The Government, cowing like a wimp to pressure from its Left coalition partner, had tried to bury its hydra head in the sand staving off hikes in petroleum products and trying to escape the facing of reality. That left oil marketing companies gasping for breath, with no money left to buy petrol and diesel, which were under threat of being rationed, including to the armed forces. Last week the Government faced (partly) the reality of the situation and raised petrol prices by Rs 5/litre, diesel by Rs 3 and LPG cylinders by Rs 50. Even with this, the hikes absorb only about 9% of the total under recoveries estimated at Rs 245,000 crores. Fifty five percent is borne by issuing oil bonds, which is simply passing on to a future generation the cost of profligacy of the current one. Reprehensible policy!

What followed was a sheer hypocrisy by other political parties. The CPM and Trinamool Congress called bandhs in Kolkata on two successive days, never mind the hardship imposed on people or the futility of such a bandh on the decision. Price increases are not going to be reduced because of the bandh; instead, West Bengal’s GDP will suffer.

It was the Left parties, supporting Government from outside without taking the responsibility of joining it, that were, in fact, responsible for the apparent steepness of the hike. Had the Congress mustered up the spherical objects to raise petrol prices by, say Rs 1/litre five times instead of once, it would have been far more acceptable.

The fact that it did not indicates the invertebrate nature of Prime Minister Manmohan Singh’s government. Being an economist he ought to have been able to convince others of the folly of defying economic reality; sadly politics and the lack of backbone prevented it.

The BJP’s protests of economic terrorism also smacks of hypocrisy. During its incumbency, the BJP Government had raised prices of petrol and diesel to the same extent as the UPA Government, despite the fact that crude oil prices hadn’t increased as dramatically as they have under this Government. So its claim that the UPA Government has unleashed economic terror is only posturing for the next election.

Finally the Prime Minister’s appeal that ministers cut down on air travel and on unnecessary usage of cars is another display of crass hypocrisy. It does not take the public protest of a petro product price hike to make these sensible suggestions. Any good leader must prepare for bad times instead of making senseless gestures after they have arrived.

The consequences to the economy and to Government financing will be bad. For preparing the country for a future of high energy prices with shortage, even worse. By artificially curbing prices of petroleum products, the Government has not allowed demand to be curtailed, as it would be, if prices were raised. The export growth of 31.5% in April 08 (over April 07), to $ 14.4 b. seems impressive until juxtaposed with the 46.2% increase in oil imports to $8 b. and of 36.6% in total imports, to $ 24.3b.

This relates to pricing, but availability of fossil fuels is a bigger concern. An alternate energy basket has to be developed, with urgency. One of the options was to use nuclear energy, essential if India is to grow at 9% or more. However, once again politics takes precedence over sensible economics and long term planning.

The conclusion that all political parties care only about power and not about the country, thus becomes inescapable.

The upstream oil companies, ONGC and GAIL, have to bear Rs 45,000 crores, or 18% of the total underrecovery of Rs 245000 crores. This means that ONGC will not be able to make the investment in both developing and acquiring, energy assets to the extent of the subsidy burden it bears. Once more example of succumbing to political follies and jeapordising the future.

Auto companies will be hit. None of the auto companies have bothered to develop alternate fuel products, including CNG, electric hybrids or other hybrids. Years ago this columnist had written to the CEO of Maruti Udyog asking why Maruti did not provide factory fitted CNG car options and why was it necessary for a consumer to bear the risk of a CNG kit not working. It was, after all both a consumer need (to cut running cost) as well as a national priority. His reply was that there wasn’t enough demand to justify the investment! How on earth would there be demand without a product on offer? Even foreign manufacturers like Toyota, with its popular Prius electric hybrid, have been slow in introducing it. Auto makers are also faced with the prospect of a 30-40% hike in contracted steel price for high grade steel.

Immediately following the price hikes, road transport freights have been hiked by 10-15%, which would add to inflation. Middlemen will take the opportunity to hike prices of e.g. vegetables, by more than the freight hike, taking advantage of the situation. It is hard to imagine inflation coming under control fast.

One hope for inflation to be reduced was in the delivery of PMT gas. This would substantially reduce the feritiliser subsidy as cost of producing fertiliser using gas instead of naphtha would be much lower. A fire at the PMT gas field has affected production of oil and gas, which may cut supply by 6 and 20 % respectively.

Lastly the effect on the fiscal deficit. To cushion the popular backlash of the petro price hike, the Government cut excise duty on petrol and diesel by Rs 1 and customs duty on crude oil by 5%, and on petrol/diesel by 2.5%. This will deprive it of revenue. Combined with a farmer debt waiver of Rs 71,000 crores, and the hike to Government servants by the sixth pay commission, the fiscal deficit will probably exceed the limit set by FRBM. It surely will, if the fudging of accounts through issuance of oil bonds, and fertiliser bonds, which do not go into the budget and hence don’t reflect in the fiscal deficit, is counted.

Meanwhile the US Fed has signalled an end to interest rate cuts and may well raise them in order to defend the dollar which Bernanke has expressed a concern over. The RBI would also follow suit. That would act as a dampner to equity markets.

