Petrol price hike: Increased arbitrage for committing crime

"Lets not burden our children.." these are the quotes of Mr. Manmohan singh after the fuel price hike declared yesterday. It is a basic common sense that all the oil companies will be dead without these price hikes. Not that these price hikes will lift them from the deep losses, the amount of direct subsidies atleast will come down.

The imminent affect of the fuel price hike will be felt by the normal consumer is two ways:
a) The increased price per litre
b) The quality of the fuel

One may wonder, how does increasing the fuel price hike affect the quality of the fuel. Because, the increase in the fuel price hike occurred on Petrol & Diesel but the prices of Kerosene remain UNTOUCHED. The arbitrage value can be understood from the below graph.



This will provide more impetus to the petrol aduleteration whose victims are the millions of vehicles, the environmental pollution and the famous Mr. Manjunath of IIML who was brutally murdered because he suspended the license of petrol pump involved in petrol adulteration.

I guess to ensure that Kerosene is properly used, the sale of Kerosene is stopped in the open market and is only distributed to the needy through public distribution schemes. But, alas, it is estimated that close to 40% of the Kerosene distributed in PDS is used for petrol adulteration.

Even if we estimate that in a litre of Petrol, it is adulterated in the proportion of 25%, then the margins for the petrol pump owners who are involved in adulteration would be around rs.10 per litre of petrol and on the similar lines for Diesel.

So, if the petrol pump sells around 2k liters of petrol/diesel per day, the margins for the petrol owners would be more than 20k per day. These numbers may not sound astounding but these are very conservative figures.

India consumes around 4 million barrels per day of petrol. If 25-30% of that is adulterated, then we are looking at a margin of more than 1 crore per day for the owners. With the increased petrol/diesel prices and the constant kerosene prices and with minimal check points on PDS, the owners of the petrol pumps will find petrol adulteration more lucrative and hence the nexus would become more stronger.

So, even if one more Manjunath gets in, the chances that he will make any dent into the existing system have already reduced with these price hikes.

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