Mahangai/Inflation and our leaders

[vijay]

1. The highest crude oil touched was around 140. The Oil PSUs were literally bleeding money at that time. But the govt. couldn't increase price then as it was in an election year. Anyways, 140 was like the max price for a few days. The average price in that period would have been 100-120 USD per barrel. Undoubtedly crude is trading lower now in 70-80 range.

2. Exchange Rate: Rupee was closer to 40 level when crude oil was trading very high, and now it is closer to 50. That is 20 to 25% depreciation with respect to dollar- meaning our imports are costlier. If you convert crude oil in rupees then a) at $100 per barrel and rupee at 40/$ =Rs. 4000 per barrell and b) at $80 per barrel and rupee at 50/$ = Rs. 4000 per barrell; are equal to each other.

3. However, the govt. never reduced prices even when crude had touched $40/barrell in India. I think they wanted the oil PSUs to rake in money as long as possible to offset losses.

4. There is a lot of obfuscation about oil pricing in India. People keep talking about how oil PSUs are in the red as fuel is underpriced in India. However, Petrol prices in India are one of the highest in the world. The reason is that almost 50% of component of the retail price is actually taxes- excise tax, customs, education cess, VAT, etc. The cost of crude oil + refining + marketing + distribution is close to 30 rupees- this is what oil PSU gets. Most of the rest is taxes. When price of crude oil goes up internationally, the cost to oil PSU may become more than 30- this is when they lose money and are compensated by government through oil bonds. But the consumer is still paying Rs 55/litre, which is more than most countries.

5. The petrol is also costlier because of cross subsidization. So diesel is cheaper than Petrol and Kerosene is much much cheaper. This difference is not there elsewhere. So higher price of petrol pays for lower price of diesel and Kerosene. This is, as usual, done in the name of the poor; but results in unintended consequences like kerosene used to power generators and for adulterating petrol at petrol pumps.

Very informative, Kapil.

Now, when States are provided free hands i think its like opening up the Pandora box. States and Union government already started fighting over the tax issues on OIL.

 

[hemanthooda]

Well, while I do sympathise with their cause, I am not a Maoist. (if the above lines meant leading Maoists revolution).

Maoist have been able to give the adivasis their respectable due for their produce. They have stopped the exploitation to some extent in the area of their control.

On the inflation, the main reason has been government policies. At times they seem to have supported the hoarder’s nexus.
A look at the export and import of rice, sugar and wheat for past few years by the government gives a clue to this.
Once, the majority of the commodity enters the market from the fields, the Government starts exporting the commodities, parallel hoarders start hoarding. They create a scarcity in the market to increase prices. They start selling at the inflated price and earn huge premium. Few months before the arrival of the new produce, the government announces import of the commodity (citing scarcity) thereby bringing down the prices. The cycle repeats once the new produce is again in the market.

The plan that can curb inflation is simple (not sure on the difficulty level of the implementation). Organise the retail distribution channel. Remove the middlemen’s not adding any value to the produce. Whenever there is scarcity of a commodity, allow the increase in premium, however, restrict the profit. Create a incentive fund from a part of premium. Give incentive to the farmers (from the incentive fund) when they sell the next produce of the commodity. This way there would be automatic balance between the demand and supply. It would also discourage the unnecessary hording as the risk of hording would increase.

What will the middleman families do ,if they are removed from the system???No one stops govt to put hoarders behind the bars....

 

[arvindc]

What will the middleman families do ,if they are removed from the system???No one stops govt to put hoarders behind the bars....

Either they can start innovative ways to add value to the product or they can switch to lot of other work areas which adds value.

 

[anilsinghd]

When we talk of Mahngai, its all about food items and rarely our politicians come into streets when industrial products' prices increase. This is all nonsense. As far as farmers are concerned, they are selling their produce at distress prices. Its the middleman who makes most of the money. Why can't government control the prices at various levels? Most of the fruit vendors and Sabzi walas sell from footpaths (rent free). They don't pay for anything other than the bribes to police walas. Cutting down the bribe itself should bring down the prices to some level.
What is wrong with the price of milk at Rs 24/liter when water sells at Rs 12-15/ liter? As far as farmer is concerned, he hardly gets the milk prices even to recover his labor and basic inputs. Farmers of Distt. Mathura are not getting even Rs 4/ kg for their potato, where as in Delhi its selling at Rs 13/kg. Where do all our CPM wals and BJP walas go when;

1. prices of steel and cement go up on hourly basis.
2. School fees go up year after year
3. When farmers sugarcane dues are not paid for years.

Does our government or for that mater any political party has the will to tam the traders?? Land from farmers is taken away for developers who sell the plots at exorbitant price. Everything on which rural folks used to depend for livelihood, has been either taken away or destroyed one by one.

RK^2

With due respect RK Sir, how can steel and cement prices curb food inflation. So you mean to say that since the opposition do not protest against the cement/steel/school prices/sugarcane dues etc , they do not have the moral right of protesting against food inflation? That is naive to say the least.

