Monday, June 05, 2006

Gimme fuel ! Gimme Fire !

While the media goes crazy showing the plight of the quintessential ‘aam aadmi’ due to the price hikes, they fail to show the other side of the story (another example of yellow journalism). Sure it will hit the pockets of the masses … but they fail to focus on the crucial question … Whether the fuel price hike can really be avoided ? I think not. Well not until the corrupt representatives of ‘democracy’ are willing to pull their pants (or dhotis) up and get to work.

First of all, the oil shock had come already in 2005. A lot of countries, especially of the developed world, had already started the process of making adjustments and increasing prices. India on the other hand, had not. I decided to do some number crunching myself and was quite surprised. The highest prices prevailing (according to the ‘latest’ data I could find from 2005) are in Amsterdam where they pay around 78 Rupees per liter. The affluent British themselves shell out around 69 Rs. per liter. Of course oil is heavily subsidized in countries like Venezuela and the Middle East and it was pointless doing the calculations to end up with single digit prices per liter (in rupees). India, more interestingly, ranks around mid way in terms of global petrol prices. Even more interestingly, it is categorized under the “Taxation” list of countries which levy moderate excise on fuel. This first of all confirms that the data I found was already outdated despite being only 6 months old . In the current scenario, with oil prices at $ 70 a barrel, India would definitely be categorized in the “Fuel Subsidies” section. This is further validated with oil marketing companies loosing billions each quarter in order to maintain the political ambitions.

But like most things in life, the pricing of fuel is not that simple either. Concerns ranging from inflation, to inconvenience, to losses of oil companies, to growth rate, all have to be addressed. But nothing demands more attention than the chest of all fortunes – the vote banks. With the left front crying ‘genocide’ each time the petroleum ministry even whispers the words ‘price hike’ it becomes very clear whose’ interests are being kept in mind – the politicians.

Why should we, the consumers, bear the brunt of the spiraling prices when a good part of the petrol price consists of taxes and excise duties that the government levies on sale of oil and various products ? Why can’t the duties be reduced if the consumers are going to be hurt so much ? Well the answer is simple … that would mean reduction in government’s revenues. That would mean the lavish lifestyles of our ‘honest’ politicians would be dented. That would mean the Income Tax department will have to do more work … I’m sorry … that would mean the Income Tax department will have to actually work ! That would mean that tax collected from Chautala alone (his assets being 1600 Crore) each year would be able to feed hundreds of starving kids. Since the poor people don’t come in the high tax brackets and a considerable fraction of the middle class already pays the taxes, the vote banks would be intact. But this would definitely translate into work. Therefore, this scenario is obviously as ridiculous as it is impossible.

And after all, if the Oil Marketing Companies are actually state owned companies, then why should their losses be such a big concern ? Can’t they be simply written off as subsidies ? Sure they can be, but then that would mean the drop in share prices thus affecting a lot of middle class investors. That would mean no dividends. That would mean disillusionment of the middle class vote bank.

Surely the government has to perform a very tough balancing act. They may be corrupt, but they’re definitely not dumb. They start scaring the people with announcements of a Rs. 10 hike in prices being imminent. The people go mad. The media starts analyzing and over analyzing. The markets get affected further. The left (co-conspirator) cries ‘mass murder'. People wait anxiously and dread any announcements from the fuel ministry. After some teasing, the government comes out with a smaller hike of 4 and 2 Rs. The left claims a bittersweet victory and keeps its vote banks intact. The people give a sigh of relief. The media still analyzes. The government emerges as the reluctant hero. The people still unknowingly get victimized. Life goes on. SETI still looks for ETs.

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