The hike addresses neither the failing health of the finances of the Government nor that of the oil marketing companies.

By ‘allowing' retail prices of petrol to go up by Rs 7.5-8 per litre, without touching diesel at all, the Government may end up further incentivising already inefficient and iniquitous patterns of fuel consumption. Diesel is the most burnt fuel in India, with an annual consumption of around 65 million tonnes, which is more than four times that of petrol. Moreover, its sales, even from this higher base, rose by almost five million tonnes in 2011-12, compared with less than a million tonnes in the case of petrol. From this, it should be obvious that the country – which imports the bulk of its oil requirements and is struggling to finance these – ought to be restraining the consumption of diesel relative to other fuels. What the Government has been doing is quite the opposite. The latest increase announced by oil marketing companies (OMC) would translate into a price differential of over Rs 32 a litre between petrol and diesel now, as against hardly Rs 13 five years ago.

No wonder, then, diesel is being increasingly preferred by car-owners and even industries that normally use fuel oil or LSHS (low sulphur heavy stock) to fire their boilers and furnaces. An indication of it is the fact that one out of every two cars sold today runs on diesel, whereas this ratio was one-in-four a couple of years back. Similarly, it is instructive to note that fuel oil/LSHS consumption actually fell by 6.5 per cent in 2011-12. Inefficiency apart, there is also an inequity component here. Petrol is no longer today a rich man's fuel, as it is largely being used in two-wheelers, auto-rickshaws or sub-1,000 cc cars driven by not-so-affluent sections. On the other hand, a sedan owner burning 150 litres of petrol a month would save a cool Rs 4,800 now by switching to diesel – and manage to log an extra 600-700 km due to better engine mileage as well! In other words, the subsidy on a fuel, originally intended for farmers, truckers and public transport utilities, is going more and more to those least deserving of such taxpayer empathy.

The current price hike also does not address in any serious manner, the twin problems of a fast depreciating rupee and global crude prices that are still far from exhibiting any definite signs of softening. Both have combined to wreak havoc on the finances of the OMCs and the Government's own subsidy bill, which is already out of sync with its budget estimates. It's high time the Government recognises these and, as a first step, arrest the widening consumption distortions in transportation fuels. This, it can by suitably hiking diesel prices and, perhaps, even reducing the excise burden on petrol to make it competitive vis-à-vis the former. Although petrol is technically a deregulated fuel, in practice, it is not. Even if the OMCs are given full freedom to fix prices, it does not really amount to deregulation, so long as petrol imports continue to be canalised, duties remain high, and there aren't any independent fuel retailers in the country. We need all of this not only for petrol, but also for diesel, so that consumers get to experience true deregulation and choose fuels based on their intrinsic calorific value or relative burning efficiency.

(This article was published on May 24, 2012)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.