[Reader-list] Petrol prices

[S. Jabbar]

Hard to imagine today, but between 1994-98 I rode a bicycle on Delhi's
roads.  It was lovely.  In the early years there wasn't much traffic and I
went everywhere on the bike, in summer and in winter: shopping, seminars,
films, to the Qutb Minar to do watercolours and once, even to DLF for lunch.
Had to give up in 1998 when I started breaking out in hives and even popping
2 antihistamines at night wouldn't stop the itching.  One wise Tibetan
doctor attributed it to the condition of my lungs and the pollution
affecting it.  I had little choice but to get myself a car.

What I wish for is this: that the government stop subsidisng petrol, that
people stop buying cars and say nono to the nano, that pollution levels drop
to what they were in the early '90s, and that I'm back on my dark blue
'Hero' with the drop handle bars.

If wishes were bicycles...


On 2/19/08 3:08 PM, "Rana Dasgupta" <rana at ranadasgupta.com> wrote:

> thanks for this.  this is exactly what i think when people complain
> about the cost of petrol.  it should be much more!
> 
> R
> 
> 
> S. Jabbar wrote:
>> Worried about rising fuel costs? Here¹s an interesting piece that was
>> published in the Indian Express a couple of days ago. Hope this will make
>> people think twice before joining the ranks of the whiners.
>> Best
>> Sonia Jabbar
>> 
>> 
>> Perverse Subsidy for the Rich
>> By Atanu Dey
>> 
>> Nobel prize-winning economist Douglass North observed that ³economic history
>> is overwhelmingly a story of economies that failed to produce a set of
>> economic rules of the game (with enforcement) that induce sustained economic
>> growth.² Producing a set of rational economic rules is a political rather
>> than an economic process. Frequently basic economic truths are willfully
>> disregarded in a myopic but cynically calculated process of short-term
>> electoral gains. In the long run, however, the persistent practice of
>> politically motivated economically unsound policies has the unsurprising and
>> unfortunate effect of impoverishing the economy.
>> 
>> India is a case in point. Despite being endowed with substantial human and
>> natural resources, it has failed to provide a vast majority of its citizens
>> the basic necessities for a decent life. It is hard to avoid the conclusion
>> that what India mainly lacks is a rational set of economic rules. An
>> important contemporary example of a flawed economic policy is the subsidy
>> that the consumers of petroleum enjoy.
>> 
>> The price of a barrel of crude is hovering around US$ 100 a barrel and yet
>> the price of petrol at the pump remains essentially what it was when crude
>> was selling at half that price about a year ago. The resultant gap between
>> the cost and the price has to be bridged through a subsidy that is estimated
>> to be around Rs 70,000 crores this year. The case is made that by keeping
>> the price artificially low, the so-called ³common man² benefits. But that is
>> certainly not the case. It is a perverse and regressive subsidy for a number
>> of reasons.
>> 
>> First, it is the ³uncommon man² who actually benefits directly from the
>> subsidy. In fact, the wealthier you are, the more vehicles you own, the more
>> subsidy you capture. For every litre of petrol or diesel you consume, you
>> benefit by around Rs 10; for every cylinder of LPG, someone else chips in Rs
>> 250. The really poor person does not own cars nor has a gas connection.
>> 
>> Second, when distorted low prices do not reflect the full costs, it sends
>> the wrong signals and consumption is more than is socially optimal. India
>> meets about three-quarters of its petroleum needs through imports at an
>> approximate cost of US$ 50 billion a year. Increased consumption inflates
>> that import bill and is economically wasteful.
>> 
>> Third, the burden of the opportunity cost of the subsidy falls squarely on
>> the people who cannot reap its benefits. The resources that the subsidy
>> consumes are not available for services that the poor benefit from such as
>> subsidies for public transportation systems, primary health and education.
>> 
>> Fourth, the subsidy is financed by bonds issued to oil marketing companies.
>> These bonds represent a future liability. Essentially it is a mechanism
>> employed by the present voting generation to secure benefits that will be
>> paid for by the future generations who do not have a vote and therefore do
>> not have the option to reject that burden.
>> 
>> Fifth, if prices were more aligned to true costs, alternatives such as
>> better public transportation system can have a fair shot at being developed.
>> It would also send the right signals for more conservative use of private
>> cars, leading to less congestion and pollution.
>> 
>> The basic economic truth is that there is really no such thing as a free
>> lunch. Today¹s subsidy comes at a cost that will only grow larger the longer
>> the delay in pricing petroleum products at full cost. It is fairly simple to
>> remedy the situation. Raising the price at the pump is the simplest but the
>> most politically risky. The UPA government knows that and will definitely
>> not risk losing power even if raising prices is for the larger benefit of
>> the economy.
>> 
>> But those subsidies have to be reduced, if not totally abolished overnight.
>> A start could be made immediately to reduce the subsidy to the rich while
>> continuing it for the poor. A mechanism for doing so would be to impose a
>> tax on car owners which would reflect the full cost of the petrol they use.
>> Depending on the size of the engine and average fuel consumption, an annual
>> fee could be assessed which has be paid to maintain registration. So if a
>> particular make and model of car typically consumes, say, 1,000 litres of
>> petrol a year, the tax could be Rs 10,000.
>> 
>> This type of a mechanism would leave all two-wheelers, three-wheelers, and
>> buses untouched. Since it is usually the common man who uses public
>> transportation, the common man would continue to enjoy the subsidy.
>> 
>> Implementing rational economic policy is not impossible for India even
>> though for decades on end we have been burdened with flawed policies. We are
>> moving slowly towards a more rational way of running an economy. Whether we
>> persist on along that path is a political matter which can only be
>> determined ultimately by the enlightened self-interest of an educated
>> population.
>> 
>> For more see Atanu Dey¹s blog: deesha.org
>> 
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