Tuesday, 8 November 2011

Oiling the Machine: Why Fuel Prices in India Will Keep Rising

What goes up must come down, conventional wisdom says. Just throw a stone up and see – and be careful it doesn’t fall on your head.

If you’re the Indian government, though, and if it’s fuel prices that you’re talking about, conventional wisdom, and gravity, can go take a hike.

Fuel prices, in this Greatest Democracy In The World, have been “deregulated” as of last year – in other words, state-run fuel companies were allegedly given the freedom to “adjust” their charges according to the prices of fuel in the international market. The idea (at least according to the official account, which – if you’ve been paying attention to my writing – you know not to trust) is that the consumer will pay according to the international cost of fuel (primarily petrol). When it goes up, he or she will pay more, of course – and when it goes down, he or she will pay less. And because the oil companies will be competing against each other, the consumer will get the best deal. Impeccable neoliberal capitalist logic, right?

Well, guess what happened.

Yeah, that’s right. Far from competing, the oil companies quickly formed a cartel, where the prices of petrol would only rise and rise, whatever the international price situation.

Who’d have guessed?

Well, actually – anyone could have guessed. That, apparently, was the whole point, to raise oil prices in a way that would let the government off the hook.

You see, until last year, the price of oil was controlled by the government, which usually (at least when an election was coming) tried to keep it low. When elections weren’t imminent, of course, the government raised the prices as much as it wanted, and siphoned off a hefty part of the proceeds for the benefit of the ruling party. That’s hardly unique, of course, in India’s political scenario, but it did have a high political cost.

The reason for the political cost is that petrol prices aren’t a stand-alone price. When you raise fuel costs, you raise the costs of everything – from the cost of transporting produce from the fields to the markets, to the cost of commuting to work, everything that depends on fuel becomes more expensive, resulting in increased cost of living at a time when food price inflation alone is running at over 12% and the so-called eminent economist who is the country’s alleged prime minister (without winning even a municipal election in his life) has nothing more to offer than “assurances” that the rate of inflation (that is, the rate of increase, not the actual prices themselves) will eventually come down.

This problem is exacerbated by a couple of other things:

First, in recent years, the government has bent over backwards to promote private car ownership in this country. On the one hand, car makers have been given ridiculous incentives to set up factories (such as virtually free land, taken from their original owners at gunpoint if need be, in the “national interest”, or decade-long tax holidays). State-owned banks have also gone on lending sprees so you can buy your car on a “soft loan” you can pay back in five or six years. Never mind the fact that the urban infrastructure – the streets and traffic control apparatus – can’t begin to accommodate all the new traffic; India has to prove to the world that It Has Arrived. What better way than allowing the public transport system to decay (except showpieces in the largest cities) while cramming the streets with private vehicles? Let the mind-boggling traffic jams begin!

But those private vehicles need fuel, don’t they? And almost all of India’s fuel has to be imported, too. So, increased consumption of fuel by a burgeoning fleet of private vehicles leads to...increased imports, which means more money spent importing that fuel! Amazing! Who’d ever have thought it?

Cars need fuel? Who'd have thought it...

But the thing gets even more ludicrous. India’s petrol quality is among the lowest in the world. Fuel adulteration is at incredible levels, to the extent that if you don’t use your car for a few days, you might have difficulty starting it because the contaminating oils, like naphtha and kerosene, have settled to the bottom of your petrol tank. The adulteration is systematic and occurs all the way down the supply chain, because it there’s so much money in it.

Why is there so much money in it?

The reason is that while the price of petrol is allowed to rise and rise, those of diesel and kerosene are kept artificially low. Plenty of people in India still cook on kerosene stoves, and it’s called the “poor man’s fuel”. It’s heavily adulterated, too, of course, because you can make more money by selling five litres of kerosene mixed with two litres of naphtha than you can by selling seven litres of kerosene; and a substantial part of it is purchased to adulterate petrol. It works out very well for the people doing the contamination.

Diesel, similarly, is kept artificially cheap in order to please farmers, who form an important voting bloc. Farmers use diesel for their tractors, and diesel-fuelled trucks haul loads all over the country. Well, then, shouldn’t diesel be kept cheap? What’s the problem with that?

This: there are diesel-fuelled cars in India, which are rather more expensive than the petrol-fuelled automobiles and motorcycles the hoi polloi are forced to use. These diesel-fuelled vehicles are owned only by the rich, and since diesel is cheap it’s not worth adulterating; which means that the costs, both financial and pollution-based, of petrol are disproportionately borne by the middle and working classes.

