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Friday, June 06, 2008

Why the left is wrong on energy taxation

There has been a significant jump is auto fuel costs across india. Petrol in Bangalore (highest in the country) is about Rs 58.60 /Lit (USD 5.15 / Gallon) to Delhi (lowest) which is about Rs 50.60 /lit (USD 4.45 / gallon). Diesel has shown a similar jump in costs though it is still heavily subsidized. This consumer hike is also accompanied by a huge hit in taxation as both customs duty and excise have been cut. The state governments (who typically levy between 20 - 26 % VAT) may cut the rates slightly, however the rise is not likely to fall below 8 % or so. This is still fine if you look at the background.

The public debate has been on how ´fair´ the hike is and the left front (along with the ever opportunistic right wing hindu parties) have been talking of cutting taxes to the bone etc. While i generally am sympathetic to the leftś agenda, this time around yechury is very wrong. And he is also being stupid in calling the losses incurred bythe oil majors ńotional´. Notional does not mean imaginary. The private majors (reliance, shell et al) have already scaled down local sale (reliance exports bulk of its production), shut down bunks and generally used the rise in crude to improve their margins. The left talks of windfall profit tax, but there is no jurisprudence to back that. The left always loves revolution :)

So instead of beating around the bush, lets seize the bull by the horns and let the cat out of the bag (thanks jim hacker). The real problem is rise in consumption, aspirational life styles that are unsustainable and the usual thick headed human need to elevate the standard of oneś living. In a way Georgie Podgie Bush is right in that costs are rising due to higher consumption by india and china. People who were taking the bus to work a generation ago are worrying about parking for the second car. What the US did with its post WW 2 loot, india is trying to emulate in the 21st century. Well, wake up, the party is over.

The future is renewable power and a lot less of it than now. Distributed generation and consumption is the order of the day. While i will not comment on the use the state puts its oil taxes to, i for one am firmly for higher taxation on fuels to *curb consumption*. As a acid test i will track automotive sales for the next 2 quarters. I am betting that the fuel price hike will have no effect on auto sales and will serve to weed out the more inefficient models. Lets see...


  1. Let me put my comments here - Why I personally doesn't agree to the hike that in place in India.

    1. The hike doesn't solve the problem of Oil Companies. Still they are in G8 loss, May be a small relief.

    2. Why the govt hike the price and the next day asking state to reduce the tax
    on it ? - They feel the heat from the common people.

    3. Govt should not have increased the prize of Diesel at any cost- Think of the avg people in India. They are no way in a position to handle the prize hike of the essential commodities.

    4. Govt should have taken some bold steps to get the proper tax from major BigGuns of India and use it for the welfare of the farmers.

    5. Loan waver is a foolish thought as it will not help people to be productive, than they can use the money to keep the diesel prize stable.

    6.Considering our neighbors India is paying maximum for Oil , If i am correct.

    7.Even in this critical situation India doesn't show it's caliber to go ahead with the Gas Pipeline from Iran, they are more worried about US's opposition.

    8. Even with out oil prize hike Our inflation was rising to new heights-

  2. Shiv replies to Shyl...

    While i can see where you are coming from, my views are based on reality. One cannot consume more than they have. While fiscal deficit spending is the norm, it cannot be sustained without some extreme action like imperialism. Inflation is a result of rising income levels and the consequent rise in fuel prices. In fact i would argue that the fuel prices are a result of inflation rather than the cause. One needs to take a 10,000 ft view of these. As such the miracle of 8% growth for a decade must be accepted with its siamese twin, inflation. You dont create surpluses of 100ś of billion every year (India is after all a trillion dollar economy) at this growth rate and expect prices to be static. Even communist china faces the problem of excess cash flow in the local economy leading to inflation.