On A Loose End

Come wednesday and the biggest ever tax increase on tobacco products takes place. The tax in the US has been increased from 39 cents to $1.01 for cigarettes and from 19.5 cents per pound to 50 cents for chewing tobacco. Dubbed as a public health move one can see through the effort as being the only soul saver in the dwindling economy. The retail sales in other industries have gone down substantially in the last one year and consequently so has the tax collection. Therefore the government has targeted the ever reliable, 'smokin' hot' industry for increasing the tax collections so as to fund the bailouts. Even though the anti-smoking advocates say that increasing the prices of cigarettes reduces consumption, not many people have quit smoking solely because of the price of the cigarettes. If the government was really bothered about the public health they would have shut down the tobacco industry long time back. The fact that they don't says a lot about the motives. Sometim...

Circumstances – Massive dip in the oil prices world over. Good news - A few days back Air India announced a fare cut by 45 to 85 % in various sectors. Others are likely to follow suit. Bad news – The cut was limited to the basic fare charged and not on the fuel surcharge. What is happening, one might be tempted to ask. If the fuel prices have gone down, the fuel surcharge should go down, why the basic fare. There is a lot of economics at work here. This is an example of a Government aided scam. Let us try to understand it. The fuel surcharge here in India was introduced in Nov 2005 for the airlines business, primarily to offset the volatility in the prices of fuel and hence the Aviation Turbine Fuel or the ATF. No, it is not the brain of some over-intelligent Indian economist; it has existed in the west for a lot longer and has pervaded other sectors too, besides the aviation sector as it will, in our country too. How does the airlines company benefit? On the face of it, it might seem...