Now, as I said, the price of petrol is being raised deliberately and repeatedly (those of cooking gas as well) by the (state-owned) oil companies. These companies, according to the government, are autonomous and determine their pricing on the basis of international costs of petroleum. In that case, shouldn’t the price (as I said) go down when the international price of petroleum goes down?

It will surprise no one that it isn’t.

The price of fuel has already been raised five times this year, and since last year, when the prices were “deregulated”, the costs have only risen. The technique is always to raise the price at midnight, with only a couple of hours’ notice, so that people so that people don’t have a chance to rush out and fill a tankful before the cost goes up (something appropriately called “midnight robbery” by Hindunazi politician Lal Krishna Advani).

There are two separate (and, as I shall explain, mutually incompatible) excuses for this:

The government claims that the oil companies determine the prices by themselves, and the government has no control over them. At the same time, it blames the increasing price on the “international situation” and the steady devaluation of the Indian rupee vis-a-vis the US dollar.

Why the argument fails: The government is itself perfectly aware that the oil companies seem to time their fuel price hikes once elections are safely out of the way, no matter what the international situation is. Also, the devaluation of the rupee isn’t something that just happened, like a natural force. Virtually every episode of devaluation of the rupee, which has crashed by about 500% in the last two decades, has been the result of a deliberate policy by the government in order to “boost exports”. Now, India’s exports are almost all items that other nations can get along without – textiles, or software, for instance. Plunging the rupee into the muck in order to make your exports cheaper won’t get you far when your customer nations are in deep economic crisis and people would rather spend what little cash they have in order to keep a roof above their heads. But since our imports are vital to the economy and everyday life (like, you know...petroleum?) this will make imports costlier, all to keep a relatively tiny number of exporters and IT professionals happy. And even that happiness will evaporate pretty damn quick when depression abroad crushes their business like a ton of bricks, so it’s triply futile.

However, let’s for the sake of argument assume that the idea has merit, and that the devaluation of the rupee is actually partly to blame. Now, the rupee has in recent days been bouncing up and down from about Rs 45 to the $ to Rs 50. According to the government, in the last two months (the interval between the last big price rise and the latest), the rupee has fallen by about four rupees to the dollar, making a further price hike inevitable. But, as I said, the rupee-to-dollar rate is fluctuating up and down, and only ten days ago was (I saw it myself) at Rs 46 to the $. Why, then, not import your petroleum in large amounts when your currency appreciates and stop the imports when it depreciates? Why doesn’t anyone in a position to be heard ask this simple question?

The oil companies claim that their hands are tied by the (alleged) fact that they already run losses on the petrol they are selling. They say they will have to curtail sales if they don’t raise prices.

Why the argument fails: First, since a large part of the demand is because of the deliberate fostering of private car ownership, it’s not as though civilisation will crash to a halt if less petrol is sold. People may have to get used to taking the bus again, or (gasp) walking a kilometre or two. Also, instead of competing against each other, why are the oil companies forming obvious cartels with no difference in their prices?

Besides, these same oil companies openly state that if the government orders them to, they will reduce fuel costs. Remember that the government claims that the oil companies are independent? According to the companies themselves, they aren’t.

What is the government doing about this? Nothing, actually. Our rulers know the incredible apathy of the Indian people, who at the most will vote them out of power for a while so another coalition can have its run of looting the country, and then vote them back in again. They know perfectly well that there will never be a violent revolution in this nation, or even a military coup – Indians don’t have that much backbone. In fact, in response to the protests against the latest price hike (two midnights ago as I write this), the so-called, unelected “prime minister” has said that he wants even further deregulation of fuel prices.

I’m trying to visualise what’s going to happen if India’s Zionazi friends and Evil Empire overlords attack Iran, as they are threatening. If Iran, as it is capable of doing, shuts down the Persian Gulf with a few anti-ship missiles, and the cost of petroleum soars to $200 or more per barrel, where are the prices going to go?

Even the sky couldn’t be called that high.

1 comment:

  1. i agree to u totally.....here in india the govt is 100% corrupted and because of the oil companies are making heavy profits but showing that they are making heavy losses....see the 2 g scam where all the govt leaders are involved including the finance minister of india....the only way for this is let the india get poorer day by day and these corrupted govt officials will look for alternative source of income.


Full comment moderation is enabled on this site, which means that your comment will only be visible after the blog administrator (in other words, yours truly) approves it. The purpose of this is not to censor dissenting viewpoints; in fact, such viewpoints are welcome, though it may lead to challenges to provide sources and/or acerbic replies (I do not tolerate stupidity).

The purpose of this moderation is to eliminate spam, of which this blog attracts an inordinate amount. Spammers, be warned: it takes me less time to delete your garbage than it takes for you to post it.