce the duties/taxes on petrol/diesel. If because of subsidy debt is going higher, why not bring in the black money stashed abroad, why not generate sufficient money by properly auctioning coal blocks and reduce the debt.

I don't need subsidy. I pay taxes on each and everything. I have no issues with that. But my tax money should not go down the drain and govt should provide me benefits. Limiting 6 LPGs per household, stupid thought without even telling how effectively they will implement it.
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Old 14th September 2012, 11:28   #858
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Originally Posted by mempheS.D View Post
I just don't get it. How hard is it to really distinguish a commercial vehicle from non-comm vehicle? Shouldn't diesel and petrol prices be at par for non-commercial vehicles? That way, there's a healthy market for vehicles powered by either.
Well, even if you remove the entire subsidy on diesel, diesel in India will still cost lesser than petrol. Also, given the fuel economy in a diesel car is better than that of a petrol car, it would still be economical to run a diesel car. Europe has slowly drifted towards diesel simply because of this. Other factors are there too, like people are gradually getting adjusted to the torque and the "feel" of diesel cars, which gives an illusion of having more power at your command.

However, dual pricing in India is difficult to sustain. Lower cost diesel will inevitably end up in the black market. Look at what has happened to the kerosene market.

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Originally Posted by sachinayak View Post
It is a very tricky situation. Before the hike, everyone believes a hike is justified and inevitable. If not done, would hit the economy. Once done, reactions are O-M-G. This will impact inflation and hit poor (ofcourse, everyone knew this).

Honestly in a coalition scenario prevalent, how would you do it? Hike it by 5 Rs, roll it back by 2-3 Rs. Some coalition partners, forget that they are a part of the government, and not the opposition. They are so used to opposing every thing, that it is inevitable that government will have to use this approach to get things moving. Even it it means take a couple of steps forward, a step back, you still keep inching (if not marching) forward. Isn't this inevitable?
Agreed, this is a tricky situation. And doesn't auger well for a coalition government. But looking at the Indian political scenario, it's now quite clear that coalitions will continue for quite some now.
So we can never have respite from going a step forward and two steps backward. Economy versus populism will always be there in a democratic setup and India being a huge democracy, cannot be an exception.

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Originally Posted by hrman View Post
But, the big question mark is on when will the prices of other commodities go up? Bus fares, taxi fares, essential commodities etc will bear the brunt by at least 10% rise.

And restricting families to 6 LPG cylinders per month?

I saw this interesting statistic on the net on how many cylinders our netas have consumed during this year so far:
Delhi CM=42, Current Vice president=171, Steel Industrialist and MP=369, Minister of State for External Affairs =161, Former aviation minister =41, Uttarakhand CM=83, IPS officer heading Hockey fed=79. And Our Ex-telecom minister "King" while on Tihar tour used up 47 cylinders.
Ms. Animal rights Gandhi got 63 refills in the year, the same number as the CWG fame Tihar resident. Father of the CM of UP consumed 58 refills at this residence in the national capital.
BSP behenji used 45 refills, Rajasthan CM= 45, Mr. Chara ghotala= 43 .

Sorry, didnt mean to drag this into a political debate, but its just not fair that we end up bearing the brunt and the powers in question go scott free.
And 369 cylinders in a year? More than 1 per day by the industrialist who runs 1000s of crores worth of steel business?? Really??
Inevitable that we are moving towards a price hike of everything. And we all know that the Left Front and Mamata Banerjee will protest. Mamata, for example, is against increase of transport fares of any kind and has refused repeated petitions from commercial transport owners for the past one and half years. Let's see how she behaves now, because not agreeing to a fare hike this time might slowly kill the transport industry in her state. So, it's a tricky situation for her too!

Now, restricting LPG to six cylinders a year. That sounds nice, but I am not sure how the government is going to implement this. Somebody from the same family will now apply for a fresh connection if they need more than six cylinders in a year. Showing a separate kitchen (or paying a small bribe) during inspection, if any, is no big deal. How does the government gain?
I have a feeling that this complicated distribution system of LPG with dual pricing will further clog the distribution setup and getting your cylinder delivered in time will be problematic from now on.

