Ties with States: Centre adds diesel fuel to the fire

First, it was foreign direct investment (FDI) in multi-brand retail. The Centre chose to throw the gauntlet at the States by leaving it to them to decide whether to implement it or not – the Shops and Establishments Act being a State subject.

Then it restricted the subsidised LPG cylinders to six a year per household and dared the States to increase the quota at their own expense. And now, it has cleverly ushered in a dual price regime for diesel, with bulk buyers having to pay Rs 10 more vis-à-vis those taking their vehicles to petrol pumps for refills.

The common thread running through all the three nascent moves is to challenge the States. FDI in retail polarised the States like never before, with Congress-ruled States happy to roll out the red carpet, though it remains a moot question whether anyone is as yet ready to walk on it. The opposition-ruled States predictably have given the move the cold shoulder.

But gas cylinders are another kettle of fish. It bristles with the possibility of angering the common man, who is in no mood to examine whether the inflation is Centre-driven or State-driven. States of all political persuasions have, therefore, in their own self-interest come forward to increase the number of subsidised cylinders by bearing the burden of additional cylinders.

Diesel, too, has the potential to enrage the common man, but the government prima facie seems to have played its cards well — the bulk buyers who have to pay the market price that is Rs 10 more than the petrol pump price are by and large State utilities. At first flush, it would appear they would take a beating, but a deeper reflection would show that sooner or later the increase in price will willy-nilly have to be passed on to the customers.

The Gujarat response

The unputdownable Narendra Modi government in Gujarat has taken the challenge head-on. It has asked the State transport buses to get refills from petrol bunks rather than ordering bulk purchases. Other State utilities are likely to follow suit. And, why not? Unlike the Indian Railways which is the bulkiest buyer, if one may say so, of diesel, the State governments, majority of whom are at odds with the Congress-led UPA dispensation at the Centre, are in no mood to indulge the Centre.

Diesel, more than gas, has the potential to ruin the parlous State finances. In hindsight, therefore, the Centre’s move on the diesel front appears to be clever by half, unless it ham-handedly asks petrol pumps not to refill State transport buses. But this diktat in all likelihood cannot be enforced, with police being a State subject.

The confrontation between the Centre and States in this regard could well result in petrol bunks becoming increasingly unavailable to common folks for refill, what with bulk buyers standing in long queues with full tank-filling taking enormous amounts of time.

If somehow petrol bunks are made out of bounds for the State transport buses and other bulk buyers like airports, airlines, there may be a backlash against the Centre, with opposition parties taking to the streets. It might not be economical for these utilities to import diesel directly from abroad. Airlines have been permitted to go for import of aviation fuel, but many of them seem to be out of depths in this line of business, so much so that state-run oil marketing companies continue to monopolise this business in India.

Counterproductive

Apart from needling the States in a spirit of confrontation, the dual pricing of diesel is also fraught with the danger of gradually people pining for their own personal means of locomotion, when the need of the hour is a tectonic shift to public transport, whose cost must be kept reasonable and affordable. And, a shift to private vehicles would have a deleterious impact on the economy and environment.

Private vehicles, by their sheer numbers, are more polluting and cause traffic congestion. Public transport is what the doctor has ordered to overcome these two major environmental problems, but the Centre’s brinkmanship is bound to exacerbate issues rather than mitigate them. Car and scooter manufacturers could be the incidental beneficiaries of this tussle. But this mindless policy of dual pricing cannot be followed for very long because the public, especially the ones at the bottom of the heap, are bound to see through the trick.

They cannot afford private vehicles and they would accuse the government of pandering to the middle class and the well-heeled, the ones who can have their own vehicles.

Wittingly or unwittingly, the government is committing a mistake that is similar to facilitating SUV owners to partake of the diesel subsidy supposedly meant for the agriculturists and users of public transport. Come to think of it, the non-merit nature of subsidy to diesel-driven SUVs would now come out in more prominent relief.

(The author is a New Delhi-based chartered accountant)

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