PETROL SHOULD SCALE MOUNT-200


BY: V Pattabhi Ram

Recently, in the city of Amravati, petrol price did the unthinkable: it crossed L K Advani’s age. Nonagenarian ‘petrol’ should soon hit a hundred, and shortly after a double ton. Only after that, it should be allowed to settle down. Let me tell you.

First up, our heart bleeds for petrol.

Today, at a price of Rs 90, the tax component is approximately Rs 50, as the base price is around Rs 40. So the tax is about 1.25x the base price. The final resting place should be 4x. If political considerations do not drive decision making, and we are governed wholly by economics, in about six months’ time, if the base price stays at 40, we should see Rs 200 as the price per liter of petrol. Now how does one decide 4x the base is right? Just as how one decided 1.25x was right.

Why does the government need so much money?

Because our roads are bad and need a facelift. Our infrastructure is horrible, and we need money for investment. The fiscal deficit is high, and should it go higher still the country will go broke. The previous government issued oil bonds, and this must be settled. All this has to be funded by real cash and not by currency printing.

Isn’t the government collecting enough by way of tax? No. Aren’t we some 3rd or the 6th largest economy in the world. Yes. Aren’t those who are supposed to pay, paying? No. Why is the government not pushing the envelope and collecting? Don’t know. Didn’t other government also raise oil bonds? Isn’t it that this government has repaid it in full measure. Can’t say. So because we can’t collect from those who don’t pay, others have to cough up more; for the sake of India. You see we are awash with money, being part of the fastest growing economy in the world.

Let’s take the middle class. Assuming the guy drives 30 km a day, it is 900 per month. At a fuel efficiency of 10 km per liter, he will be using up 90 liters. If the price is Rs 200, he will swipe only Rs 18,000 a month. Anyone who can afford a car and drive 30 km a day should be able to provide Rs 18,000: small change. Remember, this money goes to the country.

Should our heart not bleed for India?

Forget, that the political class may not curtail their ballooning expenditure. And lest we miss out, this money is required for various welfare schemes including the MGNREGA, healthcare, etc. It is immaterial how welfare plans were funded till now, or that they were mocked at, and we were told that everyone and his uncle should pay full fare.

After politics, comes economics. The more you push petrol price up, the less will be the inflation. Do not ask me how. This is neo-economics. When all our money goes towards buying petrol, we will have little money for other products. Hence too much of money cannot chase the few other products! QED. If you say there is a limit to studying Economics in the WhatsApp University, you said it, not I.

Finally technology. Push people out of something by making it beyond their reach. Cut the lifelines. By keeping prices high, people will find it easier to jump to Electric based alternative vehicles when they in fact come. They may do car-pooling and save money. Those who commute short distances will the good old cycle. They may even be pushed to use the metro.

Way forward!

By the way, petrol ought to have come under GST. 20 states are ruled by the party, which governs the center, the BJP. Petrol prices can be dropped at the state level. 20 states are ruled by the party, which rules the center, the BJP. Or for that matter by the non-BJP states. But who will want to do? After all, petrol is the cash cow. But at the rate we are milking, one day the cow will go dry, and when if we milk it when it has gone barren, it will scream blood.

Hey but wait for the elections. You can expect a sharp drop. And then you will be told about the virtues of a lower price, higher disposable income, and better standards of life.

 

 

 

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About Pattabhi Ram

A chartered accountant by profession, a writer by passion and a teacher by accidental choice.
This entry was posted in Industrial Economist, TheSundayMorningColumn and tagged . Bookmark the permalink.

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