Propaganda of Petroleum Price

In India, petroleum price has always been used as political weapon by oppositions. The reason is very simple because it is easily understood by the people and it directly affects them. In democracy, no party will always remain in power; hence this tool has been utilized to wedge dissatisfaction against the government, irrespective of political ideologies by the opponents.  So either it’s right or left or even those who are having centrist ideology, if they are in opposition, they will vehemently oppose any price rise in petroleum products in domestic market.

vajpayee
In 1973, Vajpayee Ji arriving in Parliament in bullock cart, to show protest against the price rise in Kerosene and Petrol.

 

Recently the same noise has been reverberated in the news channels. Opposition argues that the oil price has been plummeted in the international market, but the government is not forwarding the benefit to the people and charging excessive custom and excise duties. They say, and rightly so, the price of 1 barrel of oil was approx $ 120 in somewhere around 2013-14 and now in 2017, due to various international dynamics, this is hovering around $50 per barrel. But the price paid by the Indian citizen for one liter of petrol/ diesel has been kept same or rather has been increased despite the steep fall in the oil price in world market.

At very naïve stage, the argument of the opposition seems very plausible and rational. But again the economics come in to play. In economics, what is obvious to the eyes may not be in reality. Let me present you a different narrative, which is based on economics and not on rhetoric.

India is a net importer of petroleum product. A significant amount of foreign exchange is spent purchasing Oil from various countries (contribution Gulf Countries in the significant in this regard).

Sometime economy of a country should be looked as whole and not as individual entity. The methodology to look economy of a country as whole is known as “Macroeconomics”. Government needs money to run various schemes and projects, such as building infrastructure, providing food security to the marginalized community, providing healthcare to those who can’t afford, building power stations to generate electricity, giving grants to educational institutions and students, providing subsidies to the farmers, (now they are also waving the loan off, which in my view is not a prudent choice), purchase of defence equipment etc. Many of these activities run by the government is performed which will not result in revenue, rather it put constraint on the limited resources. Our country performs this task as it is believed to be a welfare state.

So for running welfare scheme and building infrastructure money is needed. Government generates this money through taxation. But as you might know only 1% of the Indian Population pays taxes. Hence government resorts to indirect taxation. Excise duty and custom duties fall under this category of taxation. Even though indirect taxes are considered as regressive taxation system, but since our tax base in narrow (only 1% as mentioned earlier) government has imposes it. But the fact of the matter is that even after imposing indirect taxes each year government experiences Fiscal Deficit. Fiscal Deficit in simplest of words “occurs when the revenue generated is less than expenditure incurred.”

Now in case of India, as we all know tax generated is less and the government has huge responsibility, so every year it resorts to borrowing and other means to meet the expenditure. But borrowing to meet the consumption expenditure is not regarded as good policy and it is even true in our family, isn’t it? We can borrow for purchasing a home or a car but if we borrow to have food and cloth, then certainly our family economy will not be construed in good shape. Same is true for a big family called “India i.e. Bharat”

So what government is doing by taxing high on petroleum product is that it is generating additional revenue which is plugging the gap between revenue generated and expenditure incurred. This can be understood through a pictorial graph that how the current government is doing in terms of improving the Fiscal Deficit of the country over the year in comparison to the previous government.

FD
Fiscal Deficit over the recent years

Apart from improving on the Fiscal Deficit front, high taxation on petroleum products has many additional advantages and some of them are very vital. Since I have already bored you with this lengthy article hence I will keep short in explaining the additional benefits of high taxation on Petroleum Products in detail.

High taxation in petroleum product results in :—-

  1. Judicious Consumption of Petroleum Product
  2. Low burden on government Foreign Exchange
  3. Lower Pollution
  4. Boost to Public transportation
  5. Search for alternative energy which is Eco-Friendly
  6. Inflation Control

If you find any doubt in understanding any of these benefits which I have highlighted, just let me know in comment section, I will try to answer your query.

