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Old 14th September 2012, 16:33   #886
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

Reading though this thread a few things occurred to me - people confuse many disjointed, unrelated things to make a point and I think that stems mostly from an immediate and visceral reaction to the price increase.

The fact of the matter is this was long overdue and needed to be done. Members of this forum have seen in the case of cars how the increasing differential in petroleum product prices completely skewed demand. And most of us disliked the idea of higher tax on diesel cars.

As far as inflation goes, most calculations are simplistic. We see a greater impact of diesel in the numbers because diesel's weight in the WPI benchmark followed by India is higher than petrol (that explains why petrol price hikes are so frequent and easier to implement). Hence the number will look bad for a while. However, fiscal consolidation and a return to better finances will impact growth positively and high growth, as we know, hides many ills.

One other point made by some people about cutting taxes - it was, on petrol. The excise on petrol was cut by 3.5 rupees to help keep the price stable. However, excise was raised on diesel by 1.5 rupees (I assume to compensate for petrol and also make up for an earlier excise cut.)

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Originally Posted by Lalvaz View Post
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
The diesel price hike alone won't help prevent a downgrade but it was a situation that was reaching crisis proportions and this is a start. All it may do is stave off the downgrade for some time because it signals intent to curb the deficit.

As far as not seeing an impact from previous increases, I wonder if you're referring to petrol or diesel. Petrol is explained above - it ain't a biggie. With diesel the government's attempt is to cap the subsidy at a particular level and not eliminate it all together. Sometimes they don't even manage to do that, hence the deficit balloons and net effect (because crude rises and domestic prices stay fixed) is zero or negative.

The PSU disinvestment point is wrong. In years of big ticket sales, it helps the government's finances in that year alone (so do other revenue actions such as the sale of 3G spectrum). And last year the government didn't even come near its disinvestment target. We've lowered the target this year but I still don't think we'll hit it.

About the scams, they may affect investor sentiment and the country's image but they are not critical from a ratings standpoint. I'll just take one example here- telecom. The aim of the spectrum policy since 1991 has been to make calls cheap and cellphones accessible. That has definitely been achieved and we all enjoy the low rates. The 2G process was flawed and airwaves under priced (it used 5-year old calculations and logic) but the CAG's loss estimate is as over-the-top as the spectrum was cheap. Now the same spectrum is being auctioned at a starting price of $2.6 bln - that is usurious and will raise prices for all of us - how will we like that? Some resources need to be priced within sane limits for the greater good. Sadly, we've swung to the opposite end of the spectrum (pun intended.)

My apologies for the long post.

Last edited by StarScream : 14th September 2012 at 16:39.
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Old 14th September 2012, 16:45   #887
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

Quote:
Originally Posted by StarScream View Post
Reading though this thread a few things occurred to me - people confuse many disjointed, unrelated things to make a point and I think that stems mostly from an immediate, visceral reaction to the price increase.

The fact of the matter is this was long overdue and needed to be done. Members of this forum have seen in the case of cars how the increasing differential in petroleum product prices completely skewed demand. And most of us disliked the idea of higher tax on diesel cars.

As far as inflation goes, most calculations are simplistic. We see a greater impact of diesel in the numbers because diesel's weight in the WPI benchmark followed by India is higher than petrol (that explains why petrol price hikes are so frequent and easier to implement). Hence the number will look bad for a while. However, fiscal consolidation and a return to better finances will impact growth positively and high growth, as we know, hides many ills.

One other point made by some people about cutting taxes - it was, on petrol. The excise on petrol was cut by 3.5 rupees to help keep the price stable. However, excise was raised on diesel by 1.5 rupees (I assume to compensate for petrol and also make up for an earlier excise cut.)



The diesel price hike alone won't help prevent a downgrade but it was a situation that was reaching crisis proportions and this is a start. All it may do is stave off the downgrade for some time because it signals intent to curb the deficit.

As far as not seeing an impact from previous increases, I wonder if you're referring to petrol or diesel. Petrol is explained above - it ain't a biggie. With diesel the government's attempt is to cap the subsidy at a particular level and not eliminate it all together. Sometimes they don't even manage to do that, hence the deficit balloons and net effect (because crude rises and domestic prices stay fixed) is zero or negative.

The PSU disinvestment point is wrong. In years of big ticket sales, it helps the government's finances in that year alone (so do other revenue actions such as the sale of 3G spectrum). And last year the government didn't even come near its disinvestment target. We've lowered the target this year but I still don't think we'll hit it.

