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Friday, July 8, 2011

Crude getting rude on Indian Economy

Indian government has recently given ì  7000 crore  to OMC’s (oil marketing company) as cash subsidy for losses incurred in last quarter of FY 11 by selling petro products bellow cost price; and in coming days government shall again shell out ì  13,000 for the same reason.
Major Indian OMCs –IOC, HPCL and BPCL, were piling under debt due to under recovery (selling petro products at subsidized rates) being covered by borrowing.
High borrowing that too at the time of high interest rate regime was detrimental for the proper day-to-day working of these OMCs hence government had to compensate OMCs.
Government and upstream companies like ONGC and OIL share subsidy burden with OMCs (also known as downstream companies), but delay in payment from government and upstream companies make OMCs to borrow money.
In India, though Petrol price has been deregulated that means OMCs can set its price according to international crude price and their profitability target, but it is an open secret that OMCs can’t do so without unofficial government nod.
Government fears hike in petro prices shall set already aggrieved inflation on fire and government shall have to face the public resent which could cause the ruling alliance heavily in forthcoming national and state elections.
Even after governments moves of reducing duties and partial petro-price hike, under recoveries for LPG, diesel and kerosene are ì 330,ì 6 and ì 24 respectively.
Common Public need to understand that the subsidies which government is giving is nothing but their own money( as government is  only care taker) and it shall cover up this expense through many small indirect taxes; it’s just like  government puts some money in your left pocket which has been taken from the right pocket.
India is the country, which imports more than 70% of its oil needs and oil under recovery could hamper the Indian economy badly.
Simple steps government should take to reduce oil under recovery
(1)There should be a mandatory cap on annual issuance of no. of LPG cylinders per connection and on same postal address there should not be multiple connections. This shall reduce the commercial use of subsidized LPG gas. This rule should be strictly implemented all over the India.
(2) Consumers  willing to buy LPG at non-subsidized rates should be delivered with LPG cylinders at top priority level so that more people shall be encouraged to go for this option.
(3) Non commercial SUV’s (Sports Utility Vehicle) should be levelled a charge based on their yearly mileage and odometers should be checked on regular basis to ensure no malpractices.
(4) More  public  transport facility should be provided on the  PPP (public private partnership)basis.
(5) Government should be serious on burgeoning population and families with on child only should be incentivised. Lesser population means lesser demand for the crude.


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