I hope this will help in develop some understanding related the price mechanism of Petroleum Product and high rate of taxation. Now imagine a situation, if the price will rise in international market and commensurately government will increase the price of petroleum product, the same opposition will started making noise and will term government as anti poor and all for raising the price. So next time someone will give any illogical argument to you, you may say “No Ullu Banawing..No Ullu Banawing..”

Last but not the least “today’s opposition will run tomorrows government and vice versa” 🙂

Chalo, bye bye…. 🙂

 

Image Credit: Google Image

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Blunders at Birth: 1

No, I am not talking about the blunders which I, You or We made at the time of our birth, (any way, we did not have any cognitive sense to decide at that moment and most of them is committed in full consciousness :-P) rather the blunders which our politicians and policy makers did before, during and after the birth of India as Nation State. To call it a blunder may also subject to a contentious debate, but still I am not shying away to call it some of the decisions as “Blunder”.

If time will permit me, I will be writing a series of articles on the same topic “Blunders at Birth”, varied in different spheres be it economic, geo-strategic, defence or even cultural. Today I am limiting to only a single aspect of a economic decision, which was taken by the policymakers at the time of independence, which crippled our development and we became underachiever in economic realm.

When we became Independent, we chose “Industry” as a “Prime Moving Force” for development. What does it mean? It means that industry will play a significant role in the development of the nation and government’s focus and heavy investment will be in the Manufacturing or Industrial Sector, which in turn, will eradicate poverty, will make us self reliant, enhance our economic might, would give us the prestige so on and so forth.

Pandit Nehru was a votary of this idea and many termed him visionary for this.

A reality check:

With the hindsight, we, now after seventy years of Independence, can asses that decision, to make Industry as “Prime Moving Force” for economy and to give “over emphasis and significant budgetary allocation at the cost of other sector” (agricultural sector per se) was not a wise decision and rather a debilitating impact on our economy.

Why making “Industrial Sector” as “Prime Moving Force” was not a wise move?

  1. We did not have the infrastructure to support: Industrial Growth is highly depended on the infrastructure of the Nation. Mainly three infrastructures are must to develop a cluster of Industrial Belt and i.e. Electricity, Transport and Communication. Even after 70 years of Independence we don’t have comparable infrastructure with many developed countries and some developing countries, what to speak of at the time of Independence. If infrastructure was not there how one can expect to grow industries.
  2. Insignificant presence of Infrastructure making Industry: Infra making industries are iron and steel, cement, crude oil, refineries industries etc. All these industries was almost absent baring few such as Tata Iron and Steel Company, in Jamshedpur.
  3. No capital to invest: Industry demands huge sum of money for thriving. Our economic condition was in great disarray, because of the severe exploitation and drain on wealth by British. Private capital was not enough; neither the government has enough to spend.
  4. Lack of Technology: Industry needs sophisticated technology which we hardly had any, at the dawn of independence.
  5. No Skilled Manpower: To get employment in technical industry, first human resource needs to be trained, because of the technical nature of the Job. But even today less than 10% of the people in India are technically trained and even those who are trained such as huge chunk of engineers, majority of them are unfit to be called as technical. Imagine the India of 1947!
  6. Market was unavailable: For working of economics one prime criterion is the availability of market. Majority of the people were very poor at that time. Do you expect them to consume the products which were made up in industries?

So I have listed out some of the reasons which suggest that  we should not have focused on “Industry” too much during the nascent stage, but rather we should have focused more on agriculture at that time. When we would have become self sufficient in it and could have developed infrastructure, investible surplus capital, market then we could have focused on making industry as the driver of economy.

Many would argue that why Pandit Nehru would have given so much preference to industry. At that time it was a wide belief that if a nation has to grow, industry has to be given preference and adopting agriculture as chief source of economic progress was considered backward looking. Many nations of Europe, erstwhile USSR and US have replicated the model successfully. So he copied the idea from there.

But mere coping is not enough and one should always be aware of the ground realities. Even though it was considered backward looking, China has made agriculture, their prime moving force after 1949 and became a cash surplus nation. When it had sufficient wealth it started focusing on infrastructure, skill development and now we can see how much that idea is successful. From the threads of kites, to smart phones, from colour in Holi to lights in Depawali all belongs to China.