About the scams, they may affect investor sentiment and the country's image but they are not critical from a ratings standpoint. I'll just take one example here- telecom. The aim of the spectrum policy since 1991 has been to make calls cheap and cellphones accessible. That has definitely been achieved and we all enjoy the low rates. The 2G process was flawed and airwaves under priced (it used 5-year old calculations and logic) but the CAG's loss estimate is as over-the-top as the spectrum was cheap. Now the same spectrum is being auctioned at a starting price of $2.6 bln - that is usurious and will raise prices for all of us - how will we like that? Some resources need to be priced within sane limits for the greater good. Sadly we've swung to the opposite end of the spectrum (pun intended.)
I disagree, some of the telecom firms that got the spectrum for a song, sold it at a huge premium. Was that not loot of public money?

Do you really believe that Swan Telecom did a lot for improving mobile penetration in India?

This money was our money, and could have been used for reducing the fiscal deficit, so scams do make a difference to our rating. And lets not even talk about the general perception of poor governance that is so often cited by the International rating agencies when downgrading India.

Also as regards our fuel cost, its not really subsidized. Compare our rates with those overseas, and then talk about who is subsidizing whom.

As regards
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Old 14th September 2012, 16:54   #888
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Originally Posted by apachelongbow View Post
If you need to go OT in such detail, you must check what % of costs is transport cost for fertilizer, water pumping etc.
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Originally Posted by amitk26 View Post
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.
This sort of calculation works in theory. Practically, most farmers don't own anything except land. Tractors, JCBs, Minidors/407 that transport fertilizer/farm goods will charge atleast 10% extra.

For eg, Ploughing is charged at Rs.400/hour, i am very sure it will go to 450/hour, citing 'historical high diesel prices'. For six hours it goes to Rs.300.

A typical diesel engine consume 1-1.5 litre per hour when used to pump water, and for 6 hour work per day, it is Rs.45 per day. This will sure hit hard the small farmer and the medium farmer to an extent. This is an unexpected additional expense, in addition to the usual inflationary expenses.

Last edited by ramzsys : 14th September 2012 at 16:56.
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Old 14th September 2012, 17:10   #889
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

You guys are simply wasting your time, doing all these calculations.

Goverment's decision to increase diesel price by 10% will cause the price of everything to increase by 10 to 20%. No one will do so many calculations. Prices will be increased blindly. Will the salaries go up proportionally? No.

Then the government will buckle under the pressure and reduce the price by 5%. Will the price of commodities go down proportionally? No.

So, this hike will make the rich people (producers of commodities - businessmen) richer and poor people (consumers of commodities - salaried people) poorer.

I am going on a diet. So will my car (although it runs on diesel).
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Old 14th September 2012, 17:18   #890
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

Quote:
Originally Posted by Lalvaz View Post
I disagree, some of the telecom firms that got the spectrum for a song, sold it at a huge premium. Was that not loot of public money?

Do you really believe that Swan Telecom did a lot for improving mobile penetration in India?

This money was our money, and could have been used for reducing the fiscal deficit, so scams do make a difference to our rating. And lets not even talk about the general perception of poor governance that is so often cited by the International rating agencies when downgrading India.

Also as regards our fuel cost, its not really subsidized. Compare our rates with those overseas, and then talk about who is subsidizing whom.

As regards
We are addressing the same points tangentially. If you read my post closely you will see that I said the process was flawed and the spectrum under priced. DB Realty and Swan Telecom with the help of Raja twisted the system for their benefit. I am not condoning their actions.

My point was a little broader. All resources cannot be sold with the purpose of revenue maximization. The benefits of keeping telecom spectrum affordable is apparent to all of us and I'm sure the government has benefited many times over from a burgeoning industry that did not exist 20 years ago. And anyway it's a moot point, the licenses stand cancelled right? So, why the angst?

Now, the over-cautious policies are milking the industry dry and killing it - and that in my opinion is penny wise, pound foolish.

Do you know that there is a proposal to charge for all spectrum allotted since 1991 retrospectively at the price discovered in the 2G auction? Let me put it another way, will you as a cellphone user be happy to pay, say, 2 rupees a minute for calls because its a way for you to contribute toward lowering the fiscal deficit?

We are going off-topic. And yes, Bangladesh has low taxes on fuel but I wouldn't want to live there.

Some grist for the mill -
http://www.bloomberg.com/slideshow/2...ry.html#slide1

Last edited by StarScream : 14th September 2012 at 17:28.
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Old 14th September 2012, 17:40   #891
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Originally Posted by subratasenn View Post
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.
Diesel will surely cost lesser but the difference would be way lesser.

