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Old 14th September 2012, 14:21   #871
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

On another note, here is what happens in our actual real life. All those who were vehemently insisting that the actual increase would be 1-2% max of overall increase in prices. Here we go.

Quote:
The All India Motor Transport Congress (AIMTC) today said it has increased freight charges across the country by 15 per cent following the hike in diesel prices.

"We have decided to pass on the burden of increase in diesel price hike to customers. The freight charges will be increased with immediate effect by 15 per cent across India," AIMTC spokesperson G P Singh told PTI.
http://economictimes.indiatimes.com/...w/16394540.cms

Lets enjoy the deficit controlled inflation now.

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Old 14th September 2012, 14:40   #872
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

^^^To me it looks like DigitalOne's post is contrary to your view. While you (in your earlier post) were citing the diesel price as the cause for price-hike of all products, his post mentions that price of products has been creeping up over the past 6 months anyway, during which there has been no diesel-price hike.

P.S.: BTW everyone has a view and it obviously won't agree with someone else's view. So, no point in indulging in sarcasm when referring to others. Instead put down facts / data to support your point.

Last edited by supremeBaleno : 14th September 2012 at 14:41.
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Old 14th September 2012, 15:02   #873
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

Quote:
Originally Posted by vina View Post
First off - you should check the dictionary for the difference between "simplistic" and "simpleton", unless you made an honest mistake you should look in the mirror when you use the second word.
I know fully the difference in simplistic and simpleton and used the second word with due delibration.

Quote:
Originally Posted by vina View Post
Second, taken individually, none of your a,b,c,d would add up to8 10% of the individual cost - how would the gross exceed 10% then?
Do you really think so ?
Assuming that land cost is amortized over the years typically multiple decades in India and keeping taxes aside. More than 90% of input cost is irrigation, fertilizer,fuel for tractors and transport and labor. Seed cost and other overheads can be considered another 10%.
So when 90% of costs are increasing by 10% a rough estimate of 8 to 9% is not too far fetched.

The example was simplistic explanation on why it should be in ballpark range of 8-9% for first cycle but even if I assume the fuel related input costs are around 20% and not 90% impact is much-much higher then simpleton assumption that Diesel hike impacts only transport.

It impacts transport , farming , Industry etc because of poor state of electrical supply.


Quote:
Originally Posted by vina View Post
Third, do you have any idea what would have happened if there were no diesel price hike?
Sure I do have fairly decent Idea on how it would have impacted but that does not lower the inflation estimate.

There was another way out though for last 1 -2 years , Government could have capped wasteful non plan expenditure like MNREGA to bridge the fiscal deficit. Fuel hike could have been kept revanue neutral that is remove subsidy and lower excise duty and VAT.
coupled with faster movement on infrastructure proposals to pump prime economy. This would have ensured that growth does now slow down; but it would have impacted the vote banks.
Some time back I read that how each percentage point of of GDP growth pulls out couple of million people out of poverty.
For the government vote catching schemes were always higher priority then curbing fiscal deficit.

Now a counter question

Do you know that CLP's 2 X 650 MW power plant in Dadri ( near Delhi) are not running because Coal India has refused to supply coal and I need not go in to the reasons. Do you realize how much Diesel is being consumed by Industry due to this 1300 MW deficit of power ?

If government is really serious to lower the consumption of Diesel it needs to think about improving the power supply and reduce demand of Diesel.

Increasing tax on Diesel car is just a gimmik to silence cacophony of half baked economist pundits on 24X7 channels.

Last edited by amitk26 : 14th September 2012 at 15:05.
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Old 14th September 2012, 15:02   #874
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

According to a report ( I do not remember the title) an increase in diesel price by Rs.5 would contribute to 1 % increase in prices of commodities.

It amuses me to see that farmer is affected by increase in diesel prices, so he might sell the produce at higher rates. Since when did farmer get a saying in selling his produce taking into consideration the input costs?

Moreover, the MSP is set by the Govts by taking into consideration the input cocts and flouted with impunity by agents and processing units. Fuel prices play a very small role in increase or decrease in food prices.

Coming to the LPG cap of 6 cylinders per household per year at subsidized rate of Rs. 400 + per cylinder and proposing Rs. 750 / cylinder after the 6-cylinder cap, why is auto LPG Rs. 45.26 per litre ( assuming a 14.2 kg cylinder is about 22 litres)?
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Old 14th September 2012, 15:03   #875
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

Someone needs to tell the government, you cant have all the Scams and Increase prices at the same time, its just way too much
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Old 14th September 2012, 15:08   #876
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

Quote:
Originally Posted by vina View Post
Second, 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?


Third, 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.
Theoretically you might be right about the % increase being less than 10%. However, each of the affected players ends up increasing the cost of their services by more than 10-15% because they have to cover up the increased cost of living, so in reality, costs increase by more than 10-15%.

