Sliding on oil

In the run-up to the budget,the ministry of petroleum and natural gas has asked the finance ministry to impose additional excise duty on diesel cars. The amount can be used to make good a part of the Rs 74,317 crore under-recoveries that oil marketing companies (OMCs) are estimated to incur in 2011-12 and also to prevent the “dieselisation” of the economy,it has been reasoned.

At the moment,diesel cars account for less than a third of the car market. A one-time additional excise duty of Rs 80,000 on diesel cars,as recommended by the Kirit Parikh committee,will compensate for the higher excise duty on petrol,the reason why people buy diesel cars,according to the petroleum ministry. But such proposals are myopic in outlook. There are many reasons they are dumb too. Diesel today is under-priced by Rs 11.51 per litre. To raise revenues for the government,it takes a negligible rise in diesel price (perhaps some paise) as against a humongous increase in the prices of diesel cars. Personal vehicles,after all,account for less than 5 per cent of the total diesel consumption in India. Such a move will also not result in lower consumption of diesel since the higher upfront cost is easily recouped over the life of the vehicle,given the sharp difference in the prices of petrol and diesel. Diesel costs about 50 per cent less than petrol.

Further,it is time the government let the economy get accustomed to the fluctuations in global oil prices over a period of time. Understandably,such adjustments cannot be made in a single stroke. The larger political argument that higher diesel prices will hit the common man have to be taken care by targeting subsidies better,especially food and other daily-use products. This is one reason why the unique identity project needs to be pursued in all earnest. It will be a game-changer in ensuring pilferage-free entitlement to the intended beneficiary.