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Best solution to namma trafficu!

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Private transport

 Recently the Govt of India has constituted the Kirit Parikh Committee to deregulate prices of petroleum products (diesel, petrol, kerosene, LPG).

Due to the populism of our mai-baap sarkar, it is broke! And it can no longer afford to subsidise "common man's fuel". Actually, 70% of the indians use firewood and cow dung. The subsidies largely go to the urban middle classes, who hardly form about 25% of the population.

Simple economics says that price signals are essential for allocation of scarce resources. And higher the prices on petrol and diesel, there will be more force to step up effeciency of their use (in terms of research and development in increased mileage of automobiles) and encouraging use of renewable sources (solar pv could replace diesel gen sets for example).

Also, for our namma bengaluru, increased prices of petrol and diesel will make owning a two wheeler or four wheeler costly (actually cars will feel the pinch more). 

Deregulation of petroleum prices is also essential, because if deregulated, the BBMP can charge a cess on all petrol and diesel sold in Bengaluru to fund our road infrastructure.

The Full Report can be accessed here: http://petroleum.nic.in/reportprice.pdf

Comments

One of the observations of the report

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The Kirit Parikh committee observes:

"Subsidizing domestic consumers also did not incentivize them to economize on use of petroleum products. Rather, as prices remained low, and personal incomes rose, the demand for petroleum products such as petrol and diesel recorded double digit growth – higher than the GDP growth." 

This means the vehicular population increase over the past two decades in namma bengaluru was one part aided by artificially low petrol and diesel prices.

Once prices are deregulated and are actually set to rise, a negative feedback would set in motion in namma trafficu. People are doing to find it costly to run their cars and would switch to public transport.

s_yajaman's picture

Agree on deregulation

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 MC,

Agree wholeheartedly.  LPG is primarily used by urban middle class consumers and not by the common man.  Why such a person should get subsidised LPG remains a mystery. This folly has continued long enough and will continue as well.  They should have done this last year when crude had collapsed to some $40/barrel. 

If you remember a long time ago the government used to try and put a fixed price on the USD and ration it, etc.  There used to be a thriving black-market where the real price used to be reflected.  Then we finally ran into a BOP problem and then things changed.  So maybe a proper crisis is needed for change to happen.

Amazing considering we have highly qualified economists in the cabinet and one as PM.  

Srivathsa

 

 

 

 

 

 

Drive safe.  It is not just the car maker which can recall its product.

Naveen's picture

Removal of Fuel Subsidies

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Making fuel expensive for private vehicles is a very basic step to restrain use, with hikes in costs for petrol with removal of subsidies. Increase in LPG costs for domestic /commercial use may also be accepted without too much discontent.

However, removal of subsidies for diesel & kerosene might not be all that easy since prices for basic commodities will shoot up. The answer is perhaps to retain subsidy for distribution of basic commodities such as rice, sugar, etc. through PDS for legitimate ration-card holders & go ahead with removal of all subsidies for all types of fuel (incldg diesel & kerosene).

Diesel for city public transport, inter-city bus corporations & for railways can also be subsidized, but it will have to be in a round about way to avoid pilferage (such as bus corporations /railways filing for returns annually based on total consumption after paying up full costs through the year). Cost of travel by autos & taxis will also become dearer, forcing most of the public, including private companies' employees to resort to public buses. Bus & rail fares can be controlled with subsidies, though some price rise will occur due to the quantum of interests on the additional money blocked.

One option to meet costs of these subsidies is to hike fuel costs & tax private vehicles more than just needed for removal of subsidies - this will help further to reduce vehicle volumes.

The resultant price rises will effect the urban middle classes most & there is bound to be an uproar, but if this were cleverly planned in phases, it might eventually work.

There is bound to be a mad rush for ration cards & corruption would probably increase, but methods would have to be found to ensure that subsidy reaches only those in needy. So far, methods employed for doling out subsidies have been inefficient & subsidies are reaching those for whom it was never meant.

s_yajaman's picture

Tax diesel cars then

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 Naveen,

This will cause a spike in prices but how long are we going to keep this game going especially considering we import 70% of our crude oil.  If Saudi or Venezuela subsidises domestic fuel prices it is because the produce crude.

In any case inflation will come in through the backdoor if the government continues to run deficits like this.  How - it will either print money or it will be forced to borrow from the market and this will cause interest rates to rise.

If diesel prices have to be subsidised, then at least tax diesel vehicles accordingly.  Assume they run 150,000 km and they save Rs 2/km because they benefit from cheap diesel.  

I like your idea for transport corporations that they first pay the full price and maybe every quarter they get a reimbursement.

Srivathsa

Drive safe.  It is not just the car maker which can recall its product.

Naveen's picture

Subsidy must reach only the needy

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Srivathsa,

Taxing diesel cars higher at purchase (or annually, if vehicle taxation is changed back to annual, preferably), or removal of subsidy for diesel for car use might work to some extent, but it will also have it's own problems & inefficiencies. For example, prices for diesel cars will go up by something like 3 lakhs over it's lifetime - this might not be acceptable to diesel car makers & users (such as private businesses) easily, & will add to inflation. If subsidy for diesel for only cars is removed, it would encourage a black market for subsidized diesel.

