How well can the Indian Government juggle between oil prices, inflation and its fiscal condition?
A key insight of the skills required by the Government of India to sucessfully juggle with precision and perfection between these dangerous death knells - inflation, oil prices and fiscal condition.
Tweet-- When asked about the oil price hike, Mubin Panjwani, Chairman & Managing Director and the Head of Research at FAMS Group pointed out that, "The GOI on one hand has the rising inflation to tackle. He wonders if any one recollects the last time the GOI raised prices by Rs. 5 per litre on petrol, our inflation galloped from 9% to above 11%. This time around our inflation is well into the double digits. The GOI would not want to push this inflation well beyond uncontrollable limits or push it in another orbit where by the inflation would be hard to tame later."
"On the other hand the GOI has to tackle with high fiscal deficits. This was thought to be bridged by disinvestment. Unfortunately for the GOI the markets have become volatile and the pricing of PSU IPO's isn't like in the past where the public got huge value on the table. Huge subsidies by the GOI is hampering the capitalism of the OIL PSU's and thereby indirectly worsening the condition of the fiscal deficit of the GOI. The GOI is stuck with one of the hardest decisions to take till date. It is a vicious circle where each spoke will hamper the growth of our country." he added.
He says, "Let us ask ourselves is this price rise really needed? In the developed nations petrol prices change everyday corresponding to the change in crude oil prices. This limits the losses and thereby the financial conditions of such oil marketing companies. Majority of the OMC's in India are government owned as private sector, barring Reliance and ESSAR, does not want to enter this sector due to the potential of heavy losses."
Stressing on the public responsibility, he states that, "If we can afford to pay huge bucks for multiplexes and expensive gifts such as watches, perfumes and jewellery; then why not pay for the use of the scarce resource such as petrol in our country. We should learn to stop enjoying all liberties at the cost of the government. We should learn to pay up for the oil we use for our luxury and Oil prices should be de-regulated. The only two things that should be subsidized should be diesel and cooking gas. Diesel as most of the food commodities are transported via diesel engine vehicles and majority of the agricultural vehicles and machines run on diesel engines, so thereby keeping the cost of basic food low. Cooking gas should be subsidized so that this basic right to cook food for survival is disseminated to one and all."
However he is sceptical on the de-regulation and cites that, "as there is too much pressure from inflation, other political parties and from the Indian public, the GOI may go in for a minor increase in prices to partly make up for the losses and improve the financial condition of the OMC's and thereby the fiscal condition of the GOI."
Notes to Editor
About FAMS - Financial Assets Managed Simply™ (FAMS Advisors Pvt. Ltd)
Financial Assets Managed Simply™ (FAMS™) is a fast growing financial services company established on the basis of trust and wealth creation for all, offering asset management and research services to help maximize returns from the stock market and minimize risks. It is jointly headed by value based proprietary investor Mubin Panjwani and by bestselling author and investor, Yogesh Chabria of the Happionarie™ Way who have been value investors since the past 9 years.