Good point about the rating downgrade. You want me to believe that the diesel price hike was the only thing that the government could do to avoid the rating downgrade? Frittering away our national assets like Coal, Telecom, etc. is good for our ratings, right?

Ratings will go up when our fiscal deficit is under control. Are you confident that our fiscal deficit will go with the hike in diesel? We sure did'nt see any impact in the previous hikes, we did'nt see any impact in the PSU divestments, and may I remind you that the prices we pay for fuel are much higher than neighbouring countries like Bangladesh, who incidently do not provide a subsidy for their diesel/petrol. Go figure.

Come on guys, we all understand economics, and we are not disputing the need to eliminate subsidies, but lets not kid ourselves, this govt is in trouble for its sheer corrupt acts, and thats why the general deficit of trust amongst the people. We don't want to pay higher prices when we see the squandering of our nations wealth. Thats really the crux of the disenchantment.
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Old 14th September 2012, 15:08   #877
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Quote:
Originally Posted by carbookie View Post
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.
NO I have did not forget but perhaps you never read my post fully to the round 2 of inflation cycle.

All those who do loading, unloading, driving cleaning , get bribes etc live in same socity so once they see food prices are going up they increase their salaries and bribes as well.

Quote:
Originally Posted by apachelongbow View Post
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
Transport cost of fertlizer I already ignored but water pumping cost is almost 100% Diesel cost similarly tractor tiller and other farm costs are Diesel costs.

You can call it economic mumbo jumbo but there when everyone raises prices by 10% based on a gut feeling, At macro level this mumbo jumbo provides a logic about why a very large hetrogenious group with no formal communication with each other decided to hike prices by same marging, over as cycle of 6 - 12 months and almost always no one makes any more profit then what he was making earlier due to this cycle.

This exactly is called inflation and measured in WPI and CPI
and RBI moves the rates based on these indexes.

Note from Team-bhp support: Please use the EDIT or MULTI-QUOTE buttons instead of typing one post after another on the same thread!

Last edited by moralfibre : 14th September 2012 at 17:35. Reason: Back to back posts.
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Old 14th September 2012, 15:22   #878
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

Quote:
Originally Posted by supremeBaleno View Post
Finally they bit the bullet. I hope they stick to the decision and not roll-back.

Today morning we were discussing this during coffee-break and my boss said "They should have increased it by Rs15, not Rs5".
The problem here is not Rs. 5 or 15. Even after this increase diesel is 45% cheaper than petrol and even if all the subsidy on diesel is removed it will still be cheaper than petrol.

Regarding roll back of the prices now, I really doubt if the current government can withstand the pressure from the allies and the opposition at the same time. But in case they do roll back the rating agencies will most probably tear apart the goverment.

Quote:
Originally Posted by samarjitdhar View Post
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.

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.
Quote:
Originally Posted by amitk26 View Post
Well impact of 10% hike in Diesel should be more than 12% in overall prices.

Is it not what we are observing since 2004 in multiple cycles ?
I fully agree with Samarjitdhar, the cascading effect of the diesel price hike on consumable goods will be much more than 12%. Actually I doubt whether there will be any impact on the subsidy bill of the government.

Secondly the intention of the government was to reduce the consumption of subsidised diesel by the private cars, mobile towers etc. Then is this the way to do it, by impacting the whole nation. With my limited knowledge of economics I really can't understand what the government wants to achieve.
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Old 14th September 2012, 15:36   #879
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

Quote:
Originally Posted by kartikk View Post
Someone needs to tell the government, you cant have all the Scams and Increase prices at the same time, its just way too much
Scams are by political parties and hikes are from government. Thus they increase the prices so that they can have more (scam oriented) schemes and thus have more opportunities (for a scam). Remember, a scam is scam only when it is caught!

They increase the price and thus increase the VAT. This increased VAT, in a way, is used to subsidize the fuel. I think we will be better off if the government removes the subsidy as well as VAT; but then, where will they generate money (to be deposited in their personal accounts thru scams)?

EDIT: Freight increased by transporters.
http://economictimes.indiatimes.com/...w/16394540.cms

Last edited by sourabhzen : 14th September 2012 at 15:48. Reason: Addition on missed information
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Old 14th September 2012, 15:43   #880
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Originally Posted by amitk26 View Post
NO I have did not forget but perhaps you never read my post fully to the round 2 of inflation cycle.

All those who do loading, unloading, driving cleaning , get bribes etc live in same socity so once they see food prices are going up they increase their salaries and bribes as well.
So If I take this purely as a mathematical exercise, it will take large number of iterations (actually infinity) before we even begin to approach a higher number. That higher number will be less than 12%.

