Comments
Tamil Nadu Chief Minister J Jayalalithaa’s observation that the Centre must review its approach to pricing petrol and diesel (the latter in particular) in view of its inflationary impact deserves serious consideration. The ₹0.50 monthly increase in diesel price since January 2013 is expected to wipe out ‘under-recoveries’ — the difference between the cost of refining diesel and its sale price at the pump — in a month. The Finance Ministry and industry watchers are jubilant. With this price correction, under-recoveries (also on account of LPG and PDS kerosene) in 2014-15 are expected to be down to ₹91,665 crore, against ₹1,39,869 crore in 2013-14. But — to return to Jayalalithaa’s refrain – could there have been another way of reducing the fiscal burden while protecting the consumers’ interest?
To answer this question, we need to revisit two key issues: the concept of under-recoveries and the demand for diesel. Under-recoveries, it is argued by sector experts, are exaggerated to conceal the inefficiency of oil refining companies. A depreciating rupee also exaggerates the cost. Oil refining companies do not clearly reveal the costs of producing various distillates, as a result of which it is well possible that the price of diesel covers some of the costs of other petroproducts such as aviation fuel and naphtha.
The refiners are also protected by a customs duty differential between crude oil and petroproducts, although this gap has been coming down. They sell their diesel, the largest consumed petroproduct, to oil marketing companies at very close to the import parity price (or the price of diesel if it had been imported), although they export some of the same diesel at a much lower price, a point that the CAG highlighted recently. So, it is clear that diesel is overpriced at the factory gate.
The fact that diesel is sold at near import prices really hurts when we import ever large quantities of it — and for serving our private rather than public transport needs. Since Tamil Nadu is India’s auto hub, the chief minister should initiate a debate to introduce differential pricing of diesel for cars vis-à-vis buses and trucks, perhaps by tweaking vehicle designs and designating separate filling stations for the latter. If it leads to a shift away from diesel cars, we would have achieved a lot.
Deputy Editor
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.