Rolling back of Diesel Prices will lead to solutions to all problems or problems to all solutions ????

Briefly, “Common Man” has assumption that inflation fires up when prices of petrol and diesel goes up.

However, if one tries to dig further and study the impact of fuel subsidiary on Indian Economy and in turn, on “Common Man “then the findings are different and eye openers.

One must understand that causing “Bharat bandh” and other protests and eventually rolling back prices does not help the situation.

E.g.  If India sells 100 units of produce at Rs 1000 . This means as long as India spends Rs 1000 , it can recover it by selling 100 units . At this stage, the economy on is balanced.

Now, lets say India sells a liter of Diesel at Rs 50 instead of Rs 75 (its true value) . Thus, making a loss of Rs 25 / liter.

To compensate Rs 25/- loss, India will either borrow Rs 25 or print currency of Rs 25/- . In both the case, India does not produce any goods for the additional Rs 25 /- .

The number of units continues to remain at 100. In absence of any real production, India will recover Rs 25 from its citizens by spreading the loss across 100 units.

Due to the loss, an additional Rs 25 (borrowed or printed) was added into the system.  Therefore, units remained 100 and money in the system became 1025. Now the price per unit would become 1025/100 = Rs 10.25 (which was Rs 10 in earlier situation 1000/100 = Rs 10).

Such recovery will take place across all units (can be called as goods and services). In other words, value of Rupee goes down and we have to pay higher price for the same number of units.  It means people are spending more than they are producing. This is causing Fiscal Deficit, which ultimately leads India into bad shape and then so called “Common Man”.The subsidies money or funds can be utilised for betterment of Indian infrastructure, Indian health systems etc.

Disclaimer :

The views expressed herein are the personal views and we don’t have any intention to enter into Politics 🙂