LPG is set to weigh down on your budget
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With the existing government mechanism having failed to provide substantial relief to the common man from inflationary pressures, the expected hike in LPG prices will hurt household budgets more than ever.
Gone are the days when onions were a regular ingredient in Vinita Sharma's meals. There are fewer eggs for breakfast, pulses are no more a staple diet in this household and the children have to spend their winter vacations at home instead of their planned new year extravaganza in an outstation. “The steep escalation in the prices of daily food items has left us with no choice but to revamp our monthly budget and scale down little luxuries to the bare minimum,” says Vinita, a Noida-based housewife who moved to the national capital after her husband, a bank executive, relocated last year.
Like Vinita, if the recent increase in prices of food items (and of course, the petrol price hike in December) burnt a deep hole in your wallet, then get ready for another body blow as price of the all-essential Liquified Petroleum Gas (LPG) is set to go the same way. Reportedly, the government is planning to increase cooking gas prices by anywhere between Rs 15-40 per cylinder, a move bound to fuel the existing inflationary pressures. With an escalation in the prices of most household products as transportation costs rise further, this move to hike LPG prices will deeply hurt the common man.
The impact, once all these factors are taken into account, is by no means going to leave an average consumer financially comfortable. Monthly household budgets will need to be considerably revamped. Add to that the possibility of EMIs rising further with the Reserve Bank of India (RBI) looking to raise interest rates to counter inflation. This leaves the common man with no option but to cut down on luxuries like travelling and spending on a decent meal with family on a weekend. To put it bluntly, the hole in your wallet is set to get deeper!
Curtailing small luxuries is something that might help the so-called upper middle class to deal with the current situation, but it is definitely not a liberty that families in the lower strata of society have. Take the example of a household that lives on less than Rs15,000 per month. For such families, where geysers are not a feasible luxury, partly due to low income and partly due to a poor power scenario in their towns, LPG is the only source of hot water during winters. A hike in LPG prices will hurt this strata the most as a replacement (such as solar power) is absolutely unaffordable. “What do we replace LPG with? How do we cook, what do we eat? Cooking on firewood is also a costly affair these days. What is the other option...” asks a distressed housewife from Darbhanga, Bihar.
But then it's just not about household economy. On a broader front, there is a bigger threat lurching around. Rising interest rates, food prices and of course LPG price willl certainly shrink Indian consumers' purchasing power ultimately making consumer demand fall, which in turn will force companies to defer planned investments leaving growth rates in a limbo.
The Oil Minister Murli Deora maintains that his ministry is not in favour of raising the prices of domestic LPG and diesel prices following the spurt in prices of global crude oil (currently hovering around $90 per barrel) on the ground that the move will add to already high inflation rate. But then considering that Deora wants the government to compensate at least half of the Rs 72,812 crore revenue loss that state-owned oil firms are likely to incur this fiscal on selling diesel, LPG and kerosene below cost, the government looks set otherwise, and by the looks of it, there isn't much choice either.
The price of LPG in the international market has jumped by over 66 per cent over the past two years, which will certainly translate into a proportional increase in the subsidy that the government provides. This, as experts say, is something the government cannot absorb anymore and let state-run oil companies bleed. Considering that India currently imports nearly three million tonnes of LPG a year at prevailing international prices, subsidising it beyond a limit is not a sustainable option. As such, with prices soaring in international markets, the subsidy component per cylinder has already leaped to a whopping Rs367 per refill, higher than the actual price of a cylinder, which costs about Rs 350. As per Petroleum ministry figures, oil firms lose as much as Rs 272.19 per LPG cylinder (14.2 kg). Oil marketing companies, including Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) currently lose over Rs 225 crore per day collectively for selling domestic LPG, diesel and kerosene below their imported costs.
A meeting of an empowered group of ministers (EGoM), which was scheduled for December-end, to consider raising prices of domestic LPG and diesel was deferred indefinitely at the last moment. While the hike seems imminent, the quantum of the increase and the timing of the hike is what the government looks to be deliberating upon. According to Nidhi Dhruv, Associate Analyst, Corporate Finance Group, Moody’s Investors Service, “By deferring to raise domestic fuel prices to market levels, the government has stayed the inevitable and dealt a setback to reformers calling for market deregulation. The government though seems to be committed, however, complete deregulation is unlikely for now given the social and political pressures to maintain subsidies for cooking fuels.”
While unexpected steep price escalations have become a regular feature now, the least that the government could do is to plan things in advance, initiate timely steps to control retail prices, inform masses in advance of the problems in store and try and implement effective administrative measures, both short- and long-term, to be able to manage such a crisis in the future. Agreed that such government attitude would be Utopian, something that few would even term unrealistic, but then the country is also awaiting for a time when the government shows some accountability towards its citizens.
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With the existing government mechanism having failed to provide substantial relief to the common man from inflationary pressures, the expected hike in LPG prices will hurt household budgets more than ever.
