ECONOMICS? Not My Cup of Tea!

I was a bit confused over the title for this post. I could’ve simply gone with   “Corruption? Not again”   or   ” Corruption-The  Ultimate Culprit “.  But since all the news papers and websites are flooded with the word corruption, people nowadays hardly devote time to read it. Besides I wanted everybody out there to read and understand this post , which required  an appealing title and the fact that you are reading this post tells me that the purpose is served.

Not only for that reason I’ve named it so, there lies another , a very significant reason behind it. For this post, to probe I asked a question to 10 friends of mine which was, “What do you think about the recent Increase in Petrol Price and the Falling Rupee?” Out of 10 , nine replied me the title (of this post) and even advised me to ignore such “petty” issues. In fact I found out later that they had dragged me in their discussion and I was participating in topics like “what could be Poonam Pandey’s impending escapade” or “what might be the reason behind a particular chick’s ignorance towards all of them“(including me, puff). After several attempts of bringing in my topic , I wondered, perhaps making these guys understand the gravity of the subject was not my cup of tea. Oh yes, the tenth guy, he seemed a bit cautious as he went on to pour scorn on the government. His only concern was skyrocketing petrol prices. He explained me how difficult it has become to him to make excuses to his fourth and final(apparently) gf when it came to drop her home on his bike.

He then rattled about his bike stunts, regular gf complains ( every time he adds this sentence at the begining “This time its different yaar” just like ACP Pradyuman saying “Daya, is bar case kuch alag lagta hai”), and ended with abusing the “bloody government” once again. What amazed me was, in all these conversations none of them gave a damn about the functioning, the structure or let us say the entire system that affects our goddamned economy. I gave a thought, “Man, how can we be sooo ignorant about the growing economic crisis that can land up us in some serious trouble?“  Yes, we are young, we are restless, we love partying , we love hanging out  but then does it mean we should remain least bothered about the problems country is facing? Instead of confronting it, it seems most of us are trying to resort to the escapism by letting it all up to our well educated and well cultured politicians. I have so much to write on politics but since this post is dedicated to our shattering economy, I’d write about it in detail some other day.

Speaking of petrol prices and falling rupee, these are two sides of the same coin having a far but an eminent connection with the surfacing corruption. Petroleum companies like Indian oil, Bharat Petroleum and Hindustan Petroleum have imposed a 7.5 rs/lit price hike on petrol, recording the highest hike ever. These firms have recently published a joint statement claiming that they have incurred heavy losses due to sale of 3 products- Diesel, LPG and Kerosene at highly subsidized rates. They have also pointed out the fact that increasing petrol price was the only alternative left after the rupee hit an all time low against USD.

Let us understand what it takes to fix petrol price. Currently the crude oil prices in the international market are less that what it had been during Aug 2008. Then what made Central Govt to increase petrol prices is beyond anyone’s scope of understanding. Have a look at following conversion- One dollar currently equals to 56 Rupees. One barrel of crude oil (containing 150 litres) is sold at a rate of 100 USD in the international market. Petroleum companies spend 672 rs/barrel for refining it. That means a total of (5600+672) 6272 Rs is required to purchase and refine one barrel (150 lit) of petrol. Simple mathematical calculations reveal 1 litre of petrol sums up to 41.81 Rs.
Price of the same petrol goes up to 78rs/lit when import duty, sales tax and several other state and government taxes are added to it. Petrol prices vary from state to state depending upon the tax imposed. Its pretty clear from the above analysis that only two factors greatly influence the price of petrol in the country viz 1) Value of Rupee against USD And 2) State and Central Govt taxes. So amongst there two factors that govern the prices where do we concentrate our efforts to prevent further price hikes?

1) Value of Rupee against USD
We are helpless about this part as it is totally dependent upon the interests of foreign investors.  Value of Rupee increases when more and more foreign investors invest their capital in Indian markets. Indian stock exchanges are  highly depended and dominated by foreign investors. When the  economy is doing well and stock  markets are in better conditions  than other countries’ bourses,  foreign investors will be more  eager to invest here than  anywhere else. They need rupee  to invest in India so the demand  is higher what results in higher  value of Indian currency. But if  they are pulling the money out  from Indian markets, they are  selling rupees that results in  rupee’s fall in value. Indian  markets are in worse condition  now than 1 year before and  investors are having smaller real returns. Global sentiments after  US downgrade and Euro zone  crisis lead the overseas investors  to sell in India and buy US  Dollars. USD is considered now  the safest currency in the world . So the higher  demand in USD also causes the rupee depreciation.

2) State and Central Govt. taxes
All that we have in our hand is control over taxes. One must understand government imposes tax on various commodities only to finance  various public services. It is this money that caters to funding of several packages and projects like metro train, flyovers etc proclaimed by the govt. After pondering for a while I realized the real culprit behind all these increased tax impositions and price hikes is (again) corruption. Yes, the root cause is found out. Take any govt project , for example the Bandra-Worli sea link ( If you are in Mumbai you should definitely visit that place. The tides on blue sea water, vehicles speeding at 100kmph, the feeling of driving over the huge suspension cable bridge, the cool sea breeze..Simply awesome, it’ll blow your senses off). The estimated cost of the project was 300 crore and after its completion it piled up to a whopping 1684 crore. “As a result of constant change of plans and other delays the cost of bridge has risen over six fold to 1600 crore” is what they had to say. Believing them is a tough task , still being a bit lenient lets us accept that some of it goes in genuine and actual requirements that crop up during construction. Point taken. (When we are being a bit lenient we shall not miss out the stark reality of scams taking place during the project. We all know when a cement bag of 100 Rs is to be used, not even half the amount is actually spent in purchasing the cement bag. Yes, you still drive your cars safely no the flyovers built by such quality cement. Its only because of high ‘factor of safety’. Engg branches like mechanical , civil and prof are well acquainted with that term. Wake up guys, be a bit attentive) But then still a difference of 1300 crores.

[Note- Sea link project is JUST for example purpose] Now that’s interesting. Where does all this money of ‘aam janta’ go? Yes, it went into pockets. And hence where two projects could’ve done in the same amount only one project is pronounced (Get that, only declared). Then from where shall the govt make up money  for second project? From us, we the innocent and least bothered people of India! Way to go, Youngistan! Notes- 1} Petroleum companies have stated the decision to inflict steep rise in petrol price only because of the rupee’s depreciation. As now they have to pay additional 200 rs/barrel than what they paid a month before. 2} Also, on the other hand, the crude oil prices experienced a decline in rates from 120$/barrel to 98$/barrel. Paradox, ain’t it? On that note my cup of coffee is getting cold. Leaving you with points to ponder(Hopefully).:-D

Reference- http://www.nyse.tv/crude-oil-price-history.htm

Tags: economics, indian economy, understand economics