The Hindu Business Line : Ready to pay more for potato, not petrol

THE price of onion, after hovering around Rs 25 a kg, is down to Rs 15. But that of potato has almost doubled, from less than Rs 10 a kg, in the last few days.

This is no big deal, as the procurement price for these commodities fluctuate depending on the volumes produced in the farms across the country. Add to it the freight cost and trader margins at various levels and you have the retail price.

If it was the heavy rains this year that played the villain in the case of onions, it is the severe cold that is playing spoilsport with the potato output in the North.

But do we crib, or ask the Government to intervene? No, not unless there is a severe shortage that requires the commodity to be imported. That happens, but rarely.

Our equanimity in the face of such wild price fluctuations is easily explainable. We know that these commodities go through certain price cycles and we are willing to pay their market price, even if it means the occasional 80-100 per cent spikes. But the same cannot be said of petrol and diesel.

What does a two-rupee price hike for petrol mean for the consumer. On a base of, let us say, Rs 50 a litre, it is a four per cent rise. Thus, in the case of a car-owner who goes in for six 10-litre fills worth Rs 500 each every month, the incremental outflow is Rs 120 a month. Is this is a major issue?

More or less the same holds good for a two-wheeler owner who travels about 50 km a day. He will need about a litre of petrol every day. His additional outflow will be Rs 60 a month. Not too large a sum of money.

In the case of commuters who take the bus or vehicles that run on diesel, the incremental increase per passenger is further diminished. Assuming that a bus gives a mileage of 5 km to a litre of diesel, and there are about 60 passengers, the additional cost works out to less than a paise per kilometre per passenger.

By the same calculation, the concern raised over the cascading effect of a price hike on diesel merits a re-look.

The two-rupee hike in diesel price would be spread over eight or 10 tonnes of goods in the case of a truck. Thus, the price of steel, cement, fertiliser or even foodgrains will not hit the roof on account of a four per cent or even an eight per cent hike in diesel price.

It is time people took a realistic view of the cyclical movements of global oil prices and its impact on India. Only then can we take a fair call on the merits or demerits of staying put in a controlled price regime.

How many of us know that there was a window of almost 75 days in early 2005 when the oil companies earned a profit of about Rs 3.50 a litre by selling petrol and diesel?

It is only when the oil companies begin to make losses that they begin to squeal; otherwise they are quite happy raking in the profits and giving the government its share. And it is a huge share, considering that about 70 per cent of the price that we pay for petrol and some 40 per cent in the case of diesel is tax.

True, before the recent price hike, there was a period when they were bleeding by about Rs 7 a litre. With the global crude prices settling, the scenario has brightened considerably and oil companies actually earned a Re 1 profit on petrol last fortnight. In the case of diesel, they incurred a loss of 20-30 paise during the same period.

Clearly, it is not a case of oil prices going up all the time; and the spectre of crude touching $100 a barrel seems far from becoming a reality. Because, at that level, fuels like hydrogen and coal bed methane would become viable alternatives.

A floating price regime for petroleum products cannot hurt the public as much as it is being made out to be, at least no more than price fluctuation in the case of other commodities.

So, whom is the Government trying to protect? A switch to a market-driven price regime and questions are bound to come up about the tax structure that prevails in the sector. Buying onion and potato is nowhere near as complicated, you would agree.