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Title Rising petrol prices: inflation and coruption-- policy choice
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Article by Lakshma Reddy S
Category Advocates

Rising petrol prices:   inflation and corruption-policy choice

Some predictions of global petrol price hikes: global inflationary trends: Now the global current prices for petrol have been rising is a fact. There are also some predictions that these prices may rise up to 200 to 210 $ per barrel due to Middle East disturbances. This increase will be greater than the 2008 inflationary prices preceding the global financial crisis. The causes and effects are two different aspects to be separately analyzed for diagnosis and prescription and prescription for individual nation state differs from the world of nations in cooperation to tide over and prevent such events

Suspicion of Artificial price hikes by global producer and suppliers to make easy money: The global average GDP rate of growth is said to be around 3 to 3.5% this year. In developed world US and UK, Japan,. EU leaving aside certain packets like Australasia, the growth rates  are almost less than 2% and even bordering negative growth rates but these declining growth rates is supplemented by high growth rates of 5 to 9 % from china, India , Germany, brazil south Korea etc. well for the purpose of consumption of petrol and other energy forms, there is an increase in parts of world and a equal or less decline in other parts of world making the average rate of growth even at a lesser rate than the financial crisis periods. if we correlate the consumption of energy forms to the global GDP growth levels, there is no basis for increase of energy prices as it can neither be attributed to increase in production costs or due to supply constraints or due to demand push and in fact the growth of science and technology for drilling new wells or maintaining old wells the prices must fall for the benefit of consumers by the oil produces and supply marketers. but that is not happening and here is an area of suspicion that it is due to repeat concerted action of producer cartel with active connivance or abetment of supply chain cartel companies and here one should be reminded of the Adam smith’s famous admonition as early as 1776 may be taken as the basis for presumption and to rebut the presumption, the burden of explaining the basis for the rise of prices may lie on the producers and marketers if there was a global regulator. In the absence of such global monitor or regulator, we have to cull all the information on production and consumption statistics released by various players like oil producing companies and supply chine lines including the commercial inventories of oil for stability/speculation purposes and come to our own independent judgment

  Recent past precedent: There is precedent in recent past hike of oil prices up to $147 per barrel by a combination of producers cartel like OPEC Russia global supply chain marketers, that they have deliberately cut the production and supply  of crude oil to maintain the prices and hike the same in the face of fall of demand for the oil due to the global financial and economic crisis and consequent decline in demand from developed world

 Absence of global monitor or oversight: second aspect of this artificial price hikes was  to make easy money taking advantage of absence of a legal  global  monitoring agency with punitive powers vested in it, Therefore the countries have to be prepared for facing this challenge of even wholesale topsy turvy budget estimated revenues and growth rates. A continues monitoring of events to minimize the evil effects of such artificial price rise is necessary.

Effect of artificial price rise induced global inflationary situation: The net effect of this artificial price rise is like withdrawing the equal amount of money values from the economy. The extent of the total quantity of money values withdrawn depends on the total quantity of imported petrol at hiked prices and consumption. This withdrawal is through a process of price rises (inflation) on all commodities which directly or indirectly use the petrol or petroleum products as an item of personal or industrial consumption or maintenance. It can roughly be stated as a percentage of GDP i.e.  P=QPt2-QPt /GDP multiplied by 100. This may be in the quantity of certain percentage of GDP and this price hike and withdrawal of money values from Indian economy, if not followed by export equivalent revenue from the oil exporting countries in any form or from other countries there is likely hood of balance of payment problems by eating away any exchange reserves and a severe lack of demand and recession for the industrial goods and services affecting growth rates. A rising price inflation and inelastic demand for the food and consequent   spurt of food prices inflation while the grain prices may stagnate may be severely affecting the agricultural sector also.  In effect it will affect every section of people and economy not contemplated by policy administrators.

Policy option: Therefore, policy options must be directed to streamline the economic controls in two ways. One is to control the petroleum prices.  second one to centrally subsidize the petrol prices. And thirdly to raise the revenue to meet the subsidy portion by export duties on exported goods and services to bring parity of prices domestically maintained at subsidized levels to the international price levels by a separate wing in the ministry and aggressively pursuing the export strategies of both food grains and industrial raw materials and final products and services.

This will insulate the economy from the global price fluctuations in so far as petrol concerned and the rest operated on open free trade as in the existing liberalized procedures.

India as one economic unit as an ideal: The national economy is also to be more integrated as one economic unit by dismantling the entire possible local and states controls and makes use of executive and legislative powers of the Centre available under the concurrent list and art 301 to 304 and 307 under the part X111 of constitution of India

 Growth with equal opportunities minimizing state role and corruption in public life: These steps will tend to make an ideal nationally integrated one economic unit as   free zone for all its citizens irrespective of state political boundaries and certain local controls for quid pro quo  revenue and regulation purposes and this will make the capital, labor and land as a field for investment of capital move easily making the markets more flexible and market friendly and it will have the leveling effects of prices and costs, profits and incomes including the interest rates to the uniform levels of equalities minimizing the  income inequalities. It will provide equal economic opportunities to all the citizens. It will reduce the role of state as a main source of corruption and nepotism, favoritism breeding crony capitalist overnight rich people practicing corruption and lawlessness.

So take the critical moments as an advantage for introducing timely reforms to make the Indian economy tuned to global competition as a more resilient and vibrant one in the face of daunting challenges of oil pushed artificial price rises. 

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