Petrol prices at the pump station

Of late, a see a few memes, which suggest that while global oil prices have come down from a high of $100 a barrel to about $40 now, the price of petrol at the pump-station in India has hardly dropped, and therefore "Modi is indulging in looting the people" (sic). I totally disagree with this vicious campaign. I strongly feel that such malicious campaigns are perpetrated either by people who do not understand economics, or do so, but still spread canards with evil intent. The saddest part is that no one from the government, including the Petroleum minister, has come forward to explain the reasons. Let me try and explain this, as much as I understand.

If the objective of such disinformation campaigns is to see lower prices at the pump station for two and four wheelers ( including diesel), then I am sorry, in an economy like India, that is not practical.

For the record, in 1986, global oil prices had fallen to $16, but the then government too did not drop prices at the pump station. Instead, they created an oil pool, where the surplus was credited into, and was utilized to cushion the common man from oil price shocks when oil prices climbed back to stratospheric levels.

The same is happening now. See this news in Business Standard.

http://www.business-standard.com/…/oil-pool-account-makes-a…

Consumption of petrol for vehicles constitutes hardly 6% of the nett oil import bill... the rest of it goes into downstream petro products that power the economy. Plus, now a days, India has a huge surplus capacity for downstream refining of crude oil, and exports more than the amount of petrol and diesel than it consumes. The nett figure above, is after factoring in the exports.

You will observe that when petrol/ diesel prices go up even by 2 rupees, the vegetable vendor blames it and raises the price of his veggies. Do you seriously expect him to reduce prices of vegetables by 2 rupees when the converse happens? For that matter, why only the veggie vendor? Even large corporations don't do it. Have you ever heard of prices of tablets and syrups ( major consumers of petrochem downstream products) ever go DOWN then oil prices crashed? Have you ever seen the price of Sintex tanks or your plastic buckets that you buy, ever go DOWN in prices? No, they wont.

Reality is, India is very much a seller's market, and lack of awareness is very high among consumers. Hence middlemen will pocket whatever benefits accrue from any such price drop. It wont reach the consumer. It certainly wont reduce inflation.

In order to tackle this, the government traditionally built up an oil pool account, which is significant now, with price drops of crude, to cushion over the vagaries in prices of oil, to shield major consumers of oil , like the fertilizer industry ( that will adversely affect farmers if not done).

Also, remember that petrol/ diesel prices are only PARTLY linked to market prices. Diesel continues to be heavily subsidized , for fear of stoking inflation. FYI, diesel consumption in the country is three times more than petrol, and any increase in diesel will be destructive for the inflationary outlook.

So, instead of a thoughtless campaign like this, it is better to ask for a thorough account of the oil pool money, how much came in, and where it has been used etc.... rather than indulge in rhetoric.

And if you are owning a two wheeler or a four wheeler, thirsty at the pump, and hoping against hope for a 60% drop in petrol prices( corresponding to $100--> $40 drop of crude oil),then well, dream on!

The government is doing what is required. Allow them to. Stop malicious campaigns.

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