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WILL DOMESTIC PETROL PRICES FALL?

Akhilesh Bhargava

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Petrol

The prices of crude oil in international markets have fallen by almost 35%, to below $60 a barrel, after having touched a recent peak of $85 to a barrel, in October 2018. These prices are now at a 13-month low and are predicted to fall further. Crude oil prices are volatile and unpredictable and curiously when they go up, the market predicts that they will only keep going up, but when they start falling, they reverse the prediction. Just a fortnight ago, investors in Europe were strongly advised to buy shares of oil companies, predicting that crude oil will touch $100 a barrel and now, they advise the exact opposite.

The oil prices are keenly watched in India, since they directly affect the wellbeing of the common man. Since retail prices of diesel and petrol are said to be fixed daily in India, the consumer thinks that since oil prices have fallen in global markets, they should fall in tandem, in our domestic markets too. But this notion that these prices are fixed daily to reflect global oil prices is not quite true. Petrol product prices in India, are calculated daily, taking the previous 15 days average and hence they do not reflect today’s prices as maybe prevailing in global markets. For example, it is reported that while oil prices in international markets fell sharply in September 2018, they did not do so in India’s domestic markets. The other reason is that the prices of petrol and diesel set by the oil marketing companies ie. IOCL, HPCL etc. are certainly controlled by the government, much as it may be claimed otherwise. A former ONGC chairman, in fact points out ‘that the current policy framework of daily revision in prices of petroleum products lacks transparency. Indirect interventions based on political considerations have been obvious in the recent past.’ He says that the government must institute an independent audit mechanism to validate the daily price fixation by the government oil marketing companies (OMCs).

There are numerous reasons why the Indian consumer will not immediately benefit from the sharp fall in global crude oil prices. At the outset, it is too early to conclude that the current slump in oil prices is for real. The very issues that led to the oil price rise ie. sanctions on Iran, US-China trade war and the dollar price rise remain unresolved there is an OPEC meeting on 6-7 December to review the situation and thus anything can trigger a flare up in oil prices. So the government is bound to follow a wait and watch approach at present and will not reduce petrol and diesel prices sharply. The other reason is that the OMCs had given a discount of rupee one per litre on petrol/diesel in October 2018, which had wiped out their profit margins. The government is bound to not reduce petroleum product prices, to enable OMCs to recoup their losses. Moreover retail petrol prices consist of cost of imported crude oil plus refining margins plus taxes and dealer commissions and hence the fall in prices of petro products cannot be the same as in international crude oil prices.

The compelling political reality is that the government is struggling to raise resources to bridge the growing fiscal deficit gap and it is bound to fill its coffers by not reducing oil product prices. And it will continue to do so, to raise its kitty for election spending and will perhaps reduce prices of petrol/diesel only during the run up to the 2019 elections, for obvious reasons.

Business Tit-Bits

The insider of the Monetary Policy Committee meeting of the RBI

Akhilesh Bhargava

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The recent meeting of the Monetary Policy Committee of the Reserve Bank, took place with a much better macro economic environment. Crude oil prices have fallen sharply, the rupee has started gaining strength, capital inflows are increasing, there is a pick up in investment activity led by the government, there is an increase in capacity utilisation, a rise in exports, an improvement in credit off take, inflation remains subdued and with a retreat in commodity prices, corporate profits should look upwards. What happened in the meeting? Mr. Akhilesh Bhargava, Business Editor of HW Business and Finance shares his insights on the matter.

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Business Tit-Bits

An insider into the murky affairs of the Sun Pharma

Anusha Bhattacharya

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Among the large corporates in India, Sun Pharmaceuticals Ltd., India’s biggest pharma company, stood out as a relatively clean organisation, whose grounded/down to earth billionaire promoter Dilip Shanghvi was richer than even Mukesh Ambani, though for a brief period, in 2015. Sun Pharma and its promoters were often awarded and feted for their industry leadership and business acumen, and were also respected for their business integrity. But there’s more to it. Mr. Akhilesh Bhargava, Business Editor of HW Business and Finance shares the complete story of the murky affairs of Sun Pharma

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Business Tit-Bits

Why is audit India’s weak link?

Akhilesh Bhargava

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In an interesting and candid recent speech on corporate governance in India, Uday Kotakspoke about what ails corporate governance in India. He said that there are six layers of corporate governance in our system, including the company management, its board of directors, rating agencies, auditors and regulators. He remarked that of late, these six layers have not been doing their job and that, their performance has not been satisfactory. He lamented that auditors are one of the weakest links plaguing this corporate governance architecture in India. Why is it that the audit is India’s weak link? Mr. Akhilesh Bhargava, Business Editor of HW Business and Finance shares his insights on the matter.

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