Also i do not get why you only had to name CPM and BJP in your posts , without them the post by you would have made at least some sense. I am out of country but at least know that the Central Government in India in of UPA of which Indian National Congress is the major party. Can you please enlighten me on why Congress would not have anything to do with the inflation issue? I am certainly missng something grossly.

Regards, Anil

 

[anilsinghd]

Bharat Bandh costed India 13000 Crore..Making situation worse for common man.More taxes, more inflation.

I had an elongated discussion on this with my college buddies on our personal email chain group. Since I am not aware of the ground situation I am not an expert but the conclusion of the discussion (and to impart some credit to the discussing folks , almost all are in India ) I had was that Opposition has tried their best to raise this issue but this falls on deaf years. Media has also committed itself to not raise this issue because of the political influence.

If that is right I do not see any harm in the "bands" and the associated cost because this seems to be the measure of last resort.

Apologies for pinching in without having the desired comfort/information level on the issue.

Thanks, Anil

 

[arvindc]

I think the "respectable due" bit is directly taken from Arundhati propaganda. If she could, she would even write how rivers of milk and honey are flowing now in Maoist infested areas. Maoists haven't got anything for adivasis apart from guns and bullets. The exploitation is now being done by Maoists and well, one can always rant against a democratic state as one has freedom of speech. How do you complain against exploitation by an authoritarian with a gun- as there is no one else to complain to but him!? Hope you read about all these adivasi "police informers" being bumped off by Maoists- "if you are not with us, you are dead".

I have reason to believe Arundhati and their are enough references quoted in the "Walking With the comrades" thread. No more comments on this...

On inflation, your diagnosis is unfortunately straight out of 1970s "Kala Bazaar" type movie. This is a different India.

Even if it is a 1970 idea, how it is still relevant. There had been some real instances of the export/import fiasco in last few years.

There are lots of reasons for inflation and there is a good amount of literature available, if one is interested. Hoarding and creating artificial scarcity may be one of the reasons, but surely not the only reason. It is an integrated world. The world is full of cheap money being printed by US and the West, the money needs a home, and it flows into growing countries like India. Then, the govt. manages the exchange rate, accumulating forex reserves and keeping rupee depreciated so that our exports are competitive such that growth is high. The flip side is that we pay more for our imports leading to higher cost of commodities. The interest rates are also kept low for growth, leading to more loans taken by corporates and by individuals both for investment and consumption. Which means that there is much more money chasing fewer goods, leading to inflation.

. Yes there are other reasons. However, the printing of money is not responsible for food inflation. The actual food comodity prices have not increased. How would you explain the rise in prices of wheat floor from 170/10KG to 200/10KG in just three months, the price of wheat remaining the same? If you look at the stock of wheat, it is at one of the hight level in history.

The problem with planned economy is precisely the implementation. When you try to selectively remove middlemen, you only reduce competition in the space. Thus actually increasing the chances of hoarding. Why not actually remove controls such that there are as many middlemen as possible? When there are lots of them, they will be forced to compete and cut their premium. This can be observed on smallest of scales- e.g. Nehru Place for computers. Even middlemen have a role to play in the economy. They are needed for ensuring efficient transactions between buyer and seller. The problem facing farmers is that there are very few middlemen, thus allowing them to dictate terms to the farmers. If there are 10 brokers around for a farmer to sell his produce, his choice and price would only go up. Right now the farmer has to travel several miles to find one broker who then dictates terms to him. Why not open the field and let people from villages become middlemen? Better for the farmer and you also get more employment.

More numbers do not necessary mean competitive prices. You can see at the Delhi autowalas. The number is high then what is actually required. So the earning gets distributed and to compensate that loss, they increase the prices and start cheating. With fewere numbers, there would be more demand leading to more business for each autowala getting them enough revenue without cheating.

The problem with retail is same. The reason that prices in Nehru Place are competitive is because of high volumes. In contrast, a kirana store in a residential place seats idle most of the time because of low volumes. So, he has to generate the earnings from selling high margin adulterated/low quality stuff.

Also, farmers do not have the manipulative skills to be a middlemen.

And of course, you need to have sound regulation to ensure there is no market manipulation. But the key word is regulation, and not control.

Yes, it should be regulation and it's implementation.

 

[arvindc]

With due respect RK Sir, how can steel and cement prices curb food inflation. So you mean to say that since the opposition do not protest against the cement/steel/school prices/sugarcane dues etc , they do not have the moral right of protesting against food inflation? That is naive to say the least.

Also i do not get why you only had to name CPM and BJP in your posts , without them the post by you would have made at least some sense. I am out of country but at least know that the Central Government in India in of UPA of which Indian National Congress is the major party. Can you please enlighten me on why Congress would not have anything to do with the inflation issue? I am certainly missng something grossly.

Regards, Anil

Well, when onion prices reached rs 25/KG in Delhi, the congress party's agitation led to the loss of government for BJP. This time even during last lok sabha elections, almost every vegetable was selling more then Rs 40/KG, still the opposition could not do any thing. They were more worried about the CBI and other investigations put on them, rather then the common people.

