Great!!!. When I heard that Oil has crossed $135, I immediately filled up my vehicle to full tank fearing a price rise. In the Indian perspective it may sound like this. Petrol in India is currently being sold at Rs. 50/- (Approx because prices vary per state) per litre. The govt. is considering raising the proce by Rs. 17/- per litre taking the price to Rs. 67 per litre. Ofcourse government plans to keep the diesel prices intact (Source: Rediff.com). Everybody is going to be outraged by this price rise and even the Indian government risks its fall with some of its allies withdrawing support on this issue.
The government plans to tame the inflation, which, in India is hovering around the 7.6% mark. With increase in the price of Petrol, the government is getting into a spiral mode and it might lead to more dangerous situations. Considering the fact that India has 300 million strong middle class, the increase is certainly going to weaken it. Some may sustain the price rise but some may stop using the vehicles all together. Ofcourse its got its positive as well as negative sides. Positive sides being, people forced to resort to bicycles or more public transport or even pools would reduce the pressure on the use of fuel and also bring down the vehicle pollution. Negative sides being a negative cycle for all automobile manufacturers as such steep rise in price is definitely going to bring down the sales of automobiles directly thus effecting lesser employment leading to further fall in demand. At the same time even the steel industry would take a beating (upto certain extent) because of fall in demand of the raw material. So indirectly also the employment is going to be affected. Further more this also would put an extra pressure on the public transport system as there would be more demand of Bus Rapid Transit System, or Rail Rapid Transit System or any other type of system as they may not be fully geared up to face the crisis.
The million dollar question is what does the government do? When Mrs. Indira Gandhi the then Prime Minister of India created an Oil Pool Deficit Account she had the future in her mind. She resorted to subsidies which were more populist measures than practical. Ofcourse the situation at that time was more under her control as the population was less and India was a developing country with the elite class consisting of only 10% population. Now situation is different. More population has created more cheaper labour leading to massive industrial growth post liberalization. Subsidies still continue but have slowly and certainly spelled death for this part of the economy. Even so, today also any government for that matter does not have the fortitude to roll back the subsidies and deregulate the fuel prices. The Oil pool deficit was funded from various sources and to that extent even resorted to external debts. Although the subsequent governments were more proactive and created various deficit financing sources, the question still remained as to how long and upto what extent?
The solution has been obvious all these years but the lack of government will delayed the process. Had this been done way back in 1990s, the cumulative effect could have been avoided and the plans and other resource levelling and allocations would have been accordingly. Even today as it may seem to be a very harsh decision, but in the long run it might prove to be boon in disguise.
The government plans to tame the inflation, which, in India is hovering around the 7.6% mark. With increase in the price of Petrol, the government is getting into a spiral mode and it might lead to more dangerous situations. Considering the fact that India has 300 million strong middle class, the increase is certainly going to weaken it. Some may sustain the price rise but some may stop using the vehicles all together. Ofcourse its got its positive as well as negative sides. Positive sides being, people forced to resort to bicycles or more public transport or even pools would reduce the pressure on the use of fuel and also bring down the vehicle pollution. Negative sides being a negative cycle for all automobile manufacturers as such steep rise in price is definitely going to bring down the sales of automobiles directly thus effecting lesser employment leading to further fall in demand. At the same time even the steel industry would take a beating (upto certain extent) because of fall in demand of the raw material. So indirectly also the employment is going to be affected. Further more this also would put an extra pressure on the public transport system as there would be more demand of Bus Rapid Transit System, or Rail Rapid Transit System or any other type of system as they may not be fully geared up to face the crisis.
The million dollar question is what does the government do? When Mrs. Indira Gandhi the then Prime Minister of India created an Oil Pool Deficit Account she had the future in her mind. She resorted to subsidies which were more populist measures than practical. Ofcourse the situation at that time was more under her control as the population was less and India was a developing country with the elite class consisting of only 10% population. Now situation is different. More population has created more cheaper labour leading to massive industrial growth post liberalization. Subsidies still continue but have slowly and certainly spelled death for this part of the economy. Even so, today also any government for that matter does not have the fortitude to roll back the subsidies and deregulate the fuel prices. The Oil pool deficit was funded from various sources and to that extent even resorted to external debts. Although the subsequent governments were more proactive and created various deficit financing sources, the question still remained as to how long and upto what extent?
The solution has been obvious all these years but the lack of government will delayed the process. Had this been done way back in 1990s, the cumulative effect could have been avoided and the plans and other resource levelling and allocations would have been accordingly. Even today as it may seem to be a very harsh decision, but in the long run it might prove to be boon in disguise.
Now as far as the negative impact of this price rise is concerned, it may well be more wise to plan cities accordingly so as to encourage mass rapid transit systems which are efficient and controllable. So also if the government regulates the city developments by decentralizing and delocalizing the industry, it would mean less mobility and better overall development. Let the cities compete under limitations among themselves instead of choking them by traffic and other basic amenities. Although the price rise may not have a direct fallout on commodity prices, the fact remains that its the common man who will be the ultimate sufferer again.
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