The oil ministry's proposal has been pending with the finance ministry for a while now. After the Inter-Ministerial Group (IMG) on inflation met here on Monday, oil minister Jaipal Reddy renewed his demand and said that he has asked the government to raise taxes on such vehicles.
A senior official of Central Board of Excise and Customs said a proposal was pending but no decision was taken yet. He, however, indicated that the government was now inclined to consider the proposal given the huge gap between the retail prices of the two motor fuels.
Before this year's budget, Reddy had demanded an additional excise duty of Rs 80,000 on diesel vehicles. The proposal was, however, opposed by the automotive industry and the department of heavy industries.
The idea of an additional excise levy has been tossed around in the oil ministry since 2008-09 as a way of raising funds to at least partially meet the Centre's burden on subsidizing diesel. But the idea never made it to the formal discussion table since it was felt that the funds garnered would not be significant in view of the massive size of the fuel subsidy burden.
The recent hike in petrol prices by Rs 7.50 has created a big gap between retail prices of petrol and diesel. While diesel is selling for Rs 41 a litre in Delhi, petrol is above Rs 73 a litre. The current subsidy on diesel is more than Rs 15 a litre that the government partly subsidizes to oil marketing companies.
The gap has also affected fuel consumption patterns and diesel demand has outstripped petrol for the first time in 15 years.
Meanwhile, the finance minister is likely to write to all chief ministers to consider cutting value added tax on petrol. On its part, the Centre may lower its duties to give some relief to the common man in view of the steep hike in petrol price. Already, Delhi, Uttarakhand and Kerala have announced cut in VAT on petrol.
In the budget for 2012-13, the finance minister had hiked the excise duty for both petrol and diesel cars with engines under 1,200 cc (petrol) and 1500 cc for diesel cars with length exceeding four metres to 24% from 22% and a fixed duty of Rs 15,000. Cars with engines exceeding the above capacity were charged an ad valorem duty of 27%.
The finance minister had, however, avoided raising additional duty separately on diesel cars.
Finance sector prepares for Greek exit - just in case - New Statesman
No matter how unlikely the financial sector thinks Greece exiting the euro will be, it is taking every precaution possibile to make sure it doesn't get hurt by the process.
Lloyd's of London is preparing for a collapse of the single currency, and has reduced its exposure to the continent "as much as possible", according to a report in the Sunday Telegraph. Despite that, Europe still accounts for 18 per cent of Lloyd's £23.5bn of gross written premiums, with much of that concentrated in Spain and Italy, as well as the safer markets of France and Germany.
Richard Ward, the chief executive of Lloyd's, said:
I'm quite worried about Europe. With all the concerns around the eurozone at the moment, we've got to be careful doing business in Europe and there are a lot of question marks over writing business in the future in euros. I don't think that if Greece exited the euro it would lead to the collapse of the eurozone, but what we need to do is prepare for that eventuality. . .
We've got multi-currency functionality and we would switch to multi-currency settlement if the Greeks abandoned the euro and started using the drachma again.
Other institutions are putting their own houses in order. Two weeks ago, ITV's Laura Kuenssberg tweeted from a trading floor where the drachma had already been installed into the systems, and Reuters reported that a number of banks were quietly preparing for the exit, in which case those problems would be the least of their worries:
Some banks never erased the drachma from their systems after Greece adopted the euro more than a decade ago and would be ready at the flick of a switch if its debt problems forced it to bring back national banknotes and coins. . .
A Greek departure from the euro would create legal and practical problems for the banks which would dwarf the relatively straightforward technical job of dealing in a new currency.
But how unlikely does everyone think exit actually is? Are they covering for an extreme black swan event, or is it something which they are all expecting? Joe Weisenthal at Business Insider provides this chart, from Credit Suisse:
For those of you without the maths skills, that's a roughly 15 per cent total chance of a Greek exit, and another 20 per cent chance of a third round of elections (which, of course, takes us right back where we are already). Not definitely going to happen, but worth preparing for in case. No one wants to shout "fire" and spark a run, but no one wants to be the last one in the burning room either.
Spain runs out of money - Daily Telegraph Blogs
A Spanish protester burns a euro note
El Mundo reports that the country can no longer resist the bond markets as 10-year yields flirt with 6.5pc again, and the spread over Bunds – or `prima de riesgo' — hits a fresh record each day.
Premier Mariano Rajoy and his inner circle have allegedly accepted that Spain will have to call on Europe's EFSF bail-out fund to rescue the banking system, even though this means subjecting his country to foreign suzerainty.