The sole problem lies in the fact about the way "subsidy" is defined in India when it comes to fuel. This whole mess about going up and down with prices could have been averted if the government announce a fixed subsidy of say - 8 or 10rs/litre - and just deregulated the price of diesel itself to fluctuate with the market value for an oil barrel. Sigh! A distant
dream now after all this mess. The opposition is just doing their bit by contributing to the ruckus. I wonder what they would have done if given the current market scenario. I bet NOTHING.

All said n done, chalta hai yaar. Maybe its time to deduct one MORE dine out from the monthly calendar. I've been doing this ever since petrol was deregulated. heheh. But I just can't drive around in a clatter!
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Old 14th September 2012, 17:47   #892
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Quote:
Originally Posted by StarScream View Post
So India has one of the lowest per capita income in the world at about $3.5/day and yet we have high gas prices at about $5.5/gallon.

And we claim we have fuel subsidies!! Who is subsidising whom? Where is the so called subsidy going to? Sorry Its time to demand some concrete answers. I dont want to subsidise some bloated babu file pusher is some corner of India

Breaking news! Govt approves FDI in retail and aviation!!! Is it a sign of coming times that the govt has finally woken up and is now not ransom to its thug like allies?
I hope so! Positive news at last. BTW sensex up by 400+points!!1

Last edited by noopster : 14th September 2012 at 18:06. Reason: Back to back posts merged back
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Old 14th September 2012, 18:21   #893
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

This will have spiraling effects on price of goods and services. Tell what middleman and industries are the ones who are going to earn more on this and exploit us.

Simple scenario 1:
You are hiring concrete mixer to put concrete/roofing for your house. Say the machine runs for 4 hours and consumes 5 litres of diesel which is approx 250 RS and earlier the guy used to charge 5000 Rs including labour wages, guess what happens now.. effectively he will be shelling out 25 Rs more for diesel and nothing in terms of wage increase. But he will be charging you 6000 Rs, saying "diesel bad gaya"

Scenario number 2:
Lets assume 500 bags of cement are transported from production center to a city and it costed 5000 Rs[100 litres] for diesel [10 rs per bag] with price rise the additional cost will be 100*5 = 500. So increase in price bag of cement should be [5500/500 - 10] Rs 1. But you see cement companies rising price of the bags by 15 to 20 Rs. Some might argue that they are using diesel to run their plants incase of power cuts.. I am not including that here.

I agree we need to tie the prices of petrol and diesel to world crude prices. But reduce the duties/taxes so that it will be an affordable commodity. Think about poor farmers. If you want to reduce the debt then reduce corruption, don't allocate natural resources like coal for super cheap to benefit the so called big guys. Bring out the black money. Don't buy Tatra vehicles at their super bloated cost. Bring more people under tax net. In Indian barring salaried class i am not sure how many pay their taxes correctly. Every business shops have two books one for themselves and one to show to govt with reduced profit to pay less taxes.
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Old 14th September 2012, 20:59   #894
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Quote:
Originally Posted by rohanjf
You guys are simply wasting your time, doing all these calculations.

Goverment's decision to increase diesel price by 10% will cause the price of everything to increase by 10 to 20%. No one will do so many calculations. Prices will be increased blindly. Will the salaries go up proportionally? No.
Inflation in India over the last year when diesel prices were not hiked was 10%. Are you saying inflation will rise to 20-30% because of this? This is easily verified. We can meet on this read next year and see what happens.
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Old 15th September 2012, 04:07   #895
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Originally Posted by StarScream View Post
We are addressing the same points tangentially. If you read my post closely you will see that I said the process was flawed and the spectrum under priced. DB Realty and Swan Telecom with the help of Raja twisted the system for their benefit. I am not condoning their actions.

My point was a little broader.
...1

That is the whole problem - your point is a whole lot broader than most knee-jerk intellectual-pretends here will understand.

For some reason everyone seems to believe that governments decision of diesel pricing and not laws of demand and supply determine prices.

I guess some magic was involved then that prices of food increased hugely over the last year despite diesel prices not moving at all
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Old 15th September 2012, 14:58   #896
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

India is spending considerable amount of its created wealth in procuring the energy resources (read crude oil). Consequently it is imperative for us to use these resources wisely and pay appropriate price for it while working towards making ourselves self-dependent for energy.

As an example, I will write about some conversations that I have had with many people who are selecting Safari or Scorpio:

Me : Reason for Safari (or Scorpio)?
Them : Increased ground clearance to go over bad roads. (Mind you - only bad roads - no offroading).
Me : Duster can do the same and at the same time save about 40% - 50% in fuel costs.
Them : Does it matter? Diesel is cheap.
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Old 15th September 2012, 15:06   #897
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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That is the whole problem - your point is a whole lot broader than most knee-jerk intellectual-pretends here will understand.

