Oil prices soaring-- fuel hike expected.

Oil is above $100 a barrel and this is the biggest threat to our economy in India. Already the government is talking about increasing the price of petrol by Rs 3-5 / liter.

This increase is going to cripple our economy. With increasing fuel prices will come increased inflation, increased interest rates and hence lower growth. Already you can see that companies are getting negatively hit with the impact of this. Today, the higher interest rates are not allowing companies to invest in increasing the supply side of the market.

Today commodity prices are starting to soar through the roof- oil, gold, silver ( at the highest level at 35$) and food prices are now starting to soar through the roof. A lot of this is being attributed to

1. The increased growth in the US and the emerging economies at the same time.
2. Increased tensions in the gulf area- presently the tension in Libya.

If the oil prices continue to go up at this rate, we will really need to find new ways of travel and saving on this precious fuel.

Companies are already looking to find ways to help reduce cost of transport- especially the IT and ITES companies. A lot of them are moving to the metro or local transport. Its important, because this part of the cost of delivery is now becoming larger and larger of the overall component.

The metros are now becoming more and more important. I have a few friends in Delhi who travel usually by metro to Noida. Its quite comfortable. But as more and more people move to such transport system, they would need to ensure that services do not deteriorate.

Here are some older posts on this

http://simplefinancialsense.blogspot.com/2010/07/using-cfls-to-save-on-energy-bills.html
http://simplefinancialsense.blogspot.com/2010/06/fuel-price-hike-part-2.html

Saving Fuel Costs

With the continuous increase in fuel prices ( Bangalore has reached 67Rs/ lt!) life is becoming more and more difficult to manage. It pinches that the 500Rs or the 1000 Rs note suddenly runs out faster than what it had just a few weeks ago.

If i recall around 6 months back fuel prices in Bangalore used to 49Rs / Lt and it has had a whopping increase of 38% which if you translate to an annualized number is almost 76%!!

Fuel prices are not going to come down, they are heading northwards with all of the western world coming out of the recession led by the United States.

But the pinch on peoples pockets in India seems to be getting harder and harder. While the prices of fuel are increasing, the government is not doing anything to reduce the amount of taxes that they are collecting from the people- leading to even higher fuel prices.

If we were to convert this into US $, 1 lt of fuel in India costs 1.48USD... which is so much higher than the 1.2$ / gallon in the US.

The issue is the higher taxes in India. The government seems to be using the taxes to further subsidize the prices of diesel in the economy.

To refresh your memory, here is an older post on how to save fuel for your motor vehicle, by going back to the basics.
20% discount on Fuel

But now even more drastic measures would need to be taken to help reduce fuel consumption for the economy as well as for your pockets.

So what am i thinking

1. Car pooling- This will work especially if you have some fixed timings . This makes huge sense for people.
2. Use the public transport system- buses, metros ( Bangalore metro will take a couple of years to come through, though the first phase should go live in a couple of weeks time)
3. Move to a lower or a more fuel efficient vehicle- like a Tata Nano or motor cycles.
4. Cycle to work-- works well with my new year resolution on health ( I actually have heard of someone in my building who cycles to work everyday).
5. Work from home for a couple of days a week-- cut the cost of petrol by that much if your company allows that flexibility.
6. Move to a closer office.

I am not sure what works for you- but point no 5 and 6 looks to be feasible for my kind of work and company.

Go ahead- evaluate what works before petrol starts buring a bigger hole in your pocket!!


Some earlier posts
fuel price hike part 2 
20% discount on fuel


Happy investing!

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fuel price hike Part 2

once again the government has increased the prices of fuel-- decontrolled the petroleum prices last week on friday.

So what does it mean for us?

Clearly this will have far reaching impact on our economy. Here are some points.

1. Increased inflation by at least 1% in the coming few weeks. We are already at the threshold of 10% with no sight of it coming down! No salary increases in the IT sector basically making lives even more miserable
2. The RBI will have an even more bigger problem. The growth of the world is still very shaky- with inflation skyrocketing in India- will the RBI bring in some monetary measures ( increase the rates etc?). It looks very likely that it will happen soon. The RBI is primarily focussed on inflation and not growth.

There are however going to be some good things that will come out of it also..