Mr Rajoy denies the story, not surprisingly since it would be a devastating climb-down, and not all options are yet exhausted.
"There will not be any (outside) rescue for the Spanish banking system," he said.
Fine, so where is the €23.5bn for the Bankia rescue going to come from? The state's Fund for Orderly Bank Restructuring (FROB) is down to €5.3bn, and there are many other candidates for that soup kitchen.
Spain must somehow rustle up €20bn or more on the debt markets. This will push the budget deficit back into the danger zone, though Madrid will no doubt try to keep it off books – or seek backdoor funds from the ECB to cap borrowing costs. Nobody will be fooled.
Meanwhile, Bankia's shares crashed 30pc this morning. JP Morgan and Nomura expect a near total wipeout. Investors who bought the new shares at flotation last year may lose almost everything.
This all has a very Irish feel to me, without Irish speed and transparency. Spanish taxpayers are swallowing the losses of the banking elites, sparing creditors their haircuts.
Barclays Capital says Spain's housing crash is only half way through. Home prices will have to fall at least 20pc more to clear the 1m overhang of excess properties. If so, the banking costs for the Spanish state are going to be huge.
The Centre for European Policy Studies in Brussels puts likely write-offs at €270bn. We could see Spain's public debt surge into triple digits in short order.
As I wrote in my column this morning, the Spanish economy is spiralling into debt-deflation. Monetary and fiscal policy are both excruciatingly tight for a country in this condition. The plan to slash the budget deficit from 8.9pc to 5.3pc this year in the middle of an accelerating contraction borders on lunacy.
You cannot do this to a society where unemployment is already running at 24.4pc. Either Europe puts a stop to this very quickly by mobilising the ECB to take all risk of a Spanish (or Italian) sovereign default off the table – and this requires fiscal union to back it up – or it must expect Spanish patriots to take matters into their own hands and start to restore national self-control outside EMU.
Just to be clear to new readers, I am not "calling for" a German bail-out of Spain or any such thing. My view has always been that EMU is a dysfunctional and destructive misadventure – for reasons that have been well-rehearsed for 20 years on these pages.
My point is that if THEY want to save THEIR project and avoid a very nasty denouement, such drastic action is what THEY must do.
If Germany cannot accept the implications of this – and I entirely sympathise with German citizens who balk at these demands, since such an outcome alienates the tax and spending powers of the Bundestag to an EU body and means the evisceration of their democracy – then Germany must leave EMU. It is the least traumatic way to break up the currency bloc (though still traumatic, of course).
My criticism of Germany is the refusal to face up to either of these choices, clinging instead to a ruinous status quo.
The result of Europe's policy paralysis is more likely to be a disorderly break-up as Spain – and others – act desperately in their own national interest. Se salve quien pueda.
I fail to see how Spain gains anything durable from an EFSF loan package. The underlying crisis will grind on. Yes, the current account deficit has dropped from 10pc to 3.5pc of GDP, but chiefly by crushing internal demand and pushing the jobless toll to 5.6 million. The "unemployment adjusted current account equilibrium" — to coin a concept – is frankly frightening.
The FT's Wolfgang Munchau suggested otherwise last week, saying Spain's competitiveness gap has been exaggerated. I can see what he means since Spain's exports are growing even faster than German exports. But this is from a low base. It is not enough to plug the gap.
Spain is quite simply in the wrong currency. That is the root of the crisis. Loan packages merely drag out the agony.
A Spanish economist sent me an email over the weekend after the Bankia details came out saying:
"It looks like game over for the sovereign and the financial sector at the same time. Unless we get a Deus ex Machina, we'll be discussing much more seriously the benefits of a return to the peseta in no time."
It begins.
Living on mobile money - BBC News
A couple of weeks ago I wrote about my frustrating efforts to use various new mobile money applications on my phone. I promised then to have another go, to give up cash and try to pay by phone alone. So, how did it go? Not very well, I'm afraid.
I started by loading up my phone with a variety of apps which - supposedly - would help me get by without cash or even cards. My main weapons were to be O2 Wallet and Barclays Pingit, two new services which allow you to send and receive money from your phone. But I also installed the Paypal app, and a range of others that allow you to buy a coffee or pay for a taxi from your phone.
Within minutes of starting, I ran into trouble. It was my turn to buy the office tea and coffee round, and the coffee outlet only took cash. No problem - I would get my colleague Anthony to pay and refund him via one of my mobile money pay-by-text services.
With Barclays Pingit playing up (I never got it to work, even after deleting the app and going through the lengthy verification system again) I turned to my O2 wallet. Just two or three passwords later, I had texted a £2.80 money message to Anthony.
