As widely anticipated, the government has raised the prices of petroleum products by up to Rs 5.89 per litre with effect from 1st September, 2013. The price of petrol has been increased by Rs 4.64 to Rs 109.14 per litre while the new price of HSD is Rs 112.26 per litre. The price of kerosene, which is generally used as a fuel for stoves in remote areas where LPG is not readily available, sees an increase of Rs 4.71, bringing its price up from Rs 101.28 to Rs 105.99 per litre. The price of LDO, mainly used for industrial purposes, has gone up by Rs 2.31 to Rs 98.43 per litre and that of HOBC, used mainly for luxury cars, has soared by Rs 5.89 to Rs 138.33 per litre. The price of HSD which was proposed to be increased by Rs 3.57 per litre has, however, been raised only by Rs 2.50 per litre, following the directive of the Prime Minister, to facilitate agriculture and transport sectors. Total subsidy on HSD now stands at Rs 3.63 per litre.
The government has cited a rising trend in the international prices of oil as the sole reason for raising the domestic prices of POL products though rapid depreciation of the rupee must have also been partly responsible for the substantial rise in oil prices. As is obvious, the government has also passed on the full impact of increase in prices of all petroleum products except HSD to domestic consumers. The increase in oil prices by such a substantial margin, needless to say, would have a negative impact on economy and the lives of ordinary people. Higher oil prices would slow down business and industrial activity and depress growth prospects of economy which could further accentuate unemployment and poverty in the country. Prices of most of the commodities and services would increase almost in direct proportion to the rise in the prices of POL products which is likely to be very painful for ordinary people, especially at a time when inflation is likely to be in double digits and there are hardly any prospects for gainful employment. All of this could create chaos in society and law and order situation could go from bad to worse. It is unfortunate that the government had to raise the prices of petroleum products when floods have caused huge damage to the paddy and cotton crops and the GDP growth rate is likely to be reduced from the present target of 4.4 percent.
However, it could be plausibly argued that the government had no choice in the matter and had to bite the bullet as a reduction in the budget deficit was the top most priority of the country at the moment and it had to use every option to raise higher level of revenues. Had the government not raised the prices of POL products, it would have been forced to borrow more from the banking system, leading to accentuation of price pressures and higher depreciation of a battered rupee. Passing the full impact of change in international oil prices and adjusting it with the change in rupee parity for the domestic market could also be a pre-condition of the EFF programme with the IMF. Nonetheless, in our view, it was better for the government to absorb a part of the impact of a rise in international prices in the budget to reduce the burden on ordinary consumers because of its claim to contain current expenditures and a sharp increase in taxes collected by the FBR during July, 2013. In particular, petroleum levy on oil products could be somewhat reduced to yield the targeted revenue when prices are ruling higher. The government needs to know that successive sharp increases in oil prices have made the lives of ordinary people very difficult and burdening them further may be unjust. Also, the price of kerosene oil should have been revised upwards by a lower margin because of its impact on the very poor and downtrodden people who reside in far-flung areas of the country and have no access to cheap gas. In the meantime, let us hope and pray that the crises in Syria and Egypt are over soon and oil prices in the international market revert to their previous levels so that people could expect some relief from surging oil prices next month.
Sunday, September 8, 2013
Pakistan: Increase in oil prices
As widely anticipated, the government has raised the prices of petroleum products by up to Rs 5.89 per litre with effect from 1st September, 2013. The price of petrol has been increased by Rs 4.64 to Rs 109.14 per litre while the new price of HSD is Rs 112.26 per litre. The price of kerosene, which is generally used as a fuel for stoves in remote areas where LPG is not readily available, sees an increase of Rs 4.71, bringing its price up from Rs 101.28 to Rs 105.99 per litre. The price of LDO, mainly used for industrial purposes, has gone up by Rs 2.31 to Rs 98.43 per litre and that of HOBC, used mainly for luxury cars, has soared by Rs 5.89 to Rs 138.33 per litre. The price of HSD which was proposed to be increased by Rs 3.57 per litre has, however, been raised only by Rs 2.50 per litre, following the directive of the Prime Minister, to facilitate agriculture and transport sectors. Total subsidy on HSD now stands at Rs 3.63 per litre.
The government has cited a rising trend in the international prices of oil as the sole reason for raising the domestic prices of POL products though rapid depreciation of the rupee must have also been partly responsible for the substantial rise in oil prices. As is obvious, the government has also passed on the full impact of increase in prices of all petroleum products except HSD to domestic consumers. The increase in oil prices by such a substantial margin, needless to say, would have a negative impact on economy and the lives of ordinary people. Higher oil prices would slow down business and industrial activity and depress growth prospects of economy which could further accentuate unemployment and poverty in the country. Prices of most of the commodities and services would increase almost in direct proportion to the rise in the prices of POL products which is likely to be very painful for ordinary people, especially at a time when inflation is likely to be in double digits and there are hardly any prospects for gainful employment. All of this could create chaos in society and law and order situation could go from bad to worse. It is unfortunate that the government had to raise the prices of petroleum products when floods have caused huge damage to the paddy and cotton crops and the GDP growth rate is likely to be reduced from the present target of 4.4 percent.
However, it could be plausibly argued that the government had no choice in the matter and had to bite the bullet as a reduction in the budget deficit was the top most priority of the country at the moment and it had to use every option to raise higher level of revenues. Had the government not raised the prices of POL products, it would have been forced to borrow more from the banking system, leading to accentuation of price pressures and higher depreciation of a battered rupee. Passing the full impact of change in international oil prices and adjusting it with the change in rupee parity for the domestic market could also be a pre-condition of the EFF programme with the IMF. Nonetheless, in our view, it was better for the government to absorb a part of the impact of a rise in international prices in the budget to reduce the burden on ordinary consumers because of its claim to contain current expenditures and a sharp increase in taxes collected by the FBR during July, 2013. In particular, petroleum levy on oil products could be somewhat reduced to yield the targeted revenue when prices are ruling higher. The government needs to know that successive sharp increases in oil prices have made the lives of ordinary people very difficult and burdening them further may be unjust. Also, the price of kerosene oil should have been revised upwards by a lower margin because of its impact on the very poor and downtrodden people who reside in far-flung areas of the country and have no access to cheap gas. In the meantime, let us hope and pray that the crises in Syria and Egypt are over soon and oil prices in the international market revert to their previous levels so that people could expect some relief from surging oil prices next month.
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