1. The fiscal deficit of the government will come down because there is a direct reduction in the subsidies by the government quite significantly and hence the government maybe able to use those resources for improving infrastructure.

2. The Increase in prices will force us to become more conservative in our spending on petrol products and hence become more focussed on cleaner fuel and better productivity-- Use the metros more etc etc. We as a people are very good in saving and this will bring out the best in us. ( read my previous post on saving petrol)

So how will this impact some of the companies that are out there.

1. Companies which are oil marketing and oil manufacturing companies- ioc,hpcl will all zoom

2. Autos will face reduction in their sales- tata motors , m&M

3. consumption companies will also reduce

4. With RBI action being highly possible , banks face increased rates and hence will also have tapering off on their growth

So relook at your portfolios and relook at your upcoming expenses... I hope these days of high inflation dont continue-- all my planning has been done at 6% and its been two yrs where its been much more than that.

Hoping for the best.

Comments welcome
( dont forget to subscribe)

Petrol Hike -- is it valid

The FM - Mr Pranab Mukherjee is nowdays fighting a battle with the opposition and some members of the government itself on the fuel price hike.

We need to understand the rationale of the hike. The core of the issue is fiscal prudence. The FM wants to bring down the fiscal deficit ( difference between earnings and expenditure of the government) to 5.5% in this fiscal-- Thats his target.

For this he needs to be able to reduce his subsidies and increase taxes.

He has actually reduced the personal tax and increased some of the excise duties and brought more businesses into the services net. However he has increased the expenditure in key areas of infrastructure etc. So to compensate he needs to reduce the subsidy on petroleum products and he has done that by raising the prices of fuel  ( he has also reduced subsidy in fertilizers)

Thats the basic rationale. -- ensuring you spend less than you earn!

I look at this as positive. We as indians need to understand the importance of fuel and fuel conservation technologies and tips. We can everyday see lots of wastage of fuel and sometimes the advertisements on the conservation of fuel ( like the kid who tells his father that he would like to start a cycle company since by the time he grows up all fuel would have finished) hopefully resonate with people's consciousness.

We all need to do our part on conversation of fuel-- petrol and diesel and gas. ( read some of my tips and experiences here)

I say kudos to the FM and PM for holding their ground.... keep it up--- we are with you.

20% discount on fuel

I love the advertisement where the guy at the petrol bunk tells the family that from today they will get 20% discount on fuel.... ( you know the rest)

I decided to try out the advice and have over the last two months made a decent profit by doing so

What all have i done?

1. Check my tires once every two weeks to ensure that the air is proper -- especially in the summers!

2. Switch off my engine at every signal or traffic cop signal. -- Sometimes i find that i switched off just when the light was going green-- but what the heck--- 90% of the times it makes sense.

3. Drive at a decent speed and not change gears too much-- steady speeds ensure lower fuel consumption ( 101 mechanical engineering)

4. Take your foot off the clutch--- all that it does is that it takes off the power from the tyres-- and then u needs more to accelerate

5. Reduce the amount of non essential stuff in the car-- why? because every additional 45 Kgs reduces the fuel efficiency by 2- 4% ( cleaned out my trunk-- slowly but steadily- and found a decent shirt there!)

6. Dont start the AC just when the car has been standing in the Sun. Blow out the hot air-- open up the windows a bit ( man-- with power windows, this should be a cakewalk)

7. Use AC as and when required -- in Blore,one doesnt really need an AC thanks to the weather-- but even otherwise -- use it sparingly-- get some sweat out :) . The difference of your AC being on 1 and the top speed can be 25% of fuel efficiency.

8. Take out the small car vs the big one...  or better still cycle to office ( one of my collegues actually does this-- hats off to him)

9. Find a short cut!

There are a few others which i have not tried yet-- but plan to in the future

1. Use local transport-- especially the volvo buses in blore or the Metro in delhi ( my dad uses it very well-- hats off to him any his friends)

2. Car pool-- at least to the airports while travelling.-- One of my cousin actually booked a car pool from the blore airport to come home!

All in all-- i think my fuel bill has come down by around 10-15 %... which is not bad--- and the savings need to go into a plan ( havent closed the loop on this one yet)

Did you know that if we all contribute and save 2% of our fuel consumption-- we would save the country 7000 Crs!!

Am sure that itself is worth the steps above..

Happy investing..