Then the fun began.
He spent days - quite literally - trying to make sure this and a couple of other payments from me made their way from his phone into his bank account. Much of that time was spent in increasingly intemperate phone conversations with O2. At one point the company told him their "triage unit" was on the case. Anthony's verdict? "No need for triage - it's terminal!"
I quickly realised that although I wanted to rely solely on my phone, this approach wasn't going to work. I would need to use credit and debit cards as well, plus my Oyster touch-and-go card for travel around London.
By paying for meals via my debit card - which meant I had to spend more than £5 - I did manage to get by without cash for a couple of days.
Then I took a trip to Oxford and had my first failure.
Getting on a bus to the city centre without a travelcard, I found myself obliged to dip into my pocket for some coins to pay the fare. And my bus trip proved a timely example of how useful mobile money could be if it were more widely adopted. On a busy route, every time we stopped dozens of school children and students queued to pay by cash, making our progress very slow.
While neither of my mobile money services proved at all useful over the week, there were two things - taxis and coffee - that proved easy to pay for by phone. The taxi app market is now fiercely competitive and I found Hailo, a service that lets you order a London cab, pretty efficient at delivering a driver to me within five minutes.
I also tried Ubicabs to order minicabs, and this again worked fine - although my driver ended up asking me to navigate to my destination. These services make it very easy to move around without cash or credit cards - if only in the London area - but they have one major downside. You end up racking up big bills without even thinking about it.
The same applies with the Starbucks app, which allows you to load money onto a virtual payment card on your phone, then swipe your phone against a reader to pay for coffee or a sandwich. Because this was the only easy way I found to buy food from my phone, I ended up spending far too much on cappuccinos.
When I ended my experiment, I breathed a sigh of relief - as did my colleague Anthony, who is still trying to extract from his phone the money I owe him. Trying to live off mobile money, which is supposed to make life easier, has been a stressful experience. The inevitable concerns about security are making most of these new services so complicated to use that you have to be slightly deranged even to bother.
That is not to say the whole idea is doomed to failure. We will see further innovation over the coming weeks as payments firms unveil plans to allow visitors to the London Olympics to pay with their phones.
But here's my advice to the companies pushing these services - your "triage units" are in for a busy time.
EU finance ministers haggle over bank rules - Yahoo Finance
BRUSSELS (AP) -- European Union finance ministers are to meet in in Brussels Tuesday to hammer out an agreement over how high banks should build their defenses against future financial shocks, with the U.K. running the risk of being isolated over who should set the height.
The EU's 27 members agree on the need to increase capital reserves of banks, following an international agreement called Basel III, which was negotiated by the world's largest economies to avoid another financial meltdown such as the one brought on by the collapse of U.S. investment bank Lehman Brothers in 2008.
But the U.K. wants national regulators to be able to set requirements significantly higher than those of the EU — a position opposed by almost all other EU members, who fear investors might then prefer UK banks and flee from those in other countries.
On his way into the meeting Tuesday morning, George Osborne, the British chancellor of the exchequer, was non-committal about the possibility of reaching an agreement.
"This is a time of considerable uncertainty in the eurozone economies," he said, referring to the 17 countries — the U.K. not among them — that use the euro currency. "And that uncertainty is undermining the entire European recovery. And I think we're reaching a point where we've got to make a decision to see the eurozone stand behind their currency. A very important part of that, of course, is strengthening the entire European banking system. And that is what we intend to do today."
Once enacted, Basel III would require lenders to increase their highest-quality capital — such as equity and cash reserves — gradually from 2 percent of the risky assets they hold to 7 percent by 2019. An additional 2.5 percent would have to be built up during good times. All members of the G-20 have agreed to implement Basel III; if the European Union succeeds, it would become the first entity to institute the new requirements.
The U.K. is arguing that, because national taxpayers have to bail out banks when they fail, national authorities should be able to set more stringent requirements to guard against such failures. A compromise proposal offered by the Danes, who hold the rotating presidency of the European Union, would allow national authorities some leeway to increase requirements beyond those called for in the Basel III agreement. That proposal has broad support — except, so far, from the U.K.
The finance ministers can approve the compromise proposal without British support, through what is known as qualified majority voting, in which member countries have different numbers of votes according to their populations. However, there is a tradition in the EU that changes that would affect an industry in a particular country — such as the banking sector in the U.K. — are not forced into effect over the objections of that country, and consensus is sought.
"I think there should be a unanimous decision on such an important issue," Swedish Finance Minister Anders Borg said on his way into the meeting.
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