I guess some magic was involved then that prices of food increased hugely over the last year despite diesel prices not moving at all

All the vitriol that is being heaped by most, other than a couple of people who at least make an effort to rationalise their stand, is based on the premise that the poor will be hit if this country lives within it's means and being a rational pricing advocate is being a deficit hawk insensitive to the travails of the poor.

Well for these bleeding heart liberals I have a simple question - if an individual does not have the right to exceed his means why should a government?

Please bear in mind when a neta or a babu says we are doing this or that for the benefit of the poor , then rest assured they are bloody well using the benefit to the poor as a red herring to enrich their kin and cronies. The lure of patronage/largesse is used by the neta/babu combine , which includes netas of all hues, to actually NOT do their jobs and we as a nation pay for this and have paid for it since independence.

I have seen it at close quarters. A sorry old crook ( who once graced the Union cabinet) is rotting away in Tihar due to a piddly little sum of 3 crores in cash found in his residence in a gunny sack with fungus on the currency notes to boot. The amount of money this guy has salted away is in multiples of 1000s' of what was discovered.

As regards those crying themselves hoarse about inflation please do acquaint yourself with macro level situation that exists globally. Due to the crisis in the OECD block easy money is the tool of choice for most central bankers to rejuvenate their economies. Will it work? I do not know and nor am I qualified to comment. Asset price bubbles are being fed by this nonsense like there is no tomorrow. Items of every day need even consumables are now treated as asset classes! . So please once again do your homework before you make 'profound" statements about things that are not within the domain of your competence.

My rant is over.
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Old 15th September 2012, 15:12   #898
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Well for these bleeding heart liberals I have a simple question - if an individual does not have the right to exceed his means why should a government?
Very well said.

Also,inflation is one of the most invidious and regressive taxes. It affects the poor far more than the better off, only it is a slow acting poison. If rupee was still at 42 or so fuel prices, inflation, fuel prices would have been stable. The issue is whether Rs.5 on one shot or Re.1 five times,which is more painful
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Old 15th September 2012, 18:06   #899
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

I read a nice article in Economic Times

With every oil price hike, there is a lot of debate and emotional upheavals, but the hardship caused to the "common man" is seemingly forgotten in a matter of days. Business goes on as usual and the petrol bill for riding a motorcycle is factored in as a monthly overhead cost.

Oil is heavily taxed at the central and state levels, and rightly so. If the purpose of taxing oil products is to ensure that we minimise our dependence on these dwindling resources, then why not adopt a revenue-neutral policy that penalises high use of finite resources and incentivises those willing to reduce their consumption.

Beating petrol price hikes: Adopt revenue-neutral policy without giving rude shocks to citizens
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Old 15th September 2012, 19:07   #900
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Default re: Rationalising diesel prices*Update: 50p rise/month announced*

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Originally Posted by RS_DEL View Post

Well for these bleeding heart liberals I have a simple question - if an individual does not have the right to exceed his means why should a government?
.
I am not a bleeding heart liberal all subsides should be abolished but the fact to be checked is if there is any net subsidy in case of petroleum or not ?

The subsidy amount is blown up by GOI and fed to masses and same is retransmitted by International media with out often highlighting the key points.

(1) As per budgetary figures 40% of the subsidy is born by Upstream sectors (domestic crude producers) though only 20% of crude is from domestic sources.
Why Should ONGC not sell crude at spot rate and share royalty and dividends to share holders ( biggest being GOI). GOI can subsequently give subsidy if it wants ?

(2) Total subsidy figure that is rest 60% is 68,000 Crores it is approx half of the tax receipts from petroleum .

Question to be asked is why fin min is interested in doing this jugglery rather then removing subsidy 100% and taxing to level where government net revenue is not affected ?

Since this is being done successively for decades it can not be simple over site to complicate the math.

Answer lies in Oil bonds , Government gives this so called subsidy in form of 20 year oil bonds.

Normally in every country governments borrow and sell bonds but then it is above board and any rating agency and analyst can simply see how much government is borrowing.

By pushing the bonds to oil companies instead of open market government is able to obfuscate and cameo-fledge its extravagance into subsidy for poor.

Ideally it will be best if this is kept fully simple , Zero subsidy , tax to the level where market can bear and issue bonds so that market is clear on how much of fiscal deficit is being covered by borrowing rather then moving so 68,000 crore of borrowing to oil sector on account of abnormally high tax and then subsidy through bonds.

Read an interesting blog on political economy of oil.

http://sanhati.com/excerpted/2552/
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