Sunday, June 1, 2008

More Cars - does it make sense for India?

Crude oil price is hitting all-time highs in the international market. Except for the oil-producing countries, the news spells bad omen for every country. $ 30 per barrel to $ 130 per barrel within 5 years? ' Too much' is a mild expression to describe this gallop. This unprecedented price rise will affect the cost of living adversely in every major economy.

India will be one of the worst-hit countries. Most of its need for Petrol is met through import. The policy of the Indian Government has been to subsidise Petroleum products heavily . It is said that a litre of Kerosene at subsidised price costs less than a litre of mineral water. It might make some sense to protect the large population living below the poverty line , from a huge price rise which would be the result if one passes on the increase to the consumers without subsidies. But how much could one subsidise Petrol and Diesel? The oil manufacturing / refining companies ( mostly Govt.-owned) are reeling under huge losses and there is real danger of their going bankrupt.

Under these circumstances, is there any sense in putting more cars on the roads? Is there a need for the so-called People's Car such as Tata's proposed Nano? Leave alone the problems of congestion on the roads; what about the ballooning subsidies if the need for petrol goes on increasing at geometric proportions? Will it not affect the economy? After all, there is nothing like free lunch; some one has to foot the bill for the subsidies. Who else can it be except the tax-payers? Unless a cheaper alternative to Petrol is invented soon, the need for private transport should be voluntarily curtailed. Greater dependence on Public Transport should be encouraged. Any ' fall in living standards' as a result of this switch is more in the eyes of the beholders. Whether the remedy is applicable to the economies of the more prosperous West or not, it is certainly a good one for emerging economies like India which do not produce oil in adequate quantity.