If you turn around the problem, we should see a dip of 12% if the prices are reduced by 12%. When was the last time you saw that.
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Old 14th September 2012, 15:54   #881
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

Quote:
Originally Posted by samarjitdhar View Post
On another note, here is what happens in our actual real life. All those who were vehemently insisting that the actual increase would be 1-2% max of overall increase in prices. Here we go.



http://economictimes.indiatimes.com/...w/16394540.cms

Lets enjoy the deficit controlled inflation now.
A lot of people have been making calculations on a lot of assumed values. Let's make a little comparison with a real life example:

We just took delivery of a vehicle whose total cost (including taxes) came to Rs. 16,18,000.00. The freight from B'lore to Ahd came to 9778.00. Which is 0.6% of the total cost. With a 15% hike in freight charges, the cost would increase to .69%(approx) of the total cost, i.e. adding 0.09% to the cost of the vehicle.

Personally, I support the diesel price hike, and in fact it should have been more, ideally, the amount of under recovery. An unsustainable fiscal deficit is far worse in the long run, please don't forget that the pockets from where the money comes to fund the subsidy is our own. We are paying increased rates of various taxes (e.g. Service tax and excise tax, borne primarily by the middle class)to fund, inter alia, the oil pool deficit. A distortion in the demand supply curve caused by externalities does not promote efficient consumer behaviour.

For the record, I drive a diesel vehicle.
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Old 14th September 2012, 15:56   #882
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Originally Posted by carbookie View Post
If you turn around the problem, we should see a dip of 12% if the prices are reduced by 12%. When was the last time you saw that.
Well deflation usually does not happen unless a country is in duress like a war of catastrophy.
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Old 14th September 2012, 16:07   #883
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

Quote:
Originally Posted by teknophobia View Post
A lot of people have been making calculations on a lot of assumed values. Let's make a little comparison with a real life example:

We just took delivery of a vehicle whose total cost (including taxes) came to Rs. 16,18,000.00. The freight from B'lore to Ahd came to 9778.00. Which is 0.6% of the total cost. With a 15% hike in freight charges, the cost would increase to .69%(approx) of the total cost, i.e. adding 0.09% to the cost of the vehicle.
The point I was trying to make is we have so many middlemen in our supply chains from the farm to the dinner plate who use the price rise as a ruse to increase their margins, a 0.09% rise in freight charges end up as a 9-18% increase in end prices to the customers. Our government has never ever tried to get rid of the unnecessary premium that we pay for commodities due to these middlemen, speculators and hoarders.

All of us have a collective responsibility towards maintaining good fiscal sense but it seems the sacrifice is being demanded more from the have-nots. Most of us here will be able to absorb the increase in prices but I do not think without addressing the core issues of cronyism and corruption the inflation monster can be killed and the deficit brought under control.
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Old 14th September 2012, 16:25   #884
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

Fun to watch everybody's mathemagic at work!

The simple fact is, regardless of whether the diesel price has any impact on it or not, prices of essential commodities will go up. My economics is rusty compared to some of you here but I do remember that in a growing economy, inflation is inevitable.

If increasing the diesel price by 5 rupees/litre helpd reduce the fiscal deficit as many are saying, what's the harm? Given our government's history, there is a high probability that the hike will be rolled back anyway.

What I find very amusing is diesel car owners lamenting how price of aloo-pyaaz will go up while all the while they're thinking of how much their own monthly fuel bill will go up! Bite the bullet, guys- petrol owners who run for 2000 km/month pay a bill of 12,000-14,000 on average. You probably pay (or used to pay) 6,000-8,000. Now you will pay 6,500-8,700/- You have a while to catch up with us! So chill...

(tongue firmly in cheek)
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Old 14th September 2012, 16:31   #885
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

Quote:
Originally Posted by samarjitdhar View Post
All of us have a collective responsibility towards maintaining good fiscal sense but it seems the sacrifice is being demanded more from the have-nots. Most of us here will be able to absorb the increase in prices but I do not think without addressing the core issues of cronyism and corruption the inflation monster can be killed and the deficit brought under control.

You are right!! But what is the solution?

Inflation is not the result of high oil prices, or extra oil consumption. Inflation is a direct result of the parallel 'black' money which is somewhat larger than the white economy of India!! All that havala money, all black money we pay to our builders, the cash transaction we do to avoid taxes, the bribes we pay at each signal is all collectively flowing upwards and outwards.
Why is the govt and the opposition collectively sitting quiet on the General Sales Tax (GST) proposal? Because GST will convert all of India into a white economy, with uniform standard tax everywhere. Who wants it? Def not the politician, because his source of wealth will dry up!!!

Sad truth is the affected parties are the salaried class only. This class cant escape paying income tax, cannot raise their salaries to meet inflation and has to keep paying more.

The poor class will refuse to accept lower wages, the middle man and small traders will smilingly pass on increased costs and manufacturers will happily increase prices. So everyone smiles their way to the bank on the back of 2% of India who pay their tax.
I am eagerly waiting the collapse of this perverted inverted pyramid. I want to see a complete ruining of India's economy, because thats when people will rise and fight!!!

Last edited by noopster : 14th September 2012 at 16:37. Reason: Please avoid attacking specific individuals by name. We prefer out discussions to be non-political
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