Petrol Pricing & Diesel Pricing in India
Let us do introspection on why the difference in fuel pricing is there in India. We need to understand that India is a nett importer of Oil than Exporter, which means India needs to import oil to satisfy its local demand.
Why hike in fuel prize happens?
India is nett importer of fuel. India is majorly depended on the OPEC countries for fuel import. The OPEC countries run as Cartels ( Cartelization is banned for certain goods in many countries). The OPEC cartel decides to hike or lower the prize of the oil barrel depending on the supply and demand.
Why is diesel priced lower?
Government levies import duties on the oil apart from that there are two components, A Central Govt and a State Govt component. In those days initially when the Green revolution began in India, the major consumers of diesel were farmers (for their pumps) and the truck/lorry operators involved with food logistics. To ensure food security, the motive of green revolution, the then Govt. and policy makers decided to subside/ reduce the taxes on diesel. As Diesel directly impacts the inflation of the country and which impacts the poor, diesel is priced lower, While taxes are levied in full against petrol. There is also a theory floating around that says the subsidization on petrol is compensated with the taxes on petrol.
Misuse of Diesel Subsidization
In the recent times, Diesel vehicles like cars and SUVs, Diesel generators to supply power to telecom towers and institutions. The diesel, whose taxes were subsidised for farmers and logistics use so that food reaches the needy at the right price, but instead diesel drinking machines in the likes of the SUVs had most benefits.
Why not hike in Diesel price?
Diesel has become the blood of the Indian economy over the years. The Farmers who cultivate use Diesel, while the truck operators who ensure that the cultivated vegetable/grain is available in various parts of the country. The lower price of diesel ensures lower price of vegetables for end buyers. Govt. doesn’t want to hike up the inflation which might impact the basic fundamental of running a country, proper food and no good government would do that. The reason is a hike in diesel inevitably hikes the price in food, which doesn’t impact the rich people in the country but definitely strikes the majority of the population who run every month on a budget and the people below poverty line. So hiking diesel price is not easy.
A regulation was brought about by Central Govt on recommendations of experts, it was decided to link Petrol price to market ,while the Govt held the responsibility of hiking Diesel prices.
What is the spilt of the Petrol & Diesel Price?
The Price of diesel is more than the price of Petrol at purchase, but its the tax and the cess that makes the difference.
Below is the information from the Press Information Bureau, Govt of India on the Petrol/Diesel price. http://pib.nic.in/newsite/erelease.aspx?relid=73697
What are the adverse effect of subsidizing Diesel and keeping high taxation on petrol?
According to me, Petrol in this 2013 is more a poor man’s fuel than a luxury. Major petrol consumers, according to some statistics, are the Two-wheeler users. On the other hand, Diesel is consumed by generator operators and Diesel Automobile operators. The adverse effect is a man who can afford to buy a Hero Honda Splendor or a Bajaj CT100 through his life savings is paying more for a litre of Petrol for his economical vehicle while a man owning an SUV pays lesser for his diesel drinking machine.
Whats the solution?
Indian Govt. can impose an annual tax on all diesel vehicles (private and commercial involved with trading non essential goods), Generator Operators to compensate for the subsidization with Diesel. These are the people, who drive SUVs, which offer a mileage of 1-2km per litre of Diesel and basically they can afford to pay. By collecting such annual tax from Diesel vehicles and Diesel Generator operators, they can reduce the burden on petrol and lessen its price.
If the Govt can enforce that Diesel will be available to Diesel vehicles and Generator Operators at price on par with Petrol, this can help reducing the burden on Petrol. To keep a check on any illegal selling of Diesel, a Quota system for diesel can be introduced.
Govt owned subsidized diesel would be sold only for farmers and Lorry operators by issuing necessary ID cards. While the diesel sold in normal fuel stations to be taxed in full.
Its time govt reduce the pricing of petrol and reduce the burden on the lower-middle class/ middle class people who are just seeing a luxury in an economical two wheeler which can shunt them between office and home.
To cite a few instances, in the state of Goa, the price of Petrol is cheaper than price of Diesel.
For more info, read this http://www.hindustantimes.com/business-news/WorldEconomy/Petrol-costs-less-than-diesel-in-Goa/Article1-1059247.aspx
Another article in Economic times that tells how Diesel used by Generator Operators are causing loss to the Government – http://articles.economictimes.indiatimes.com/2011-05-18/news/29555896_1_telecom-towers-telecom-sector-diesel-fuel
In the recent decade, India is driven by policy makers who are embarked in an era of Policy Paralysis owing to alliance issues, Corruption and lack of brilliant heads at the helm. This has led to stalling of industrial growth and not to forget the inflation which has been on the rise. Its time for the Govt to take some bold steps forward that would bring good for the Indian Economy.
Under the Prime ministership of Indira Gandhi, it was decided that India should have a uniform pricing policy of fuel across the country. That is, Petrol should cost the same from Kashmir to Kanyakumari and even in Andaman Islands. That was a novel idea but got lost in times. Now Bangalore and Hosur which are neighbours but have different fuel pricing as they belong to different states. Let’s not deviate from the subject.