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THE GOVERNMENT'S DECISION to ban private imports of kerosene is a much-delayed response to what after all has been a well-known fact: Kerosene is used to adulterate other petroleum products, notably diesel. Henceforth, only the four public sector oil companies will be permitted to import kerosene. Without doubt, adulteration of diesel is rampant and has to be curbed, but the only problem is that the Government may be barking up the wrong tree when it thinks that banning free import of kerosene can do this.

Even as the Government's move smacks of an anti-reformist attitude, it deftly takes the attention away from the core reason for the thriving adulteration market — the big gap between the price of diesel and kerosene. It is this price gap — ranging from Rs 5 to more than Rs 10 per litre depending on whether we consider free-market kerosene or that supplied through the Public Distribution System — which is the cause for the problem. Banning free import of kerosene is a knee-jerk reaction that will certainly not help the cause of the legitimate parallel market for kerosene that has been developing since imports were decanalised a decade ago. Besides, the move also conveniently ignores the role of kerosene subsidy, which aids the adulteration racket in no small measure.

What are the reasons for the large retail price difference between kerosene and diesel? First is the taxation policy for the two products and second is the subsidy on kerosene. The duties on kerosene are lower than that on diesel. If that causes a price differential to begin with, this is compounded by the heavier sales tax imposed by States on diesel, which is as much as 34 per cent even in a progressive State such as Maharashtra. It is no coincidence that diesel adulteration is most in States such as Maharashtra and Tamil Nadu where the product suffers heavy sales tax pushing up the retail price differential with kerosene. Second, it is no secret that PDS kerosene, which is sold at a subsidised rate of about Rs 9 a litre (compared to an average price of Rs 22 per litre of diesel), finds its way into the adulteration market.

So, what should be the approach to tackle the adulteration menace? The Centre has to rationalise the duty structure for the two products and encourage State governments to go easy on taxation of diesel. It is significant that the Petroleum Ministry has recommended the raising of import duty on kerosene to match that on diesel. A more pragmatic move would be to drop the duty on diesel to the kerosene levels so that consumers who are reeling from the effect of high oil prices can benefit. Second, the issue of subsidy delivery needs reappraisal. A better way of subsidising those enrolled in the PDS would be to give them cash that will let them buy kerosene at market prices. It is now clear that artificially differentiated pricing has benefited others more than the poor themselves. These are reformist moves that the Government has to consider rather than such illiberal ones as banning free imports of kerosene.

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