Warning : Filling up petrol could be hazardous to your WEALTH!

I came across a surprising article which says that crude oil pricing is significantly determined by speculative forces in international market and not much by supply and demand!

In case if the speculative forces take the price of crude to 200 dollars per barrel, will the government pass on this burden to common man!!

Come on! Welcome to second Zimbabwe! The price of petrol would then reach Rs.100 liter and perhaps the price of cooking gas will touch Rs.600 per cylinder. I know salad meal is good for health! J

Here petrol is fuel not only for an automobile, but also for scaring inflation.

Adding to this, Planning Commission deputy chairman Montek Singh Ahulwalia says that “India should get used to high energy prices”.

Infact we have ways out!!

Why can’t we learn from Vietnam that has barely any refining facilities and is totally dependent on imports which took commendable decisions to shield the people from the burden by “Price Stabilisation Fund”?

There the government had cut the import taxes on petroleum products twice in recent months, lowering the tax on imported petrol from 20 per cent to 6 per cent and the tax on diesel from 15 per cent to 2 per cent. Now it has been made zero.

And here!! Lowering of tax is a joke!! Apart from taxes on petroleum product, last year Government even darted to imposd 5% import duty on crude oil.

Can you see some common sense missing?

At last – “Government needs revenues at the cost of common man’s bread and butter!!”

PS: I suggest reader to go through the sources mentioned below for more insights. In my try to keep the article terse, I have touched many words just superficially.

This post also coincides with the occasion of 1000+ hits for my blog!! Thank you readers :)

Sources:

1) http://indiacurrentaffairs.org/petro-hike-glaring-contrast-between-india-and-vietnam-n-s-arjun/

2) http://www.aip.com.au/pricing/crude.htm

3) http://www.livemint.com/2010/12/16141050/India-should-adjust-to-high-en.html

4) http://www.kshitij.com/research/petrol.shtml

Creating Moral Bonds by Balancing Deficits and Surpluses

The Recent move by China to buy Spanish Debt shows the real meaning of mutually beneficial moves by economies. It might not completely pull the country out of crisis with a $7.9Bn investment but certainly can bring a positive change in the economy.

Why this can’t be done by all countries that has surplus current accounts. I don’t know how practical it would be to suggest an apex body like IMF to setup a fund collected from various economies of surplus current accounts. This pooled fund can be invested the in the dipping down or highly deficit economies. This would help in various parameters but apparently in the following four.

1) Pulls economies out of downturns.

2) It acts like a moral bond between economies... (Like China would not dumb all securities and threaten US debt market)

3) Diversification of investment portfolio which reduces risks for investing countries

4) Mutual cooperation and Development (The Holy Grail!!!!)

Might not be sounding very practical.. but good!! Isn’t it?

More the Inflation, more the free money you get!!!

One word you see echoing everywhere in the media around you, that is Inflation and especially daunting food inflation. I would like to give some respite to the readers by this post.

It might seem funny to say that inflation brings free money because the raising cost generally eats away the pocket. Very true. But the statement in the title is also not irrational. There is an interesting argument for this with in some limitations for this.

Let me explain this,

Suppose you take a loan of 1000rs today at an interest rate of 10%. One year hence, you should pay 1100rs to the lender.

Now if the inflation is 14%, 1000rs today is equivalent to 1140rs later. Or in other words 1100rs after 1 year is equivalent 964.9rs today.

So in today’s terms, the lender is giving you (1000-964.9) = 35.1rs free money.

What an Irony!

By the way, there are some limitations.

1. This is applicable when lending rates are lower than inflation rates.

2. Inflation, Interest rates keep on changing and do not remain constant throughout the year

We are facing a similar situation in India now. Thanks to Subbarao! ;)

Headlines of an Indian Economics News Paper 10 years down the line

1) IMF Dollar: the new universal reserve currency, output of Washington conference.

2) India, Now the largest English Speaking nation in the world.

3) One house for one family: A move to regulate rising real estate prices.

4) UID used to check the credit record of a person: CIBIL. Banks all set to fight with their NPAs

5) Plastic currency is not immune to fraudulent activities. Fake currency rampant to derail the stability.

6) Silver shines better than Gold.

7) Countries in Fiscal consolidation: Heavy Taxes in USA jeopardizing the growth.

8) Food Security in the country is still a dream. Rising population, major hurdle.

9) Disintegrating India- more demand for new states. Need new integration factor something like Vandemataram during Bengal division 1905

10) India has more English speaking people than US. US news papers to enter Indian markets or vice versa.

11) India’s new social security bills-- complete food security, employment guarantee act, more reservation for women.

12) Next green revolution: Though food production has increased, malnutrition problem continues

13) India has most advanced in nuclear, defense and space technologies. Security is still a problem?

14) Indian metros under serious terror threat in spite of increased surveillance.