To,

The Finance Minister,

Government of India

Sir,

As students of IIM Kozhikode, we had a few suggestions on how the government can try and combat
the effects of the present upturn in oil prices and how we can look to optimize our actions to
maximize potential benefits in international commodity price movement for the Indian business
environment.

We believe India needs to help make the domestic economy more predictable and remove the
uncertainty surrounding oil prices. One way to do so would be by developing a pricing structure that
can be used to maintain stability in domestic prices. A large part of market prices for oil actually
contains central and state taxes and these have progressively increased (especially excise duty) as
oil prices were on a downturn in the last few years. There is a view that the recent surge in oil prices
is a sign of things to come especially since most commodity markets are now on an upturn and this
can lead to inflationary trends in the economy. All investors, domestic as well as foreign seek lower
risk and this uncertainty would be a cause for concern leading to lesser investment. Even the RBI
would be concerned about the inflationary trends due to rising crude prices and would be loath to
reduce interest rates. In view of this a policy to look to arrest this using a variable tax rates
mechanism based on international crude price in collaboration with state governments can
provide the required stability and transparency which would be helpful to businesses and can be a
first step in including petroleum products in GST. This might increase the future deficit but at an
overall level the increased stability will help RBI in deciding to cut rates and also lead to more
investments in the economy by removing an area of uncertainty.

We would also like to highlight the issue of Mudra power plants which have been affected by the
increase in Indonesian coal prices. It is important to note that these power plants are mega power
projects and built at a huge investment. They have one of the lowest power rates (~2.4 per unit)
and even if we allow the companies to incorporate the price increase of 0.4 paisa per unit, it would
still be cheap power for our debt-ridden state utilities thus benefitting both the government and
helping power companies in freeing up capital for investment. This would be helpful for a power-
hungry nation such as ours as cheap electricity is a pre-requisite for most industries. It would also
send a positive signal to the industry and help in more such projects coming which produce power at
cheap rates. The fact remains that the projects are a net positive for our economy and can help India
in the long run and the companies could not have factored in the Indonesian governments erratic
policy change when they bid.

For gold, which is a precious metal and one of our major imports contributing to the trade deficit, we
would request the government to be more pro active with places of religious worship in
monetizing the gold available with them. This should help provide the economy with a boost by
encouraging shrine boards to invest in other asset classes like equities and also help control our
trade deficit. Rules can be framed to define the asset classes such as government bonds, mutual
funds etc in which religious societies/shrine boards can invest in. The reason why we recommend
working with shrine boards on this is because various articles estimates that Indian temples have
gold holdings of 3000-4000 tonnes lying idle in the vaults which can be put to good use.
In summary our suggestions are to device a price setting mechanism for domestic petrol and diesel
including a variable tax component to provide predictability in prices for the economy and
companies, solve the Mudra power plant issues arising out of coal price variation to send a
positive signal to the industry and to look at collaborating with Indian religious institutions on gold
monetization and frame rules for them to invest in particular asset classes such as government
bonds

Thanks for considering our suggestions and we give you our best wishes in leading the Indian
economy

Best Regards,

Ashrav

Aditya

Raveena

Sathwick

Molshree

Monika