Kirit Parikh Panel: Market should determine diesel prices too

Feb 3: The Committee has also recommended a market determined price for diesel, using the following arguments:

•  The burden of diesel price increase on agriculture depends on where it is used. In 2008-09, 12 % of total diesel went to agriculture (i.e., to tractors, thrashers, tillers, harvesters, pump sets etc.). The cost of diesel in agriculture would be accounted for by the Government while fixing the Minimum Support Price (MSP) for major crops. Therefore, any increase in the cost of diesel will be reflected in the price and will not adversely affect farmers. However, those who use diesel relatively more may not get fully compensated by MSP. Higher diesel price will induce them to use less diesel which may reduce over-use of ground water prevalent in many parts of the country. Of course, higher diesel price resulting in higher MSP will increase subsidy for PDS, but it would be much less than the reduction in under-recovery on diesel.
• Trucks consume around 40% of diesel. Truck owners generally raise their rentals in consonance with growth. Therefore, long distance charge for a round trip between Delhi and Mumbai for a 9-tonne truck is more than Rs. 40000 today whereas its diesel consumption works out to around Rs. 22000. Higher diesel price would encourage fuel use efficiency as well as greater use of railways for freight movement. Railways consume around 1/4th as much diesel per net tonne kilometer as trucks.
• Even assuming that the truckers, power generators, industrial users etc.(other than the passenger car owners) are able to pass on fully the additional cost of diesel, an increase of Rs. 4 per litre would mean an increase of around Rs. 20,000 crore in their cost of diesel which would be around 0.4 % of GDP in 2008-09. This should be compared with the inflationary impact of subsidies, which would be similar.
• Car owners who drive diesel vehicles, including Sports Utility Vehicles (SUVs), should be able to bear the additional cost. There is no economic or social reason to subsidize them.

Source: www.indianpetro.com

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