R Jagannathan
If you want an excellent example of foolish policy-making, 'exhibit A' concerns petrol and diesel. Wednesday’s decision to hike petrol prices by Rs 7.50 a litre will contribute to compounding this folly and make the problems worse. For example, petrol prices in Mumbai are now Rs 78.16 a litre, while diesel is Rs 45.99. This Rs 32 differential in two fuels that cost almost the same to manufacture is at the root of all our problems. Low-priced diesel encourages overconsumption – whether it is diesel cars or diesel pumps – and raises our import bill, impacting the rupee. Thus, even when oil prices worldwide are falling, the rupee’s recent collapse has forced us to raise prices. A high diesel-petrol price gap is also an open invitation to corruption and fuel adulteration, which is now a thriving industry. A sensible policy would raise diesel prices in small doses over the next year, and reduce petrol by similar amounts. This would give the economy time to adjust to higher diesel prices, even while giving petrol users some relief from extortionate prices. Ultimately, the petrol-diesel price gap needs to be narrowed to almost nothing so that vehicle users buy a vehicle based on the advantages of diesel (fuel-efficient for long-distance running) or petrol (better power, etc). What the government has done instead is to make the diesel-petrol gap wider still – ensuring that the country will continue flawed policies to the limit. Wisdom, where art thou? read less read more
IndiraVergis
The petrol price hike was necessary because the rupee has been crashing in recent weeks. While crude oil prices have cooled, the price of petroleum imports continues to remain relatively high for India because of the rupee's depreciation. Because of our rather dsyfunctional energy policy, state-run oil marketing companies are currently losing money on every litre of petrol they sell, not just on diesel, kerosene and cooking gas (price-controlled products). In April, oil marketers were reportedly losing Rs 8 per litre on every litre of petrol sold. Not hiking prices would have led to big hits on their revenues and profits. They had little choice but to raise prices, especially since they had to wait so long to announce them. read less read more
