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Curtailing retail prices: Manmohan Singh understood the economics behind it better than Modi
Apr 13: Why is it always risky for private companies to invest in building downstream retail infrastructure in India?
8The reason is you never know when the government decides to step in, as it has now done by ordering oil companies to stop pushing price increases down to the pump.
8Soon enough, when oil prices begin to rise further, oil companies will have to take the hike in their balance sheets.
8This impacts the private sector, which is not extended the benefits of government subsidization. Soon enough, if oil prices continue to surge, private retail outlets will have to end up shutting shop like it did the last time around.
8Eventually, the variable is the price of oil. If it goes up, the private sector will be out, if it goes down, it will be in. To peg the fortunes of its retail plan only to the price of crude oil, over which it does not have any control, is an extremely risky proposition for private sector retail. And this is not something that they did not know. And this is one reason why private retail will never be able to set up a large enough base in India, for investments in this area far too risky here.
8On a larger perspective, the Modi government remained steadfast in raising prices but clearly, political expediency has come in the way. The logic now, as it should have always been, is that money in people's hands, when the hike is not passed on, is better than in the hands of oil companies, as that will go to shore up the larger economy through higher consumption, than money left with oil companies which will only go into oil & gas capex which has narrow spinoff impact on the economy.
8Manmohan Singh understood this basic economic principle better than Narendra Modi.
8Find out more on how the latest decision is going to impact oil companies down the line
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