Forget the netas. They are "people's representatives". They have their supporters to feed.
And people's representatives are always more powerful than people, we have known that all along.
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Old 14th September 2012, 12:02   #859
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Originally Posted by subratasenn View Post
Now, restricting LPG to six cylinders a year. That sounds nice, but I am not sure how the government is going to implement this. Somebody from the same family will now apply for a fresh connection if they need more than six cylinders in a year.
Forget the netas. They are "people's representatives". They have their supporters to feed.
And people's representatives are always more powerful than people, we have known that all along.
In Karnataka, the Gas Connection is being linked to the electricity meter. One connection for one electric meter. Any more are being disconnected. While its a different matter that many legal connections are also being disconnected along with the illegal ones, this is one way the govt can control illegal LPG connections or multiple connections to the same household. I also do not know how they will control one person using the same electricity bill and applying to multiple LPG providers.
In the real world, there is a huge difference in what can be done and what is actually done, so I agree with you on the difficulty of implementing this LPG limit.
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Old 14th September 2012, 12:07   #860
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

The problem with our system is that no political party is willing to think for the Nation's welfare for even a second. Some of our policies today were made 3-4 decades back under different circumstances and keeping in mind different goals at that time. The 2 that come to my mind right now is the fuel subsidy and reservation in everything. Now both these policies are clearly dragging the nation backwards rather than in the future. Every political party knows this too. And the fact that the longer they let this continue, the more tough it will become to get rid of them. But they are too spineless and selfish to look above there self interests for a moment and support some hard decisions of the government ( regardless of which party is in power).
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Old 14th September 2012, 12:34   #861
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

Well impact of 10% hike in Diesel should be more than 12% in overall prices. Check the calculation below.

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Originally Posted by apachelongbow View Post
Interesting!! Let me make an attempt. Distance Delhi-Mumbai 1300km. Fuel consumption lets assume 2km/liter. So fuel used =650 liters/trip. Increase in cost = Rs5/liter. Total increase = Rs 3250/trip.
Goods carried per trip =15000kg. So increase per kg = Rs 0.21

So increase in fuel cost per trip per kg is 30 paise approx. If I buy 10kg of vegetables, I automatically pay Rs 3 more!!!!
I can understand it doesnt affect you or me, or anyone in this forum, but what about the common man? May be your car cleaner? Will he afford Rs3 more for his vegetables?
Above is a simple calculation , Lets make it close to real life and do the math again for this vegetable use case in first iteration and spread it to other sectors later.

(a) To grow the vegetables a farmer needs to pump water by DG set , Since Diesel price has gone up by 10% automatically the irrigation cost goes up by 10% ( assuming cost of water itself is negligible).

(b) Second important ingredient in growing vegetables are fertilizers , Taking numbers from previous calculation lets assume per KG transport cost for fertilizer goes up by 0.21 Rs /KG as well.
So for a 100 KG bag it is 21 Rs so there is impact but lets keep this amount aside for the moment.

(c) A farmer uses tractor to plough fields and various other operations so this cost also goes up by 10%.

(d) Lets assume that in first iteration labor cost is not increased because farm laborer may not demand any immediate hike and farmer may not be able to calculate increase in his own living expenses

So roughly the input cost goes up by 8-9 % overall for growing vegetables in first rotation of this economic wheel so corresponding hike of price at farm gate is justified as well.

Adding inter city and intracity transport the cost of vegetables at retail outlet is up by 9- 10% roughly and not just 0.21 Rs.

Similar calculations apply to other agricultural produce like grains, fruits , milk , poultery etc in 3 - 6 months time frame.

Now we have completed first iteration of the wheel of economy lets see what is in store further.

Consumers obeserve that food prices ( Vegetables , grain , fruits , milk ) has gone up by 8 - 10% , many of these consumers are farm laborors , small vendors, shopkeepers etc for whome the food cost are biggest component of the living expenses.

So they demand wage hike by 8 - 10% for compensating this escalated cost of living.

And now iteration 2 starts , Farmer now observes that his cost of living has gone up and also laborors are demanding more money so he need to sell vegetables at higher price , Middleman in mandi thinks the same and increases his commission , Truck driver and cleaners also demand more money.