 

[kapdal]

I have reason to believe Arundhati and their are enough references quoted in the "Walking With the comrades" thread. No more comments on this...

Even if it is a 1970 idea, how it is still relevant. There had been some real instances of the export/import fiasco in last few years.

. Yes there are other reasons. However, the printing of money is not responsible for food inflation. The actual food comodity prices have not increased. How would you explain the rise in prices of wheat floor from 170/10KG to 200/10KG in just three months, the price of wheat remaining the same? If you look at the stock of wheat, it is at one of the hight level in history.

More numbers do not necessary mean competitive prices. You can see at the Delhi autowalas. The number is high then what is actually required. So the earning gets distributed and to compensate that loss, they increase the prices and start cheating. With fewere numbers, there would be more demand leading to more business for each autowala getting them enough revenue without cheating.

The problem with retail is same. The reason that prices in Nehru Place are competitive is because of high volumes. In contrast, a kirana store in a residential place seats idle most of the time because of low volumes. So, he has to generate the earnings from selling high margin adulterated/low quality stuff.

Also, farmers do not have the manipulative skills to be a middlemen.

Yes, it should be regulation and it's implementation.

Auto/Taxis have a different context altogether. They are not free to set their own prices. The price is decided by the govt. I guess the reason is that people always use auto/taxis for one off use. There is no way a commuter would know what the fair price is for going from point A to B, unless he does it regularly with different autowallahs. I am guessing on the reason, but whatever the reason is, price fixing changes the whole mechanism and is not same as Nehru Place computer shops. The problem of cheating is different. Even if you have one single autowallah in the whole of Delhi, he'd cheat if it is easy to do so (assuming no morals), because cheating increases his income, even if it is already high. The solution is to make cheating difficult and have heavy fines against that. But yes, too many autowallajs would make the business unprofitable. In the long run, the problem should correct itself, but in the short run, the govt. needs to make sure that it doesn't give so many licenses that it makes the business unprofitable.

In any industry, there is always the possibility of participants forming cartels to price-fix and manipulate. That is the govt's role- to stop these anti-competitive practises.

170 to 200, I don't know the specific reason. But there are structural differences between how wheat is priced and how flour is priced. The former is fixed by the govt. From wheat to flour, there is processing, transportation, storage, etc. And flour is free price mechanism. There could be a bottleneck leading to supply shortage like bad transportation. Or there could be a cartel.

Whether it is wheat or onions, if a farmer has to throw away his produce as there are no buyers; while the price shoots up elsewhere as there are no sellers; the issue is the mechanism to ensure buyers and sellers meet is faulty. An effective mechanism needs good flow of information (who is producing what and how much where; what is the demand for which product where, etc.) and good means of transport (to take the goods from producer to consumer cheaply and faster). And middlemen are necessary for all this; as is good infrastructure.

 

[hemanthooda]

Either they can start innovative ways to add value to the product or they can switch to lot of other work areas which adds value.

Why not open the retail segment , allow FDI in retail , invite global players (like walmart etc.)... so that it benefits all....middleman can be engaged here.....By the way we should not look for value addition in everything , there is human angle involved also...

 

[virj]

I have been thinking over this Petrol price mystery. We have seen crude oil prices going up to 140$ per barrel. That time govt. said that oil prices are increasing in international market, we people said, that is right and they accepted the price hike. Now, when crude oil prices in international market are around 75-80$ per barrel, there is no price reduction, rather we can see price hike.
When oil prices were 140$ per barrel, petrol was around Rs. 54-55 liter and now the prices i almost half, the petrol price is same. So where this coming from?

Bhai ji,

I also thought the same once. I also couldnt understand the whole concept of this subcidy on petrol in india. If Govt give a free run than pertol price in india should be around Rs 25/Litre. Govt used to tax it and than subcidise it. More subcidy on diseal. The reason is Farmers use it for irrigation purposes. Now they say they would deregulate it and hence the prices went up. It would be generally Price of petrol + taxes.

They say :"consumers can afford higher prices.” He said diesel prices will also be eventually free of all administrative controls but the government would continue to “heavily subsidise” the cooking fuels like our LPG.
Our taxes on petrol is more than many developed countries. In india they put a lot of tax as indirect taxes as they say "not everyone pay tax" so catch them indirectly.

This also mean Petrol price can fluctuate everyday

Well when you tax it as per some western countries (ave roughly 50%) than provide public transport comparable to western countries as well. If petrol prices go up in some countries they say we have to use lot of public transport but can we say that in India? Lol no, Ok in delhi they have now metro . Their are not enough buses going to my village. Also imagine a girl and a woman + baby ride in a bus. We basically have to cut our trips from village to city.

But then petrol is scare resource. Increase and provide better public transport facilities? Can they do that? Did they think about that before they increased/deregulated prices.

 

[samarkadian]

[Manmohan to Monsoon]

Super brain of India, Sardar , says that Mahangai will be go down *probably* in December if Monsoon goes well. I have a guess that he had blessings of Santa-Banta in dreams prior to this statement.

What a brilliant idea to hoodwink the most crucial issue of today.

This song portrays the sweet pain of trillions :

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