Dear reader although this topic require deep insight and intensive study of different policies of government and their impact, which I was not able to do due to lack of time. The will article serve as a basic block for further understanding of the issue. The information provided below is collected from various sources.
The Indian Government raised petrol prices by 11 per cent to stem losses, running at an estimated $137 million a day, suffered by the country's state-owned petrol companies. The price of diesel was increased by 9per cent and cooking gas 17 per cent.
Interestingly the move shows a mixed response Economists as few says that the move was much needed and necessary for economy. How is it so, is discussed in subsequent paragraphs. Other says that the move could derail economic growth in the region, stoke inflation and influence Indian elections.
Manmohan Singh, the Indian Prime Minister, said the move was inevitable: “Our oil companies cannot go on incurring losses. They will have no money to import crude oil from abroad.”
The oil companies of India have reported Rs 77,000 crores under realisation due to subsidy on oil of which Rs 33,500 crores were taken by the government in the form of oil bonds and the rest amount of Rs 43,500 crores was taken as loss in the balance sheet of PSU oil companies. Had the oil companies being owned by private sectors, either that would have closed down or people would have been purchasing the oil at cost more than three times the present level. It has already happened when Reliance was not able to sell the petrol and diesel at the price equal to PSU companies, it closed several of its retail outlets of petroleum products in the country.
There is popular support for policies to minimize fuel prices by subsidies or reduced taxes. But price-minimization policies are likely to harm consumers and the economy overall by increasing total fuel consumption and vehicle travel, and associated costs such as traffic and parking congestion, infrastructure costs, traffic crashes, import costs and pollution emissions. Fuel price reductions are an inappropriate way to provide more affordable mobility for low-income households, other strategies can help them more while also increasing transport system efficiency.
Subsidy In India
The Indian government provide subsidy to control oil prices in the country. The subsidy is massive - hidden by a disingenuous device called oil bonds. Here are some rock solid facts. IOC, HPCL and BPCL are currently losing $137 million a day (i.e., Rs 582 crore per day at Rs 42.50 = $1). They lose Rs 16.34 for each litre of petrol, and Rs 23.49 for each litre of diesel sold in Delhi.
Union Finance ministry has allowed the oil companies to issue oil bonds to meet losses. But according to the officials of ministry, before issuing oil bonds there is need to increase domestic prices of crude oil but this is not the condition before issuing the bonds.
It is a well-known fact that to neutralise subsidy burden on the oil importing companies, government is issuing the oil bonds, which the PSU banks and LIC are forced to subscribe. If yields on these bonds go down, banks succumb to losses, which they try to recover by increasing price of its services as well as increasing interest rate.
Fuel Prices in few of the other countries(as on 3rd June 08)
Turkey: Rs 113.30 per litre
Norway (Oslo): Rs 112 per litre
United Kingdom: Rs 95.50 per litre
Hong Kong: Rs 84.10 per litre
Brazil (Sao Paolo): Rs 66 per litre
Canada: Rs 57 per litre
Pakistan: Rs 44.80 per litre
The United States: Rs 44.25 per litre
Russia (Moscow): Rs 42.275 per litre
China: Rs 31.30 per litre
Malaysia (Kuala Lumpur): Rs 25.40 per litre
United Arab Emirates: Rs 15.65 per litre
Saudi Arabia (Riyadh): Rs 5 per litre
Venezuela (Caracas): Rs 2.12 per litre
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