Has India got it right on fuel prices?

June 4, 2008

So it’s official. India has finally raised fuel prices, by more than most people expected. A hike in diesel prices in particular is sure to feed through into overall inflation. At the same the government removed the import duty on crude oil.

A petrol station attendant counts currency notes in Jammu.We’d be keen on your opinion. Has the government got it right?

Despite the price rises, oil companies are still going to be losing huge amounts of money and gas-guzzling cars are still going to be heavily subsidized by ordinary taxpayers. The oil ministry had even argued for steeper price hikes.

Are subsidies really the right way to go in the modern world? Is the government sacrificing good economics on the altar of political populism?

Or should the government have tried harder to protect the poor by keeping fuel prices down despite global inflation in oil? The left says the price rises were avoidable, and the government should instead have cut excise duties more and imposed windfall taxes on private companies.

And is this decision going to have a major impact on the UPA government’s chances of re-election?

15 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

First off, all subsidies should be removed and let the economics decide on the price. The other sad note here is each state has its own price on top of the federal price, which causes even more of a frustration / ripple effect on the economies. For example petrol price in karnataka before the increase was INR 52.80 while that in Kerala was INR 48.70.

Unfortunately the decision to raise will have major impact on NDA

Posted by SP | Report as abusive

Reuters Poll Results so far

Will a fuel price hike work against the UPA government?
Yes (31 votes, 66%)
No (16 votes, 34%)
http://polls.reuters.com/in/121238582117 1

sure enough price rises were unavoidable….and this would surely have an impact over the future of the government. But in the larger interest of the in-trouble oil companies and our economy what the government did is right….

Posted by JT | Report as abusive

If India is to become a global power it cannot shun from the global economy. By forcing the state owned companies to sell fuel at cheaper price we’re axing our own selves. Hard as it may seem the people need to understand that is effect is being felt in every single non oil exporting country in the world and the opposition should get their act into gear. As for the left parties the less said the better (one wonders whose side they are on)

Posted by Deba | Report as abusive

Being a citizen of one of the fastest growing economy of the world, the people of India should get into habit of paying the thing they are using. But the government should step out to protect the poor people, who could not afford to pay much. The government has taken a right decision. It gave some relief to the losing Oil company, and at the same time standing firm behind the poor people.
The elections is not so close, as of now, about the short memory of people. So discussing the impact on coming Lok Sabha elections would be stupid, at this point of time. But it would surely have an impact elections in states.

Posted by Akhilesh Shukla | Report as abusive

In India police and minister’s kids are going to school by government vehicle. Bureaucrats or ministers’ wife go for shopping in office car. Corrupted army people and roadways (public transport) people are selling their vehicle’s petrol illegally in India.

Indian people are angry with the government for petrol hike. Why they can’t fight with the corrupted people and bureaucrats?

Posted by A.Y. | Report as abusive

I dont get it . India and China are both moving in the wrong direction by copying USA. What works for USA does not always work for other nations. India should not promote more cars on the road instead it should pour billions of dollars on upgrading its primitive public transportation system so that it would be on par with EU nations. In that way it will help the people as they wont mind using modern transit systems plus help in reducing oil/gas consumption.

getting dependent on oil is a bad idea.

Posted by Raj | Report as abusive

I think the Indian Gov’t did the right thing with the price hike…

Posted by Tiju | Report as abusive

The price increase was bold but still doesn’t solve the problem. In reality we are actually helping the OPEC. Inspite of oil at $135, most consumers around the world pay way below the market prices (including China, India and USA). Unless price rises, the demand will not adjust and hence the prices will remain high.
If the government really wants to help the people, it should raise the prices of petrol to eliminate the subsidies. The 200,000 crore saved can be used to cut taxes and investment in infrastructure. People will not feel the pain and also reduce wasteful consumption thus cooling off the prices.

Posted by Govind | Report as abusive

we have been doing this hiking circus since long. Its the lack of vision of political party which rules us 90% of the time since independence. what we needed was a permanent solutions. SO when next time global prices go up what to do then? again rise the price? Keep on doing the circus? We needed research to find alternate to petroleum products, and we need to find more fuel efficient engines/machineries. Whatever it is, we need to break free from petroleum fuels. A major share of our money goes to oil rich middle eastern countries. ANd countries like Saudi Arabia channel it to fund terrorist organizations. So when they kill our own brothers, in a way, we are paying jehadi fundamentalists to kill our people. We need to break free.

To the people who are saying it as bold, how much courage one need to put all the burden on common man?

to the people who say the hike had been done ages ago-
this pathetic government had always worked as slaves as oil companies. THy have each time increased teh exact amound oil companies demanded in past

and when teh global prices went down, not a single paisa was reduced. it only kept going up. They should resign. The funny remark by manmohansingh is also worth noting “indians should learn to adjust to it”. what a loser.

Posted by resistance | Report as abusive

Hi,

I think India has got it right to raise fuel prices because fuel prices raised globally and effected the whole World and not only India. In India, Oil companies were facing a huge loss so Govt. has to take care of them as well as common man. I am happy that LPG prices are not raised so much but if it would have raised by Rs. 50 in Delhi then I think it might be a trouble situation for everyone in Delhi. I think Delhi State Govt. did right thing by raising only Rs. 10 on LPG and happily beared Rs. 40. Similarly other State Govts. in India bearing the increased amount on LPG like Delhi State Govt.

Since, fuel prices are up and it would raise Inflation rate too and it would directly effect common man specially poor people of India. So, I think UPA has to pay for this in coming elections as NDA paid when they were in power and Onion prices were reached to Rs.100 per Kg.

Hi,

India govt. has followed what the European countries did . But the hike in price could be avoidable as it is going to be a heavy burden for the Indian middle classes.

Posted by Adarsh | Report as abusive

The Government should have hiked petrol prices by Rs 10 to Rs 15 thus removing subsidy on petrol. I think that owners of petrol driven cars can afford to pay for the luxury. LPG cylinder price could also have been increased further.

time to go back to basics – bullock carts and bicycles!
eventually we will have to do that; fossil fuels will run out in twenty years and we foresee no technology to replace it for the next fifty years..

Posted by Anil | Report as abusive

Dear Friends,

Following is the article from well known Newspaper.
Find the detail break-up of the Final price of petrol available in pumps.

This is a break up considering crude oil at 130 $ per barrel. Following
details are for per liter petrol in Rs.

* Basic Price = Rs 21.93
* Excise duty = Rs 14.35
* Education Tax = Rs 0.43
* Dealer commission = Rs 1.05
* VAT = Rs 5.5
* Crude Oil Custom duty = Rs 1.1
* Petrol Custom = Rs 1.54
* Transportation Charge = Rs 6.00
* Total price = Rs 51.90

So for a Rs 22 liter petrol at pumps we people pay Rs 28 tax extra.

Govt. is thinking to impose more price hike to curtain with the current
crude oil bubble in International oil crisis.

If Central Govt. wish, it can still reduce the price of petrol in the
current crisis situation, but it doesn’t intend to do so, instead trying
to fool the people and Nation. This is the basis LEFT parties are
opposing, just generating more profits for the oil marketing companies.

Don’t you think you should pass this message to create more awareness
among the people.???

Posted by santosh | Report as abusive