Diesel & LPG prices decoded: Save Rs 1500, lose thousands!
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- 2 of 5On June 2010, the government first allowed OMCs to decide petrol price, with the stated purpose of helping the companies recover losses and rid the government from the financial burden of subsidies. But the actual hike in price- that of a steep Rs 5- came right after the January 2011 Assembly Elections in West Bengal and Tamil Nadu got over. However, no such hike came while the February 2012 UP elections were underway, despite the significant Rs 4 per litre loss being incurred by OMCs during that period.Moreover, when petrol was first de-controlled, oil marketing companies said petrol prices will be fixed in line with fluctuation in international prices of crude oil.However, even when price of crude went down, OMCs announced a hike in the price of the fuel, citing a weaker rupee (resulting in higher import prices) as the reason.Since June 26, petrol price has been hiked 19 times and reduced a mere 7 times. The idea is to effect minor but frequent hikes so that public outcry against the hike remains relatively muted.
- 3 of 5An OMC pays Rs 778.12 for a 14.2 kg LPG cylinder. Add Rs 38.31 as inland freight and delivery fee, Rs 19.33 as marketing cost and profit and Rs 38.68 as LPG bottling fee to that amount, and the final price of an LPG cylinder before VAT and excise duty becomes Rs 874.44.The government allows a subsidy of Rs 22.58 under Notified Scheme 2002. The OMCs then face a loss of Rs 478.45 to sell LPG cylinders at Rs 373.41 each to dealers. VAT and excise duty then gets added to this amount. It can be mentioned here that Delhi government does not charge VAT on cylinders. Over and above this amount, OMCs pay the dealer-distributors Rs 37.25 as commission. In this way the price of a subsidised cylinder can be calculated at Rs 410.50 in Delhi.In other states, the final cost of an LPG cylinder rises with governments applying 5% VAT charges.
- 4 of 5Indirect effects:Higher transportation charges for goodsHigher cost of food items, construction material, etcHigher bus fare, diesel-run cabs, auto, etcPressure to hike railway freight chargesHigher running cost of tractors, borewells, threshers, etc, causing pressure on food pricesDirect effectsHigher running cost of diesel carsLower sale of diesel cars
- 5 of 5Diesel price hike: Why right ahead of Budget 2013-14?1. The government needs to mop up revenues for the upcoming Budget. A part of the money required to fund flagship programmes under the 12th Five Year Plan- 16 out of which require Rs 15.47 lakh crore- will have to come from somewhere. The easiest source of this money is, of course, the Indian middle class.2. The government also needs to take action that improves market sentiments and makes the business environment appear friendlier to foreign investors. The Sensex rose 146 points and crossed 20,000 points soon after the announcements. The move sends positive signals to rating agencies on the nation's deficits.3. Finally, taking tough decisions before the Budget makes the task of preparing a populist Budget easier. A populist Budget on the eve of General elections reflects well on the government and results in political benefits.