tag:blogger.com,1999:blog-5043138489010794057.post6124712021998166346..comments2024-03-27T15:57:09.192+05:30Comments on Urbanomics: The petrol-diesel story and market distortionsUrbanomicshttp://www.blogger.com/profile/16956198290294771298noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-5043138489010794057.post-72497538923473652992012-06-02T07:46:31.003+05:302012-06-02T07:46:31.003+05:30Thanks KP.
I completely agree that it is very di...Thanks KP. <br /><br />I completely agree that it is very difficult to isolate the relative impacts of oil price hikes on different categories of consumers. however, at the margins, it affects the poor much more than the non-poor. <br /><br />as to the point on why govt hesitates to touch diesel, i am inclined to believe that it suits everyone. a belief that diesel price increases will affect food prices makes it a more political product than petrol. the kirith parikh committee found that 10% of diesel was used by industry and 12% in agriculture. both business and farmers are powerful interest groups who will obviously lobby to keep diesel prices low. in contrast, petrol suffers from Mancur Olson's collective action problem. further, in case of petrol, both state and central governments benefit from higher petrol prices by way of higher attendant taxes. <br /><br />about your point on prices being an unsatisfactory means to allocate resources in an inefficient economy, my counter question is whether there are any other more satisfactory means available. i have held the view that in such circumstances, instead of tinkering with prices, a more effective approach (to cushion the poor) would be to work from the supply side (say, with good public transport facilities or stronger PDS system) or provide direct cash transfers (to reimburse people on the higher cost of certain services).Urbanomicshttps://www.blogger.com/profile/16956198290294771298noreply@blogger.comtag:blogger.com,1999:blog-5043138489010794057.post-28947745493255686592012-06-01T17:27:36.149+05:302012-06-01T17:27:36.149+05:30Dear Gulzar,
How do we evaluate the cascading eff...Dear Gulzar,<br /><br />How do we evaluate the cascading effect of every increase in either diesel or petrol prices in the economy ??<br /><br />in a notoriously inefficient economy - the translation of costs to the street is again disproportionately directed at the common man ( the middle class and the poor)<br /><br />Passing on increases at the pump / retail has turned out to be a windfall for all kinds of industries and services where there is minimal threat of substitution - example : auto fares / most commodities where the increase is passed - and is an opportunity for disproportional transfer of charges. <br /><br />Since you do look at the behavioral aspects of the economy -I wonder what is the best way to ensure that such market based pricing is not another opportunity to skim people off once again.<br /><br />The diesel subsidy for cars is an obvious absurdity and the only people who don't get that appears to be the government - but I wonder why the government hesitates to touch diesel ? the cascading effects on prices are much greater ??? - What perentage of diesesl subsidy is directed at Industry ???<br /><br />The addiction of the government to oil is again a source of inefficiency - with the government absorbing all kinds of losses - effectively subsidising industry through inefficient methods of privatising the commons / inefficient extraction of value - the easiest source of revenue appears to be the various taxes on oil.<br /><br />Why is government reduction of 'dependence on oil' - or government efficiency - never on the table ?? <br /><br />In an economy that is so completely inefficient - where increases quickly cascade but reductions almost never - I think we need to force a much larger transparency across the system before we expect people to lump the inefficiencies in both decision making and execution.<br /><br />I like to take the example of overcharging of auto's - the racket that results in the poor being fleeced everytime there is an increase, even if most autos run on gas and the effective cost per KM is low - points to a complete breakdown of our administrative mechanism, the controls exist only in theory - though we would'nt like to see it as such.<br /><br />I don't see public transport being anywhere close to providing a solution ( an alternative / choice / public option)) to the problem inspite of all the JNNURM spending on infrastructure.<br /><br />The ability of the system to even introduce a price increase fairly, is increasingly being questioned - and that may be the cause of the backlash - as people question the legitimacy of the system to inflict such high costs.<br /><br />regards, KP.KPhttps://www.blogger.com/profile/06553866275918658507noreply@blogger.com