So lets assume for simplicity that overall the hike in labor costs will add another 2% and now prices have gone up by 12%.

Round 3 :
Middle class is impacted WPI and Consumer Price Index moves so government is forced to hike DA of government employees.
Private sector employees see wages are moving up so demand more salary so now the 3ed iteration of inflation starts.

Round 4: RBI observes that Wholesale Price Index is moving and inflation is up so in the next monitory policy RBI need to increase the interest rates to keep real interest rate same.

RBI Monitery policy impacts the big business and also bank loans so now consumer sentiments overall is impacted , So business scales down the investment and growth suffers.

Is it not what we are observing since 2004 in multiple cycles ?

Last edited by Technocrat : 14th September 2012 at 20:12. Reason: Removed additional formating
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Old 14th September 2012, 13:02   #862
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Well impact of 10% hike in Diesel should be more than 12% in overall prices. Check the calculation below.

Whole load of crock!!! If you need to go OT in such detail, you must check what % of costs is transport cost for fertilizer, water pumping etc. If fuel cost is say 10% then hike of 10% of a component which is 10% of total cost is only 1%. Get it?

Leaving aside all this economic mumbojumbo, in reality everyone will raise prices far more than 10% and we shall see increased cost of living. Period
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Old 14th September 2012, 13:07   #863
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Originally Posted by amitk26 View Post
Is it not what we are observing since 2004 in multiple cycles ?
Yes, we are. And there seems to be no way out at the moment.
And at this rate, our currency is already looking like what Italian Lira used to be before the advent of Euro.
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Old 14th September 2012, 13:20   #864
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

Well if the prices are going up, then only rising prices can bring them (the prices) down.
Its the normal course of economic cycles.
Not Keynesian policies of artificial govt control.

Incidentally, artificially keeping the prices low (using the Keynesian methods) is one major reason why such things spiral out of control.
(second big reason is unfounded optimism / credit growth)

Last edited by alpha1 : 14th September 2012 at 13:21.
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Old 14th September 2012, 13:22   #865
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*


Guys cool down!
On a funnier note, lets blame Pakistan, Iran and Afghanistan for not letting the Gas pipeline project materialize. Lets transfer the blame to the global slowdown(read: US) and that Euro nations aren't doing enough to stabilize the market. Because of what other countries are doing, developing nations like India are being affected. End of story. All go home happily now and continue buying groceries at increased prices, because, India or Indian govt. is not to be blamed for all this price rise.

Serious note, although I don't understand the calculations of economics being discussed here, one thing is for sure, as a "Mango aadmi" I feel the pinch and as Apachelongbow says, more than us "middle class" feeling the pinch, its the people lingering around the "bottom of middle class table - daily waged workers/odd job labours"(If I may say so. No offence meant!) will be affected the most and maximum. This has been the case since the first burst of bubble during the overhyped economic boom.

Black gold will soon become more valuable than the actual gold and soon countries may start rating their economy on the basis of their oil reserves. Sad, but reality is bitter.
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Old 14th September 2012, 13:24   #866
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Originally Posted by amitk26 View Post
Well impact of 10% hike in Diesel should be more than 12% in overall prices. Check the calculation below.





(a) To grow the vegetables a farmer needs to pump water by DG set , Since Diesel price has gone up by 10% automatically the irrigation cost goes up by 10% ( assuming cost of water itself is negligible).

(b) Second important ingredient in growing vegetables are fertilizers , Taking numbers from previous calculation lets assume per KG transport cost for fertilizer goes up by 0.21 Rs /KG as well.
So for a 100 KG bag it is 21 Rs so there is impact but lets keep this amount aside for the moment.

(c) A farmer uses tractor to plough fields and various other operations so this cost also goes up by 10%.

(d) Lets assume that in first iteration labor cost is not increased because farm [COLOR=black][FONT='Verdana','sans-serif']laborer [/FONT][/COLOR]may not demand any immediate hike and farmer may not be able to calculate increase in his own living expenses
In your rush to prove your point, you forgot simple maths.

