An increase in motor fuel prices should be imminent and diesel
cars too could cost more, if the government's report card on the
economy is anything to go by and populist politics do not come in the
way.
The Economic Survey throws light on the pitfalls of a skewed fuel pricing regime and lays down the rules of engagement for reforms: runaway subsidy is economically untenable. The price differential with petrol is leading to increased dieselization and misuse. This is undesirable since it is increasing pollution and adding to public healthcare costs.
The Survey suggests a fixed subsidy on each litre of diesel. While this does not mean deregulation, it will introduce consumers to a system, where the price will go up or down periodically whenever international rate varies.
But this is easier said than done. In spite of crude rising to $123 a barrel, the government did not dare to raise diesel price for nearly a year for fear of upsetting UPA allies or stoking popular anger ahead of assembly polls. Now, state-run fuel retailers are losing Rs 14.73 on each litre of diesel.
Even the price of petrol, which is officially free of government control, has been revised only now and then as the oil ministry wave the red flag for same reasons. The companies are losing over Rs 5 per litre on petrol, and that will not be compensated by the government.
Consequently, the government's fuel subsidy bill is estimated to surpass estimates. This fiscal, the oil firms are projected to lose over Rs 137,000 crore on diesel and kitchen fuels, half of which will be made good by the government. This is more than the budget estimates of Rs 134,211 crore.
Given the political situation, what one can expect now is a petrol price hike that is hanging fire for a while. Though officially it is the oil companies who take a call, the government can wash its hands off in case of political protests. Diesel price hike may be off the table for a few more months.
There is also a hint of diesel cars could be taxed more. Oil minister S jaipal Reddy himself had advocated to finance minister Pranab Mukherjee such a tax.
The Economic Survey throws light on the pitfalls of a skewed fuel pricing regime and lays down the rules of engagement for reforms: runaway subsidy is economically untenable. The price differential with petrol is leading to increased dieselization and misuse. This is undesirable since it is increasing pollution and adding to public healthcare costs.
The Survey suggests a fixed subsidy on each litre of diesel. While this does not mean deregulation, it will introduce consumers to a system, where the price will go up or down periodically whenever international rate varies.
But this is easier said than done. In spite of crude rising to $123 a barrel, the government did not dare to raise diesel price for nearly a year for fear of upsetting UPA allies or stoking popular anger ahead of assembly polls. Now, state-run fuel retailers are losing Rs 14.73 on each litre of diesel.
Even the price of petrol, which is officially free of government control, has been revised only now and then as the oil ministry wave the red flag for same reasons. The companies are losing over Rs 5 per litre on petrol, and that will not be compensated by the government.
Consequently, the government's fuel subsidy bill is estimated to surpass estimates. This fiscal, the oil firms are projected to lose over Rs 137,000 crore on diesel and kitchen fuels, half of which will be made good by the government. This is more than the budget estimates of Rs 134,211 crore.
Given the political situation, what one can expect now is a petrol price hike that is hanging fire for a while. Though officially it is the oil companies who take a call, the government can wash its hands off in case of political protests. Diesel price hike may be off the table for a few more months.
There is also a hint of diesel cars could be taxed more. Oil minister S jaipal Reddy himself had advocated to finance minister Pranab Mukherjee such a tax.
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