Last week the sensex fell 843 points to end at 15572 and the Nifty was down 242 points to end at 4627. Should 14,500 on the sensex crack, there could be a fall of another 2000 points. India’s growth story remains intact, despite all political parties doing their hypocritic best to derail it. The strains and contradictions of coalition politics will be evidenced as elections approach; as the saying goes, it is only when the tide goes out you discover who is swimming naked!

Source: Political Hypocrisy on Display

To its credit, GM has shifted its turnaround into high gear, painstakingly reshaping what was once regarded as an American business icon. But even with the changes put in motion, it may be too late to catch rival Toyota Motor Corp. (ADR: TM).

General Motors announced yesterday (Tuesday) that it would cut jobs, costs, and possibly sell off its Hummer brand, all in an effort to reduce its exposure to sluggish truck and SUV sales, and respond to a “structural change” in the automotive industry.

That change is, of course, the rising cost of fuel.

The price of crude oil accounts for more than 55% of the retail price of gasoline, according to the federal Energy Information Administration, and as the price of oil has more than doubled in the past year, gasoline has followed suit by breaking the $4-a-gallon mark and causing motorists to cringe.

“Since the first of this year, however, U.S. economic and market conditions have become significantly more difficult,” Rick Wagoner, GM chairman and CEO said in a statement. “Higher gasoline prices are changing consumer behavior, and they are significantly affecting the U.S. auto industry sales mix.”

During the first four months of this year, sales of pickups dropped 16.8%, SUVs dropped 9.9% and luxury vehicles fell 12.9%, according to Autodata Corp. Sales of small cars, on the other hand, rose 7.5%. This rebalancing of the “industry sales mix” has swung the pendulum of popularity away from large gas guzzling SUVs back to fuel efficient compacts, and yes, hybrids.

Sales of hybrid cars surged 25% during the first four months of 2008 compared with the same period last year. And the trend only grew stronger in May when sales jumped 58%, outpacing a gain of 18% in April, the Los Angeles Times reported.

While GM’s response to this shift has been thoroughly detailed by Wagoner, change has come slowly.

Wagoner said yesterday that GM would close four truck plants, cutting its North American truck capacity by 700,000 vehicles. The maneuver is expected to save the company $1 billion.

And as far as the company’s Hummer brand is concerned, Wagoner said GM is “considering all options from a complete revamp to a partial or complete sale of the brand.”

However, these changes may have come a tad too late to fend off Toyota, which has pulled nearly even with GM in terms of global vehicle sales and continues to increase its share of the U.S. market.

“Unfortunately, it’s just a sign that once again they’re behind the curve,” Peter Jankovskis, a chief investment officer with OakBrook Investments, told Reuters. “If they were looking to sell the Hummer brand, the more sensible thing would have been to do it three years ago. They’re not going to get anything for it. Just in terms of timing, it’s a very poor example.”

Indeed, GM has already made its bed over the past decade, ignoring smaller hybrids in favor of mainstream success with the popular H2 and Cadillac Escalade. But in that time Toyota was building for the future and assembling a fleet of fuel-efficient hybrids.

The Beast of the East

While GM is struggling to catch a rapidly emerging trend Toyota is at the forefront. Toyota – the world leader in hybrid sales – sold about 429,400 hybrid vehicles in 2007, an increase of 37% from 2006.

In fact, the company announced just last month that sales of its Prius hybrid car topped 1 million units worldwide since its launch just over a decade ago. The Prius, the world’s first mass-produced gasoline-electric hybrid car, first went on sale in Japan in late 1997, and since then, more than 1,028,000 cars have been sold Toyota said.

In addition to the Prius, Toyota’s Camry and Highlander are also regarded as some of the best hybrids on the market today. And the latest addition to Toyota’s hybrid family is the company’s A-BAT, a concept truck that debuted at the 2008 North American International Auto Show in Detroit.

Roughly the size of Toyota’s smallest SUV, the RAV4, the crossover is intended to combine fuel economy with the versatility of an SUV.

“This is classic Toyota,” Erich Merkle, of automotive forecasting firm IRN, told BusinessWeek. “They’re positioning themselves ahead of the curve, preparing products for a generation of consumers that is still coming up.”

And as Toyota continues to find success on the frontier of a changing market, GM is losing ground even in its own backyard.

A decade ago, GM executives wore pins with the number 29, signifying their determination to hold 29% of the U.S. market share, the Wall Street Journal reported. But by 2006, the bar had been lowered to 24%, and the goalpost continues to move.

In April, GM’s share of the U.S. market hit a record low 20.5% according to Autodata Corp., and most analysts suspect it may have dropped below 20% for the first time ever in the month of May.

Meanwhile, Toyota’s U.S. market share hit a record high 17.4% in April, which means May’s sales totals could put Toyota within two or three percentage points of actually passing GM in its home market. Such an achievement would be a watershed moment for Toyota, on par with passing GM as the global automotive sales leader.

With the wind clearly at Toyota’s back, GM seems to be on the verge of accepting the inevitable. “I would rather be a highly profitable, great shareholder value, great reputation, growing No. 2 than a struggling No. 1,” GM Vice Chairman and Product Chief Bob Lutz told reporters after a speech at the Automotive News World Congress. “I would almost say that being No. 2 for awhile – if it happens, and it well may [for] they are in a lot of areas that are growing faster than we are – [well], it may be a powerful motivator for GM employees.” Toyota seems to have the edge in terms of both global trends and the U.S. market, but one final battleground remains. And that’s China.