Wednesday, May 28, 2008

On Oily Surface

The astronomical increase in prices of petroleum products esp. petrol is looming large since last week. The Congress led UPA government at the centre has been in a quandary over the timing of the price increase. It didn't dare to do so till Karnataka elections were over, and now it doesn't have any other option but to go ahead and review the petro prices as the losses of oil companies mount. The funny thing is that the congress has already lost Karnataka, and it's highly prone to face the voters' wrath in the coming general elections.

We must anticipate the fact that the international crude oil prices have crossed $132 per barrel and might well touch $150 a barrel in the coming months, the most intriguing thing is the politicisation of the issue. The oil companies have suffered almost 200000 crore loss (There were quite a few raised eyebrows when the loan taken by Maharashtra Govt crossed Rs. 100000 crore last year) only because the govt's insistence on keeping the petroleum prices under control.

The government should get rid of most part of subsidies in a phased manner. It could always start with petrol, which hardly affects inflation as most of the transport vehicles are run on diesel. It could easily fix the petrol prices as 'Mark to Market'.
Instead the govt. uses other easier options like issuing oil bonds. It's very unfair on part of govt. to pass the burden on future governments.

The other thing that I fail to understand is the heavy advertising by the public sector oil companies. These companies spend crores of rupees daily just to sell their branded products like extra premiums and speed and turbojet diesel. The companies often tie up with banks and credit card companies to push their sell. The need of the hour is certainly not to encourage the sale of petroleum products.
There is hardly any significant competition to these public sector companies. So instead of wasting the money on advertising, they could use it to subsidize the products in rural areas.

It's time for the govt. take bold decisions and phase out all the subsidies on petroleum products including cooking gas and kerosene irrespective of the political compulsions.


Mahesh C said...

Please read below article....

Suhas H Chatekar said...

You must have heard of APM - Administered Price Mechanism. This is the kind of law that was passed in the parliament way back to control the domestic prices of oil. NDA government tried to mend this law in phased manner when they were in government. But BJP was opposed by all other parties in the alliance and since then the matter is being procrastinated every now and then.

What I feel is, there is still some time for the elections and Congress can take some hard decisions now and try to patch up the things in the coming 10 months. If they keep on wooing the common man with wrong promises now, then after 10 months Congress will be in soup as oil prices are not going to down from here.

Your advertisement spending point is very nice.

Anonymous said...

Hi Abhijeet,
Thanks for writing on the issue which is very close to people's heart.
I have some points that are as follows
1)You were saying that these Public sector companies are spending Huge amount on advertising is partially true.When you observe the ads these companies are only showing ads of the product which are not subsidised. Already other people are there who are selling the same product and to compete with these players i ads are the best way.
2)Now your another point is regarding the High Prices .But please note that only today there is news about GoI giving first priority to the Fertilizers Plant for the supply of Natural Gas which is key raw material for these plants this inclides private as well as public sector companies.
Now the prices of Natural gas has spirraled along with the crude oil prices but considering this is the key element for fertilisers which is also key element for the Agriculture.We are talking about the high grain prices but we are not considering that if the subsidy is not there the grain prices sill further go upword.
Now the WHO says that there will be 100 million people who will be subjected to the deep poverty because of the High food prices.
This problem of high Fuel prices is a concern for everyone and the best way is to find the alternative if not making efficient use of the Fuel.