May 11, 2006Economy

The wrong behind

Attacking targets of convenience won’t bring down the retail price of petrol

This is an archived blog post from The Acorn.

In terms of irritation they cause, chain mails rank a notch above mere spam because unlike the latter, chain mails are sent by people you know and thought were sensible. Most chain mails are relatively harmless as they ask you to send money or send postcards to fictitious kids with terminal illnesses. They are easily ignored. (The ones that seek blood donors are an honourable exception). But this one exhorts the recipients to mobilise for action, so it merits a little more attention. If you’ve not received it yet, head over to Ceteris Paribus and take a look.

The would be Howard Beale who started this chain mail is angered by the fact that petrol prices in India are higher than those in Pakistan and Malaysia. He asserts that this can’t be simply because of crude oil prices. The villains, according to our Mr Beale, are the oil companies” who are presumably fleecing the Indian people. So he calls on everyone (in capital letters to compound the irritation) to boycott the petrol pump on September 22nd, 2006, stick it up their behind”, make the companies choke on their stockpiles and lose 4.6 billion dollars in one day.

Mr Beale is mad as hell, but also very mixed up. Malaysia is an oil producing country. When those Baloch tribesman are not using the transmission pipelines for target practice, Pakistan has the use of its own natural gas in addition to the oil that it imports (and that the Saudis subsidised until recently). India heavily relies on oil imports, which means that rising prices of crude oil have a much sharper impact on India than in countries that less rely on imports.

Here are a couple of reasons why petrol prices are higher — India’s petroleum industry is not fully open to competition and its government subsidises diesel, farmers, railway passengers and others.

And here’s something that may surprise our Mr Beale — petrol retailers make better profit margins when prices are falling gently than when they are rising. In any case, boycotting the pumps on just one day is unlikely to be very effective. People will just buy extra petrol on the previous day.

It is tempting to look for simple solutions and convenient targets. Instead, Mr Beale would do well to start a chain mail seeking the end of subsidies, cross-subsidies and regulations. If he does, I may even break from my long-standing policy of not forwarding chain mails and irritate my friends.

Update: The idea is not even original and is a rip-off of an American scheme. Our Indian Mr Beale didn’t even bother to change the text and the other details. Needless to say it has already been taken apart (via Space for Rent).

Related Links: An analysis of petroleum pricing in India; Kshitij has a list of international petrol prices; in India politics, not economics, decides the price; Congressionally mandated shortages; a look into the retail petrol prices in the UK and in the US.



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