Kerosene can be made available at subsidized rates through PDS for bonafide ration-card holders. It can also be made available openly in the market at unsubsidized prices. This way, the needy will probably save a lot or even make some money through their sources from PDS, & this is better than the current leakage of benefits to those that never deserved it.

There is bound to be some inflation, but as you mentioned, how long are we going to keep this game going ? If cost of living can be kept under control for the needy, I think it would suffice whilst the urban middle & upper-middle classes will start paying the true costs for their lifestyles - this had to start at some point.

shafimulla's picture

Deregulation of fuel prices.....

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Respected Sir,

I do agree HIGHER FUEL PRICES will bring down FOUR wheeler usage.

It is likely that it may increase two wheeler use, which again is not very desirable.

 

THANKING YOU,

SHAFI MULLA

shafi

Naveen's picture

Swaminomics: On the Dot

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"Start preparing for oil at $200 a barrel" - excellent write up by Swaminathan Anklesaria Aiyar in Swaminomics in TOI today.

Another related interseting read is "Out of Turn" by MJ Akbar, also on TOI.

s_yajaman's picture

There is a saying that

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 "it is very difficult to get a man to understand something if his salary depends on not understanding it".  This is the current state of our public, industrialists and politicians.

I don't if our politicians really think that oil prices are going to come back the $25 level and hence they can fend off this current high price regime using subsidies and then make up the deficit later.  This is not going to happen.  If oil prices come back to $25 it will mean that we are in a second great depression.

Swami is correct on oil fields.  Almost all the oil fields in the world are in decline.  We use 30 billion barrels of oil each year.  And the media makes a big deal when we find a field that might have 1 billion barrels.  That is 12 days of global consumption.

However $200 may not sustain.  There might be a couple of spikes to that level which will crash the economy each time.  Volatility will the distinguishing feature of the next decade.

Recently the CEOs of Petrobras and Total have come out publicly and said that they don't see oil production ever crossing 90million barrels a day.  China is using its reserves to buy long term contracts directly with producing countries bypassing NYMEX.  It should give us a clear warning that the writing is on the wall.

Srivathsa

 

Drive safe.  It is not just the car maker which can recall its product.

murali772's picture

lessons from Beijing

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When the number reaches 6.5 million, traffic researchers calculate, Beijing’s streets will be fully saturated. Some would say they already are: in June, a survey by IBM of 20 global metropolises rated Beijing traffic as tied for the world’s worst, along with Mexico City.

“We have built many flyovers and expressways,” said Zhao Jie, a transportation expert at the China Academy of Urban Planning and Design. “We have spent quite a lot of money on subways and bus lines, and Beijing probably has the lowest bus fares in the world. But the stimuli to car ownership are even more powerful.”

Duan Haizhu, a 26-year-old taxi driver, put it more elegantly during a recent crosstown crawl in his orange-and-brown Hyundai. “The speed of building roads is nowhere near the speed of people buying cars,” he said. “And people won’t stop buying cars.”


For the full report in the Deccan Herald, click here

Isn't the problem staring us in the face too? Do we have to re-invent the wheel, all over again?



 

Muralidhar Rao
idontspam's picture

You know interestingly where

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You know interestingly where the story lies? 

Here

"In 2009, in part to combat the global economic collapse, the national government halved the sales tax on the small-engine cars that most first-time buyers choose, and it spent billions on subsidies for rural car purchases and upgrades to new vehicles" . 

and here

"Part of the problem is poor planning. Curiously, a city of more than six million drivers has virtually no stop signs, turning intersections into playing fields for games of vehicular chicken. Freeway entrance ramps appear just before exit ramps, guaranteeing multilane disarray as cars seeking to get off try to punch through lines of cars seeking to get on."

Of course congestion charging will not be approved by the communist party because illogical ideology. But nevertheless the story for us is in the 2nd part. That of trying to grow without basics of traffic engineering in place. If we let BBMP plan our streets we will be in a much bigger mess than China is in. 

Bangalore incidentaly is far behind most Indian cities in enabling sustainable transportation. All metros including Hyd have commuter rail for decongestion, Delhi & Pune have Bike share already operational for last mile, Delhi, Ahmedabad & Indore already have BRTS for Bus priority.

rackstar's picture

ignorance is bliss

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petrol and diesel are already taxed heavily both by state and central govt. actual cost of petrol is around 25 rs, we are paying 57 rs. Diesel also costs 25 rs without taxes.  what subsidy the blog author mcadambi talking about? I have noticed none of the commenters also unaware of this.

idontspam's picture

 what subsidy are you talking

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 what subsidy are you talking about?

The article is talking about China. You are on the wrong planet.

rackstar's picture

small car half tax

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@idontspam, actually chidambaram reduced tax in 2006 in india too like china "In 2009, in part to combat the global economic collapse, the national government halved the sales tax on the small-engine cars".

small cars defined as less than 4m length and petrol engine less than 1200cc or diesel engine less than 1500cc attract 10% tax compared to previous 22% excise tax on all cars that were prevalent before. Other big cars still attract 22% excise duty. So companies launched lot of small cars in recent years.

my previous comment question was for blog author. i fixed that comment.

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