The Centre, ignoring the Prime Minister’s Economic Advisory Council Chairman Shri C Rangarajan’s prophetic urge to tame the current inflationary situation which is a serious matter of concern, as the threat of inflation was initiatally confined to food articles (particularly cereals) have spread to manufactured products, has announced upward revision in Petroleum prices which will have cascading effect on the daily spend budget of the Common man. Shri C Rangarajan’s caution to the monetary policy makers to watch liquidity to keep the inflation under control has fallen on deaf ears of the GoM.
The Government’s stand is that the domestic price of Petroleum cannot be divorced from the way in which crude oil is behaving in the international market. This will only result in oil marketing companies incurring loss. Decontrolling the petrol price would mean the oil marketing companies will have the freedom in adjusting the prices as per Crude rates. If it was not done, the Government would have to find some way to meet the under-recovery of oil marketing Companies.
Inspite of Government having raised the price of petrol and diesel by Rs 3 a litre, around 3 months back, according to Government sources the present hike of Rs 3.50 per petrol, Rs 2 per litre per diesel Rs 35 per (LPG) cooking gas cylinder, and Rs 3 per litre of kerosene oil is a move aimed at narrowing down its fiscal deficit, and the generated funds will be utilized for Social schemes. The Government has forgotten the spiral inflation which continues to daunt and haunt the common man would make the present hike, a severe jolt in his monthly budget. The petrol prices will be de-regulated, and in the case of diesel there will be a partial deregulation with total decontrol happening in a couple of months. The Government accounts for an incidence of Rs 17.92 a litre on Public Distribution System kerosene, and Rs 261.90 per an LPG Cylinder. Public Distribution System prices should be admeasured with the subsidized prices for kerosene for Below Poverty Line people, whose statistics is inaccurate, as much as Planning Commission itself not having a correct tally of the actual BPLs on a state basis. Even the state data is incorrect. Kerosene oil is given at subsidized prices to non existent BPL families and for lighting purposes when the recipient village is 100% electrified. There are cases when PDS Kerosene is diverted to black market. Yet, unconcerned to plug the loopholes, the Government has thought of a straight jacket hike which will squeeze the middle income groups. In the name of import of edible oils due to scarcity in the domestic market, Government is loosing annually Rs 24,000 Cr. The import is higher by 30% over requirement. Yet, no body is concerned over the loss to the exchequer.
It is an irony that the Petroleum Ministry justified the hike quoting the figures of kerosene in Pakistan, Bangladesh, Sri Lanka and Nepal. The Economic Advisor to the Government holds that regulation does not mean an act of raising prices. When the Government increases every quarter the prices of petroleum products by Rs 3 a litre, when the international prices of oil has not made any commensurate jump so as to warrant a hike, which would cause food inflation to frenzy heights, then what do we call the unjustified hike?
When Government fails to control prices to tame inflation, thinks in terms of only making available more spending for Social schemes, a populist act, it is doing a great disservice to the country and people, who voted them to power. The Common man has been treated shabbily and horribly. There will be spiraling effect on transportation and freight costs. Railways alone will have its fuel bill jacked up from Rs 4,500 Cr to Rs 5,000 Cr. per annum. Likewise, the petrol and diesel bill of Government cars would go up, disproportionately, causing a huge drain on the exchequer. The Finance Ministry had experimented with various measures but continuously failed. The prime minister of India, need to be cautious on this, as Government is not in control of the runaway inflation. The monetary and economic policies of the Finance Ministry cause more distortions on the monetary system and economy than any other. FM has lost his control and grip on the monetary situation.
There is a strong historical “snap back” relationship between the strength of economic recovery and the severity of the preceding recession. Thus, recessions and their recoveries have a tendency to trace out a “V” shape. Because the current recession that began at the end of 2007 started out shallow and only recently became deep, a simple time series model of the “snap-back” dynamic implies that the current recession may have a lower-case “v” shape, although the fact that the economy is likely to continue to contract further before a recovery takes hold argues for the possibility of an upper-case “V”. On the other hand, because the current recession was brought on by a financial crisis, there is clearly more of a downside risk than upside risk to the predicted strength of recovery, even given a robust policy response. Meanwhile, in contrast to the “V” shape prediction based on a simple time series model, the MA forecast is more in line with an “L” shape to the recession and recovery, at least in the near term.
UPA II has pilloried the common man, with a spate of direct and indirect taxation, Bank’s interest rates has been tinkered, upsetting people’s appetite for going for Savings, which will show monetary instability in the medium to long run. . Interest rates need to be higher than inflation, so savers get rewarded for saving – which isn’t the case right now. The banks will fret and fume, but they belong to the people after they were nationalized. The objective was to serve the people and not help the billionaires get into Forbes list. The people who save or put the money in the Bank are the oldies; and not the smart professionals who get 5 figure salaries. These people who paid their taxes regularly also need the support of the Government as much as the BPL. They just want a reasonable interest on their money, not alms from Government. These savings do not cause inflationary growth, as the savings are too little for the old man to spend for his living.
If you don’t act now, you will never get the opportunity. Sooner or later, our economy is expected to collapse like the World Trade Centre.
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