India's sharpest-ever increase in petrol prices may not mean much to the well-to-do SUV owner — but the average consumer is rattled. Why, he wants to know, is his fuel bill shooting up when world crude prices are easing?
The short answer is the government didn't have a choice. Had the hike not come now, it would have come earlier. The government delayed the decision for after crucial elections in five states.
Oil firms last raised prices in January when the Indian basket of crude was hovering at around $85-90 a barrel. But ever since, the Indian basket has seen a steady rise. In the May 1-15 fortnight it was at $112.32 a barrel; on May 19 it stood at $109.08 a barrel. India imports nearly 76% of its domestic oil needs, so it is vulnerable to any volatility in global prices.
The sharp rise in the Indian crude basket since January and the decision to delay the price hike has widened the losses accruing to state-run oil marketing firms. According to the petroleum ministry, oil firms are losing Rs 479 crore every day on the sale of diesel, kerosene for public distribution system and cooking gas cylinders.
But why target petrol and not diesel? The first is less likely to drive up inflation. Diesel prices affect inflation because most goods are transported by trucks. A back-of-the-envelope calculation shows that a Rs 3 increase in diesel adds 25-30 basis points to inflation (100 basis points equal one percentage point).
Indian taxes are another reason for high fuel prices. Data shows that various taxes shave off nearly Rs 28 on a litre of petrol, which sells in New Delhi for Rs 63.31. Any reduction in taxes is likely to upset government finances and blunt its effort to keep the fiscal deficit within the target of 4.6% of GDP estimated for the current fiscal ending in March 2012. The fiscal deficit is the gap between revenues and spending.
So what's the takeout? Keep hoping for a tumble in global crude prices. Till then, live with fuel hikes.
Delhi
SEAT OF POWER
The expensive Sports Utility Vehicle (SUV) might almost have been built for Delhi — it's big, it's menacing, it sits you higher than anybody else on the road. It's the very thing for a powerful capital city. Never mind that our roads are clogged, fuel prices rising and the traffic police does not want anybody driving faster than 50km an hour.
According to an executive with the Society of Indian Automobile Manufacturers (SIAM), Delhi bought about 1,200 high-end SUVs (each costs at least Rs 15 lakh) last year. And Andreas Schaaf, president of BMW India, agrees that their "biggest market" is the north, or Delhi and parts of Punjab.
The SUV suits the national capital's got-itflaunt-it culture. And it is infectious. "That culture is seeping in elsewhere too," says an executive who works with a luxury carmaker. "But if a person buys one luxury vehicle in Chennai, his counterpart in Delhi will buy three. And it will be something bigger and flashier."
Entrepreneur Arjun Kapoor drives an Audi Q7 SUV. He uses the Audi A8 sedan as a second car. There's no doubt, however, that it's the SUV he's sold on. "It's built like a tank so you're safe and secure inside it. If I hit a bumpy road, I press a button and the chassis raises itself. It's got LED lights, which are a lot more powerful." But don't rising fuel costs come into sharper focus with an SUV? Kapoor is dismissive. "My music system cost me Rs 8 lakh. Why should I worry about diesel becoming a few rupees more expensive?"
The traffic police is less enthused. Joint commissioner of police, traffic, Satyendra Garg says Delhi already has more cars than it can handle. "The bigger the car, the bigger the problem. The saving grace, for now, is that the numbers are small," he says. He has a point. SUVs currently account for just 1% of car sales across India. SUV enthusiasts like Ranjan Chawla want to change that. When Chawla's Pajero was stolen, he bought a Mercedes, because "his parents found it difficult to climb into an SUV" . Now he's looking for another SUV. "They'll keep selling," he says, "because there are so many out there. Something to fit every budget."
The short answer is the government didn't have a choice. Had the hike not come now, it would have come earlier. The government delayed the decision for after crucial elections in five states.
Oil firms last raised prices in January when the Indian basket of crude was hovering at around $85-90 a barrel. But ever since, the Indian basket has seen a steady rise. In the May 1-15 fortnight it was at $112.32 a barrel; on May 19 it stood at $109.08 a barrel. India imports nearly 76% of its domestic oil needs, so it is vulnerable to any volatility in global prices.
The sharp rise in the Indian crude basket since January and the decision to delay the price hike has widened the losses accruing to state-run oil marketing firms. According to the petroleum ministry, oil firms are losing Rs 479 crore every day on the sale of diesel, kerosene for public distribution system and cooking gas cylinders.
But why target petrol and not diesel? The first is less likely to drive up inflation. Diesel prices affect inflation because most goods are transported by trucks. A back-of-the-envelope calculation shows that a Rs 3 increase in diesel adds 25-30 basis points to inflation (100 basis points equal one percentage point).
Indian taxes are another reason for high fuel prices. Data shows that various taxes shave off nearly Rs 28 on a litre of petrol, which sells in New Delhi for Rs 63.31. Any reduction in taxes is likely to upset government finances and blunt its effort to keep the fiscal deficit within the target of 4.6% of GDP estimated for the current fiscal ending in March 2012. The fiscal deficit is the gap between revenues and spending.
So what's the takeout? Keep hoping for a tumble in global crude prices. Till then, live with fuel hikes.
Delhi
SEAT OF POWER
The expensive Sports Utility Vehicle (SUV) might almost have been built for Delhi — it's big, it's menacing, it sits you higher than anybody else on the road. It's the very thing for a powerful capital city. Never mind that our roads are clogged, fuel prices rising and the traffic police does not want anybody driving faster than 50km an hour.
According to an executive with the Society of Indian Automobile Manufacturers (SIAM), Delhi bought about 1,200 high-end SUVs (each costs at least Rs 15 lakh) last year. And Andreas Schaaf, president of BMW India, agrees that their "biggest market" is the north, or Delhi and parts of Punjab.
The SUV suits the national capital's got-itflaunt-it culture. And it is infectious. "That culture is seeping in elsewhere too," says an executive who works with a luxury carmaker. "But if a person buys one luxury vehicle in Chennai, his counterpart in Delhi will buy three. And it will be something bigger and flashier."
Entrepreneur Arjun Kapoor drives an Audi Q7 SUV. He uses the Audi A8 sedan as a second car. There's no doubt, however, that it's the SUV he's sold on. "It's built like a tank so you're safe and secure inside it. If I hit a bumpy road, I press a button and the chassis raises itself. It's got LED lights, which are a lot more powerful." But don't rising fuel costs come into sharper focus with an SUV? Kapoor is dismissive. "My music system cost me Rs 8 lakh. Why should I worry about diesel becoming a few rupees more expensive?"
The traffic police is less enthused. Joint commissioner of police, traffic, Satyendra Garg says Delhi already has more cars than it can handle. "The bigger the car, the bigger the problem. The saving grace, for now, is that the numbers are small," he says. He has a point. SUVs currently account for just 1% of car sales across India. SUV enthusiasts like Ranjan Chawla want to change that. When Chawla's Pajero was stolen, he bought a Mercedes, because "his parents found it difficult to climb into an SUV" . Now he's looking for another SUV. "They'll keep selling," he says, "because there are so many out there. Something to fit every budget."
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