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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.

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Business Tit-Bits

What was the Harshad Mehta tax story?

Akhilesh Bhargava

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The original Big Bull of the stock market, Harshad Mehta, was being investigated by numerous authorities for the 1992 stock market scam he perpetrated. The Income Tax Department conducted raids at numerous premises of Harshad Mehta and family and siezed many documents amongs other evidences. However, there was no black money involved as the source of all money recieved was from banks and all transactions were well documented. The IT Dept gave him and his family a hard time by adding frivolous income to his total taxable amount and this case went on for 27 years, even after Harshad had himself passed away. Finally, the ITAT, the final fact finding authority, srapped most of the additions to his income of over 2,000 crore ₹ which the IT Dept had made and further went on to make some observations of their own. Unfortunately, this is also the case with most taxpayers that IT Authorities in spite of having a low success rate, tend to keep appealing the matter without a genuine case, thereby causing much difficulty to small and medium tax payers.

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Yes Bank Deliberately Misleads

Akhilesh Bhargava

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Yes Bank recently released a report by RBI which stated that it had given the private lender a clean chit and found nil divergences in asset classification and income recognition. However, this was not the whole truth and Yes Bank conveniently omitted the fact that RBI in the same Asset Quality Report had discovered non-reporting of NPAs in 2015-16 to the tune of 4,176 crore ₹ and in 2016-17 of 8,373 crore ₹. The report was also a confidential one and was not to be revealed to the public. Serious accounting malpractices and loans are given contrary to the bank’s lending policies were also found which finally led to the RBI insisting Yes Bank’s founder Rana Kapoor be removed. The RBI has promised regulatory action for this breach of trust and deliberately attempting to mislead the public which made Yes Bank’s shares rise 32% in a single day.

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Is the Jet rescue plan a hogwash?

Akhilesh Bhargava

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The debt-ridden Jet Airways, which was once India’s largest private sector airline, has declared a massive quarterly loss again and its market share has fallen and it has become a fringe player. It is also dealing with a host of other problems and its promoter Naresh Goyal is not willing to let go of his company in favour of another investor. Its largest lender, SBI has come up with a revival plan that involves converting debt into equity and this will ensure that Naresh Goyal’s stake in the company comes down to 20% and he will lose effective control over it which has to be approved by shareholders at their next meeting. What is important, however, is that Naresh Goyal should not be given to managing the airline like in case of Kingfisher Airlines back in 2011and a new management must emerge to take control. All these factors must be clearly included in the restructuring plan.

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