Sunday, January 31, 2016

Economics of Petrol Prices in India

Over the years we have seen a steep rise in the price of the Petroleum products. The phenomenon has been more so on the basis of the Global Crude Oil prices shooting up to the levels of $ 120 a barrel.  The resultant change in the price in India was from say Rs. 20 a liter to almost what we saw as Rs 72 a liter.  The prices were also supported by the depreciation in the value of Re v/s $ where we saw Re dropping from 35 for $1 to what we have seen 68 for $1.

However, in the recent times the Indian Basket for Crude oil has fallen below $30/barrel and that pegs the Per liter of crude oil at Rs. 12.80/-.  Shipment to refinery, processing to extract Petrol, Diesel, Kerosene and other products from it would vary the cost and the price of the finished product.  If we take the case of Petrol, the finished Petrol out from the Refinery costs roughly around Rs. 23.40/liter and then from there it adds up the excise, sales, VAT, and other central and state duties to vary on price from state to state.  

Media has raised this issue time and again that the falling crude prices are not reflecting in the retail prices. But we have seen some portion of reduction, not as much as we should have seen.  partly because of the current rate of $ against Re. where if we actually see the rate then from where we compare it to now, then we would find that the $ is almost double from what it was last when the crude was below $30.

The Second case that goes in for not being able to witness the reduction is cost is because the Govt. subsidy is wearing out and the oil companies now have open market policy to define rates.  To this effect though the oil ministry still govern the prices, the reduction is now decided in four parts - 

  1. Oil companies covering their past loses
  2. Central Govt covering the cost of infrastructure development 
  3. State Govts eating a pie from the profits
  4. Consumers / end users getting the benefit

So now if relook at the overall reduction, the benefit that the media says should be passed to the Consumers is actually distributed in four parts, so the consumer gets lesser benefit than expected.

On the other side, it needs to be noted that the State Govts get benefitted two ways where they get 42% of the excise duty collected by the center and on top of that they charge various taxes like State Sales Tax, Octroi tax and others.  So, the price reduction actually doesn’t have the required impact as when the oil companies reduce the cost of Petrol, the State Govts at times increase the duties and levies on the Petrol. This also marginalizes the overall benefit that the consumer should get. Classic example had been when mid last year the petrol prices were reduced, but the Delhi govt. increased the tax % to fill their treasures

So, the economics of Petrol Prices, benefits passed and the benefits surrendered have their own tale. Media needs to be more responsible to ensure that they bring in the right facts in the public forum rather than just the plain & simple cost v/s end product price comparison.  

However, the impending benefit would be visible as and when the GST regime would be implemented and we would see uniform price reduction / upward swing across the country…

Wednesday, January 6, 2016

Fwd: 7 Really Confusing Questions That Will Make You LOL

1. Do Tata Tea employees take coffee breaks?

2. Why does a "slight tax increase" shave off 10000 bucks from your monthly savings and a "big tax cut" just help you save 1200 bucks?

3. Why does round pizza come in a square box?

4. Does having a vada pav in each hand count as a balanced meal?

5. Why is it that you have to fill out physical forms in triplicate to proclaim your identity and yet can get a loan online with just one click?

6. Why do women have a wardrobe full of clothes and yet have nothing to wear?

7. Why are brokers always rich?