We failed as manufacturer and even till today our Farmers commit suicides in thousands. This means our agriculture policy is also is failed. We neither became and industrial state nor developed a sound agriculture base

Wasn’t it a “Blunder at Birth”?

Hope this post was informative. Don’t forget to let me know about your views…

 

Rise in income is not always good!!!

Hey Folks!

Hope you all are enjoying Monsoon, except for those who are in parts of the nation which is facing deluge due to torrential rain. I am always intrigued that when some part of the country is under drought yet at the same time others are inundated with the heavy rains. Even after seventy years of Independence we are living in the age of contrasts!

Anyways, today my topic of article is not concerned with it.  By reading the title of my article you may have intrigued and have thought I have gone mad! as we always crave for salary hike while we work, Isn’t it?  But wait, I guarantee you, if you will spend some time with me while reading this article; I will be able to persuade, if not convince, you on my point of view.

I am not going to talk you about philosophical aspect either, such as “Paisa to haath ki mail hai and all ”. Rather my explanation will be based on simple economics!

So before I should start, let me go some year back. I spent some of my crucial years in the capital of Heart of India( Madhya Pradesh), a beautiful state, with beautiful people. Though the overall time spent was memorable, but some of it was not so good.

Humans are prone to disease and illness is intrinsic to it, I had to spend some of my time in some private hospitals, not as a patient but as a caretaker to some of my friends and other close ones. During my stay I came across a striking reality that many of the sisters or nurses in the Hospitals were Keralites (originated from the Indian state of Kerala).

Later when I came to my home town, and when I had to visit some of the hospitals, here also the same phenomena was conspicuous, most of the nurses were from Kerala.

Then one more incident happened, when some of the Nurses were stuck in one of the middle east country and our Indian Embasy successfully airlifted them to India, then I came to know that Kerala is a land where majority of the Girl pursue their carrier in the field of Nursing and it is basically a hub of it.

Well, this was just a background. Now, coming to the real issue and towards the question why Salary Hike is not always good!!!

Recently, Nurses in Kerala had organized an indefinite strike. Their demand was that they are being paid very dismal salary. If you look towards their concern you would also sympathies with them. Majority of them were awarded salary below 13,000 and some even around sub 10,000.

So their demand was that their salary must be hiked and the minimum salary should be no less than 20,000. Since health care is a vital concern, the state government with some hiccups relented and their demand was agreed in principle. Nurses called off the strike.

But, but… this may not be the happy end. There is some elementary economics is involved around it which will suggest that the hike is salary is not good in long haul for the whole community of Nurses.

Let me put it in this way. The basic question is that why the salary of Nurses in Kerala is less as compared to another state? The reason is that there are enough nurses available in the market. Like any other commodity which may be abundance in market the value of that particular commodity will decrease or. Here the value is measured in monetary terms. This is  as same as the situation when very few people is having large options to choose. This is the exact case with the nurses.

Private hospitals find nurses very easily in Kerala and hence they keep them on minimum wages. Nurses, due to scarcity of other options or due to some constraints not willing to relocate, is able to work in that lower wages.

Now if the minimum salary will be raised to Rs 20,000, the Hospitals, which is mostly run by the private firms will find it difficult to pay to the Nurses, because their profit margin will reduce substantially. Hence what they will do is to start firing the nurses. Initially the task which was accomplished by the 10 nurses, they will fulfill the same task with 4-5 nurses.

Hence in turn due to rise in salary, those 4-5 nurses will ready to work extra as they will have an incentive to work, but for those who are fired for them the situation will be bleak. They will lose job and be bereft of the earning whatever they used to get earlier.

Hence the unemployment will rise and menace of unemployment will have its own cascading effect. The negative impact will not only limit to the unemployment. The quality of service will also bear the brunt due to stressed number of staff and patient will ultimately suffer.

Hence overall raising the salary will ultimately to be proved futile in larger extent. This concept in economics is known as “theory of demand and supply”. With the same manner we can understand why the price of any goods or commodity rises or fall.

Hope you would have got some idea about the topic in this tedious and boring article.

Thanks for reading!!!

Image Credit: Google.