Crude Reality Hits India

26 02 2011

In the US, where gas prices are completely deregulated, when international crude oil prices go up, the gas prices at the stations also go up. Although it is not immediate and not exact and there are also local and company level variations. A look at the graph of prices in the US for the last 3 years indicate this. In July 2008, when the crude prices touched a high of US $ 147 per barrel the Gas price at the stations peaked at US $ 4.12 per gallon. ( 1 gallon = 3.78 litres). In Dec 2008, the crude oil prices came down to US $ 32 per gallon, the gas price at the stations also came down to 1.61 $ per gallon. When the crude climbed back again in May 2009 to nearly 70 $ per barrel, the gas price at the stations climbed upto 2.5 $ per gallon. Now that the crude prices have climbed up again to over 100 $ per barrel, the gas prices at the stations is nearly 3.5 $ per gallon. One analyst on BBC mentioned that the rule of thumb in the US is for every increase of 10 $ in the price of crude over a 3-6 months period, the gas prices at the station increases by 25 cents per gallon.
In India, where the petroleum prices are still largely under government control it is difficult to come up with such a thumb rule. Also, the crude oil cost is only about 45 % of the petroleum price at the petrol pump. Rest being made up of other costs.
If the price of petrol stands at Rs 58.90, the break up of cost as calculated by the Indian Government is as follows:
• Basic Price: Rs 28.93
• Education Tax: Rs 0.43
• Dealer commission: Rs 1.05
• Excise duty: Rs 14.35
• VAT: Rs 5.5
• Petrol Custom: Rs 1.54
• Crude Oil Custom duty: Rs 1.1
• Transportation Charge: Rs 6.00
• Total price: Rs 58.90
Yet, India imports 80 % of our oil requirements. So when the crude oil price increases the price increase has to be passed on to the consumer/ taxpayer sooner or later.
Business Standard reports that
The Indian crude basket averaged around $99.85 per barrel in February so far, a rise of over 6 per cent, compared with January’s average of $93.87. The current quarter average, at $96.43, rose 13 per cent, from $85.06 in the previous quarter. The current year’s average price stands at $82.07 per barrel, up over 17 per cent from last financial year’s average of $69.76.
In January 2011, there was a price increase of Rs 2.50 to Rs 2.54 per litre of petrol. ( 4.5 %). This was over and above the price increase of Rs 2.5 (5.5%) in December. The average price of India crude oil basket in the quarter ending September 2010 was 76.22 $ per barrel. So when the crude oil prices increased by 8.28 $ per barrel between the Sept and December quarter, petrol prices were increased by Rs 5 in December and January.
So we can say that the thumb rule for India would be about Rs 6 increase in the petrol prices at the station for every 10 $ increase in the price of crude oil. So as the average price of Indian crude basket in this quarter is already 96.43 $, an increase of over 11 $ from the previous quarter, if the Indian government and Oil Marketing companies decide to act, be prepared to face an increase of Rs 7- 8 per litre of petrol at the station.
– G. Mohan


Why Egypt’s Revolution Should Haunt the Indian IT Industry

14 02 2011

The revolution in Egypt is a historic event. A ruler of 30 years was overthrown by angry youth, who were not even born when Mubarak became President. These youth did not come under a common banner, nor did they have a leader. The despair was building up perhaps, for years. Social media like Facebook and Twitter helped them to find that there are many who felt the same. Some courageous young men like Google employee Wael Ghonim came out in the open. They got support from elders like Mohamed El Baradei and even the oldest political group, Muslim Brotherhood. The repressive Mubarak govt, tried to curb them by arresting Ghonim, blocking Internet and banning Al Jazeera to telecast news etc. Yet, these young people took control of Tahrir square and without worrying about the consequences were able to overthrow Mubarak in 18 days.

The anger and frustration of this youth emanated from many sources. Firstly, they felt stifled and did not feel free. Secondly, despite so many years of freedom, the unemployment was running high and their economic lot had not improved. Thirdly, their ruler Mubarak and his cronies around him had amassed huge wealth and stashed them abroad. Fourthly, the geriatric rulers just could not feel the pulse of the youth.

Before the Internet era it would have been necessary for these angry citizens to meet, discuss, organize themselves and then plan a revolt. Meeting even secretly and organizing themselves in a dictatorship like Egypt would be at great risk to life and property. Thanks to the social media, it is possible for people to meet virtually, just as they are going about their jobs and yet plan for a revolt of the kind Egypt saw.

Indian IT services companies today are large with the big ones having employees of more than 100,000 each. These companies thrive on a very young employee base. Average age of employees in many of these companies would be around 27 years. The average employee of these IT companies is part of the Internet generation.

Most large IT companies, as per company policy, do not allow access to any of the social networking sites. The stated reason is to maintain confidentiality of client information and to improve productivity. The unstated reason is not allowing their young employees to connect, form unions and express dissent of any kind.

Yet, employees are active on the social networking sites using their smart phones, home computers or even wireless modems on their laptops. When 3G will be launched India wide and gains popularity, this will become even easier. Being young they are, many might be today using them only for dating and generally socializing, but if the despair builds up these networks can easily find other uses.

Although, the despair among the employees in IT companies is nowhere near the boiling point reached in Egypt, there are a few areas which need attention. Firstly, most companies particularly the older ones are very hierarchical and do not allow the young employees to complain or give suggestions. They are just expected to take orders. Dissent is not encouraged and often punished. Secondly, the top management is from a different generation and often quite disconnected with the aspirations and frustrations of an average young employee. Thirdly, the CEOs reward themselves with huge salaries and commissions even during recession, when the salaries at lower levels are frozen. This is noticed and employees just gripe about it. Fourthly, cronyism is rampant and meritocracy is just for lip service. Their legitimacy is often questioned by the young employees, in private. Lastly, just like Mubarak’s focus to keep US happy, the top managements are focused on keeping the analysts and shareholders pleased, even at the cost of employees.

The HR departments of most IT companies are just efficient recruitment engines. They are quite occupied doing routine administration and processing. They just do not have the understanding nor the capability to manage the large human communities these organizations have become.

The HR managers will be found wanting if an Egypt like revolt erupts in their organization. They will have to go hiding behind their pile of PCMM certificates and 360 degree appraisals.

– G. Mohan

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