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    Dual pricing of diesel makes no sense

    Synopsis

    The price arbitrage for guzzling subsidised diesel would almost certainly lead to a host of directly-unproductive profit-seeking activitie.

    ET Bureau
    Reports confirm that the dual pricing of diesel has predictably meant huge perverse incentives for bulk consumers of the fuel to simply tap subsidised diesel in the retail market, where it is cheaper by a fifth. The price arbitrage for guzzling subsidised diesel would almost certainly lead to a host of directly-unproductive profit-seeking activities and opacity, meaning corruption and inefficiency.

    The way ahead should be to do away with such dual pricing and have proactive policy in place for efficient prices that competitively reflect scarcity value of the fuel. Otherwise, the untoward result would be huge national costs with equally large fiscal implications. Already, it has reportedly been decided in Gujarat that bulk consumers like state transport buses would tank up at retail pumps.

    The everyday leakages between the artificially-priced retail and bulk segments would, in effect, make nonsense of the policy of selective underpricing for retail consumers, to reduce the runaway subsidies on diesel. Worse, it would further distort the domestic pricing of diesel in the face of rising crude prices and disincentivise efficiency gains in marketing, logistics and supply of what are extremely high-volume oil products. India’s current account balance is imprudently in deficit due to reckless consumption subsidies on diesel. And, most of all, unfinished reform of diesel pricing would only jack up budgetary subventions, make Indian production lag the world in energy efficiency and misallocate resources right across the board.

    The point is that repressing fuel prices sends all the wrong price signals: to fuel users, fiscal deficit watchers, competitiveness rankers and all seekers of intelligence in policymaking and design. Dual pricing of diesel makes no sense. We need to purposefully decontrol diesel, with a clear roadmap for the transition.

    Predictability is more important than restricting the price change to homoeopathic doses. Further, the marketing of petrofuels has to be opened up, so that independent players can offer genuine competition that would rid the sector of cost padding. In the mature oil markets, up to half the offtake is from independent retailers like supermarkets.

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    8 Comments on this Story

    A M Manohar2822 days ago
    Duel pricing with out encouraging malpractice is still possible. All the four wheelers have a tank size not more than 40 liters. So all fillings under this limit be taxed at higher level and the load carriers at a different level. Alternatively the oil companies can have different dispensing outlets for luxury vehicles and load carriers. Why not such an alternative in the interest of curbing inflation rise.
    Bobby Rodrigues2823 days ago
    It is best to get rid of all subsidies and let all prices be market dictated. Any intervention on the part of government involves colossal administrative wasteful expenditure. Since the government is already committed to ensuring that all citizens are provided with Aadhar cards, people below the poverty line can be taken care of through direct cash transfer to their accounts. There is no more justification to promote inequity and corruption through subsidy.
    Sathiesh Chandr2823 days ago
    While hiking the prices of diesel to bulk consumers, a relief could have been provided by allowing them to take credit on the excise duty component of diesel. Thus the bulk consumers will be discouraged from going to retail outlets.
    The Economic Times