Accept the world as it is, UNLESS YOU CAN CHANGE IT !

Monday, May 23, 2011


Recently the oil companies have increased petrol prices. Increase in prices of diesel and LPG is on the corner. As usual the reason given is increase in crude oil prices in international markets. However, is it really necessary to increase the prices of petrol, diesel and LPG, i.e. the items used by almost all?

1.      During Iraq war, the crude prices were touched $140 per barrel. At that time the prices were increased. Thereafter the prices of crude oil have started reducing and touched to $70 per barrel. But not a single rupee was reduced in the prices of petrol or diesel. Not only that, but there after the oil companies have kept increasing the prices of petrol at every increase in crude oil prices. Even now the prices of crude oil are not as high as were at the time of Iraq war, but the petrol price is much higher than what it was at that time.
2.      Oil companies argue that they are loosing substantial amount on petrol, diesel and LPG. As all knows, oil companies are making hefty profits every year. The salaries of the employees of these companies are considered the best amongst public sector undertakings. Then what is the problem? It all rests with the cost computation system of these companies. When crude oil processed in the refinery, more than 100 different products are manufactured. The company calculates, as per their standards, manufacturing cost of each item. On the basis of this calculation, they decide that on some of the products they are loosing money. But what about hefty profits they are making on other products?
3.      In multi-product manufacturing process form a single raw-material, this is common phenomena. Banks loosing lot of money on ATM transaction facility provided to the deposit customers. But for that reason, banks can not stop this facility. Banks do pay interest on deposits and earn interest on loans. But this does not mean that they should not accept deposits. If banks stop taking deposits they can not land money and earn interest. Similarly, the oil companies can not stop producing petrol, diesel and LPG because they are loosing on these products. If they do so, the total wastage of crude oil will be more than the amount they are loosing on these products. Moreover, production of petrol, diesel and LPG is integral part of overall process of the refining the crude oil. So if they want to manufacture the profit making products, they have to manufacture these products also.
4.      It is argued that government provides huge subsidy on these products to the oil companies. There is nothing wrong if government provides subsidy for products of mass consumption. Government gives subsidy from the taxes paid by the public. Taxes are paid as direct taxes by those who have taxable income or in form of indirect taxes like excise duty, VAT, service tax etc. The tax payers get back some of the taxes paid by them in form of subsidy on petrol, diesel and LHG. In addition, those who have not paid tax because their income is not that much, are also getting some portion of the tax collection in form of subsidy on these petro-products. If it is so, what is wrong? Those who are earning more than the others, are supposed to support the poor country-fellows. This is indirect support to the lower-income group of the society. In fact government should continue providing subsidy on such products even by collecting more taxes from the higher-income group of the society.

But unfortunately our rulers are thinking on other way. They do not want to increase prices of ATF (fuel used in aircraft). Even though the class traveling in aircrafts is in a position to pay more for the journey, the government is not interested in collecting more money from them. Similarly more income can be generated by levying more taxes on luxury spending and the same can be used for providing relief to the poor by way of subsidy on certain items of mass consumption. This does not mean that we should go for 100% socialist economy. But, in a country like us where the rich are becoming richer by using the resources available in the country and poor remains poor, some cross-subsidization of certain mass consumption items is must.

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