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Share the Burden - Says the Governments

Germany and some European counties plan to vote on legislation that will result in gas consumers paying a higher price. This has been worked out as now governments are preparing for the "cold" winter. Last week Indian government introduced a windfall tax on crude and refining companies.


This trend is moving in the direction that energy prices will remain higher and the pressure it puts on the governments has to be shared with the consumers of both individual and corporate nature.


The problem with this mechanism is that the corporates will absorb it for a quarter or so and look to pass it on to consumers as we enter the festival season from October onwards. The only scenario they are not passed on is either government introduces some measures or the demand is already taking a beating resulting in higher inventories.


The price sharing is an important mechanism as it does not stress the fiscal situation of the country but it becomes a trouble when all other tools are being put to use to bring down inflation.


European governments estimate that too but the gas in the current scenario, suppliers are facing a deficit of 1Bn Euro per day. This is despite for the first time in history USA LNG imports have surpassed Russia's LNG imports into Europe.


To provide further stress in near future the governments are going to face food shortages that will be pushing the cost of living further away from desired levels.


It is important to understand that most of the focus will be on limiting the demand from now on rather than subsidising it. This is logically as the problem is and will be availability driven that cannot be solved by printing money.

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