Gone are the days when onions were a regular ingredient in Vinita Sharma's meals. There are fewer eggs for breakfast, pulses are no more a staple diet in this household and the children have to spend their winter vacations at home instead of their planned new year extravaganza in an outstation. “The steep escalation in the prices of daily food items has left us with no choice but to revamp our monthly budget and scale down little luxuries to the bare minimum,” says Vinita, a Noida-based housewife who moved to the national capital after her husband, a bank executive, relocated last year.
Like Vinita, if the recent increase in prices of food items (and of course, the petrol price hike in December) burnt a deep hole in your wallet, then get ready for another body blow as price of the all-essential Liquified Petroleum Gas (LPG) is set to go the same way. Reportedly, the government is planning to increase cooking gas prices by anywhere between Rs 15-40 per cylinder, a move bound to fuel the existing inflationary pressures. With an escalation in the prices of most household products as transportation costs rise further, this move to hike LPG prices will deeply hurt the common man.
The impact, once all these factors are taken into account, is by no means going to leave an average consumer financially comfortable. Monthly household budgets will need to be considerably revamped. Add to that the possibility of EMIs rising further with the Reserve Bank of India (RBI) looking to raise interest rates to counter inflation. This leaves the common man with no option but to cut down on luxuries like travelling and spending on a decent meal with family on a weekend. To put it bluntly, the hole in your wallet is set to get deeper!
Curtailing small luxuries is something that might help the so-called upper middle class to deal with the current situation, but it is definitely not a liberty that families in the lower strata of society have. Take the example of a household that lives on less than Rs15,000 per month. For such families, where geysers are not a feasible luxury, partly due to low income and partly due to a poor power scenario in their towns, LPG is the only source of hot water during winters. A hike in LPG prices will hurt this strata the most as a replacement (such as solar power) is absolutely unaffordable. “What do we replace LPG with? How do we cook, what do we eat? Cooking on firewood is also a costly affair these days. What is the other option...” asks a distressed housewife from Darbhanga, Bihar.
But then it's just not about household economy. On a broader front, there is a bigger threat lurching around. Rising interest rates, food prices and of course LPG price willl certainly shrink Indian consumers' purchasing power ultimately making consumer demand fall, which in turn will force companies to defer planned investments leaving growth rates in a limbo.
The Oil Minister Murli Deora maintains that his ministry is not in favour of raising the prices of domestic LPG and diesel prices following the spurt in prices of global crude oil (currently hovering around $90 per barrel) on the ground that the move will add to already high inflation rate. But then considering that Deora wants the government to compensate at least half of the Rs 72,812 crore revenue loss that state-owned oil firms are likely to incur this fiscal on selling diesel, LPG and kerosene below cost, the government looks set otherwise, and by the looks of it, there isn't much choice either.
The price of LPG in the international market has jumped by over 66 per cent over the past two years, which will certainly translate into a proportional increase in the subsidy that the government provides. This, as experts say, is something the government cannot absorb anymore and let state-run oil companies bleed. Considering that India currently imports nearly three million tonnes of LPG a year at prevailing international prices, subsidising it beyond a limit is not a sustainable option. As such, with prices soaring in international markets, the subsidy component per cylinder has already leaped to a whopping Rs367 per refill, higher than the actual price of a cylinder, which costs about Rs 350. As per Petroleum ministry figures, oil firms lose as much as Rs 272.19 per LPG cylinder (14.2 kg). Oil marketing companies, including Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) currently lose over Rs 225 crore per day collectively for selling domestic LPG, diesel and kerosene below their imported costs.
A meeting of an empowered group of ministers (EGoM), which was scheduled for December-end, to consider raising prices of domestic LPG and diesel was deferred indefinitely at the last moment. While the hike seems imminent, the quantum of the increase and the timing of the hike is what the government looks to be deliberating upon. According to Nidhi Dhruv, Associate Analyst, Corporate Finance Group, Moody’s Investors Service, “By deferring to raise domestic fuel prices to market levels, the government has stayed the inevitable and dealt a setback to reformers calling for market deregulation. The government though seems to be committed, however, complete deregulation is unlikely for now given the social and political pressures to maintain subsidies for cooking fuels.”
While unexpected steep price escalations have become a regular feature now, the least that the government could do is to plan things in advance, initiate timely steps to control retail prices, inform masses in advance of the problems in store and try and implement effective administrative measures, both short- and long-term, to be able to manage such a crisis in the future. Agreed that such government attitude would be Utopian, something that few would even term unrealistic, but then the country is also awaiting for a time when the government shows some accountability towards its citizens.
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM ranks No 1 in International Exposure in the 'Third Mail Today B-School Survey'
Management Guru Arindam Chaudhuri Dean Business School IIPM
IIPM Excom Prof Rajita Chaudhuri
Kapil Sibal’s voters want Jan Lokpal, not Government-proposed Lokpal Bill
"Thorns to Competition" amongst the top 10 best sellers of the week.
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'Thorns to Competition' - You can order your copy online from here
IIPM Mumbai Campus
posted by IIPM: A Leader in Academic Excellence @ 4:37 PM
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