The discussion of free petrol pricing is back. For the umpteenth time government is discussing the possibility of leaving the petrol prices to the markets. Will it be successful? That is a different discussion. But if it is implemented today – the price of a liter petrol would be 26 rupees.
Am I nuts? May be I am but, before we jump into conclusions let us do some math. There will be few assumptions which I have to make for the lack of better information. The assumption here is that we are following the US pricing model.
Which means I took an average of 1.975 dollars per gallon of gas or petrol. The source is GasBuddy. Without even going into the demand and supply of oil comparison between US and India, I did some simple math.
Here we go :
1 gallon = 3.78 liters. | 1 Dollar = 50 rupees.
The rates as per GasBuddy are ranging from 1.4 dollars per gallon to 2.55 dollars per gallon.
With the lowest rate of 1.4 dollars per gallon, 1 liter petrol costs 1.4*50/3.78 = 18.5 rupees
With the highest rate of 2.55 dollars per gallon, 1 liter petrol costs 2.55*50/3.78 = 33.7 rupees
If we take the average price then it would be : 26 rupees for a liter petrol.
Do you see any holes in the calculation? There could be many but, the bottom line is we are paying more for a liter petrol. I am sure there would be an immediate argument that the government has shielded the consumers when the oil was $147 per barrel. But, if we apply the same calculation and use $5 per gallon value – the price of liter petrol would be 66 rupees.
Is the Indian market matured enough to handle the market prices? Or put it differently, Wouldn’t the oil marketing companies like HPCL, BP, Shell, Essar, Reliance be minting money by jacking up rates at will?
If the prices are left to markets, it would be a healthy environment for competition. That is where the private companies come in. New petrol stations would come up. This means 2 petrol station in the immediate vicinity will be offering 2 different rates. Without any apprehension, the consumer would pick the lowest price. That again drives the prices lower. Indiangasbuddy.com domain would be registered.
That was one fine hallucination.
Seriously guys, would the market prices work in India?
*Image source : kristiewells via flickr