The transport cost of 100/- does not mean fuel cost of 100. Transport cost contains many other things (loading, unloading, driver salary, bribes, toll, maintenance of vehicles). Increase in fuel cost of 12% would not mean increase in transport cost of 10%.

Also vegetables in cities come from nearby villages. The increased fuel cost in vegetable landing price will be very less.
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Old 14th September 2012, 13:40   #867
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Originally Posted by download2live View Post
Right on. Now just wait till you go to buy groceries and vegetables from market. And pay the bus fees of the kids. Or for that matter take a taxi.

Indeed this is the only way forward.
Those advocating that the increased Diesel price, please explain to me why rice prices have in the last 6 months have increased by 20 %. The sugar prices have similarly gone up (from Rs 31-32 to Rs. 38).

The prices in India go up because of inefficiencies and not solely due to diesel prices. Travel a little outside (100-150 kms) of any major city and see the prices (especially vegetables). You will find that they are sold at 1/4th of city prices. Don't tell me that these price difference happens only due to fuel prices.

There is no doubt that the there will be further inflation because of the diesel price hike, but that will just be an excuse for the middlemen.

---
ps - Rice and Sugar prices are for "loose" Sona Masuri at Reliance at Bangalore. I keep detailed record of all my purchases, so I know what I am talking about.
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Old 14th September 2012, 13:43   #868
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

Diesel subsidy is being borne by petrol users and what realistically needs to be done is for diesel prices to be raised to actual cost pricing and taxes reduced. At the end of the day the government will refuse to do this because of vote bank politics and the fact that a crazy amount of government funds come from petroleum taxes.

If it is done smartly the pricing of both petrol and diesel will come down
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Old 14th September 2012, 13:46   #869
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Originally Posted by alpha1 View Post
Well if the prices are going up, then only rising prices can bring them (the prices) down.
Its the normal course of economic cycles.
Not Keynesian policies of artificial govt control.

Incidentally, artificially keeping the prices low (using the Keynesian methods) is one major reason why such things spiral out of control.
(second big reason is unfounded optimism / credit growth)

Credit is the biggest worry for any economy. Unbridled credit is the bane of India too. If we stop giving fuel on credit cards, see the drop in fuel consumption asap. People are habituated to buy things on credit and pay slowly, thus people who cant afford goods, buy them due to easy credit.

I have personally seen slum dwellers and chawl dwellers buy LED TVs, AirConditioners, Music systems etc on zero interest EMI schemes
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Old 14th September 2012, 13:56   #870
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Originally Posted by amitk26 View Post
Well impact of 10% hike in Diesel should be more than 12% in overall prices. Check the calculation below.



Above is a simple calculation , Lets make it close to real life and do the math again for this vegetable use case in first iteration and spread it to other sectors later.

(a) To grow the vegetables a farmer needs to pump water by DG set , Since Diesel price has gone up by 10% automatically the irrigation cost goes up by 10% ( assuming cost of water itself is negligible).

(b) Second important ingredient in growing vegetables are fertilizers , Taking numbers from previous calculation lets assume per KG transport cost for fertilizer goes up by 0.21 Rs /KG as well.
So for a 100 KG bag it is 21 Rs so there is impact but lets keep this amount aside for the moment.

(c) A farmer uses tractor to plough fields and various other operations so this cost also goes up by 10%.

(d) Lets assume that in first iteration labor cost is not increased because farm may not demand any immediate hike and farmer may not be able to calculate increase in his own living expenses
Taken individually, none of your a,b,c,d would add up to 10% of the individual cost - how would the gross exceed 10% then?

Do you have any idea what would have happened if there were no diesel price hike? A ratings downgrade for India was inevitable (even now we will be on the edge), and that would have meant absolute catastrophe - interest rates would climb like hell and unlike fuel, in overall operations the cost of finance forms a huge factor, so everything would go more expensive.

Add to it the effects of immediate sharp slowdown of economy and suddenly high prices would be the least of your worries.

Mods note: Please quote ONLY the relevant bits of a post. Quoting an entire long message inconveniences our mobile users

Last edited by Technocrat : 14th September 2012 at 20:11. Reason: Removed one line & quote trimmed
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