[samarjitdhar]

There is already an existing thread discussing this topic. Can this be merged to this existing thread http://www.team-bhp.com/forum/indian...el-prices.html please?

[samarjitdhar]

A bulk of the taxes are collected by various states at different rates which they might find very tough to forego. Currently if there were no VAT or state taxes, petrol would be sold approximately for Rs 41.38 and diesel for Rs 33.63. When the central VAT is added the cost of petrol would be Rs 57.20 and that of diesel would be Rs 36.45 (yes central VAT on diesel is already very low). Now come the state taxes and I had done a back of the envelop analysis of the state taxes collected for both petrol and diesel by various states based on publicly available data. I had done this in a different context to see how much revenue loss Goa would be undertaking after they removed the state tax on petrol (only about 85 crores anually). The following is a monthly view.



The OMCs have a pricing formula for petrol and diesel which is a more closely guarded secret than the nuclear launch codes in the hands of the POTUS. But even then there is a significant amount of tax revenues collected by the states which would not let them forego these taxes. So all this fudge and hocus pocus practiced by the government and the OMCs needs to be cleared first, specially how the pricing is being arrived at before folks cry "subsidies for diesel users" and "under-recoveries are killing OMCs" etc.

[hubolt]

The key word here is "in principle". That means that corruption "in-principle" is wrong. Scams "in principle" are wrong.

If they have not allowed PSU's to raise petrol prices given the de-regulation of petrol prices and the losses being incurred as a consequence . Then diesel is far far away from de-regulation as in the meaning of the word. Even controlled de-regulation for that matter.

Sorry folks , one has to bat for the economy sometimes.

"No industry survives without subsidy. I think rather than removing subsidy on diesel they should keep the subsidy as is and increase the taxes on the car/ancilliary manufacturers. This reduces the cars on roads and increases the demand foe having a proper public transport."

This balancing and adjustment is already been happening over the years and will continue but in the present fuel price and economic situation (trying to come out of a slowdown with already high public debt and a currency losing value) direct fuel price intervention looks like the only option.

[sirius1845]

diesel deregulation is not good for us. Even the US subsidizes certain agricultural products like wheat to protect its agricultural sector.

The aim should be to reduce diesel consumption in stationary applications like gensets and have some option to use CNG/heavy oil in such cases. we are importing more than 80% of our oil requirement.

[shortbread]

While all goverments will simply nod and agree to the principle of de regularization of diesel prices, all of them will shy away from actually making the bold move.

Each goverment will pass the buck over to the next one after 5 years. Its easier to observe the tamasha from the oppositions side.

[sgiitk]

Originally Posted by indian21r

Not this drama again. If they are going to do this they have to take into consideration that it will create a huge inflation and may actually push down growth in the near term. ......

Differential pricing is not a viable option as it will surely lead to black market sales

In any case if the 'subsidize' then for every rupee of subsidy you pay at least three in taxes. Only the impact is concealed.

Agree that differential pricing is not an option. See what has happened in LPG. In the NDA days LPG connections were off the shelf, while today even a cylinder is not! Where do they go - vehicles and shops.

[indian21r]

Originally Posted by samarjitdhar

So all this fudge and hocus pocus practiced by the government and the OMCs needs to be cleared first, specially how the pricing is being arrived at before folks cry "subsidies for diesel users" and "under-recoveries are killing OMCs" etc.

Originally Posted by sgiitk

In any case if the 'subsidize' then for every rupee of subsidy you pay at least three in taxes. Only the impact is concealed.

If they clear everything, then everyone knows who the real culprit behind price rise. You need to create an air of uncertainty if you want to remain unscathed after a price rise

Originally Posted by shortbread

Each goverment will pass the buck over to the next one after 5 years. Its easier to observe the tamasha from the oppositions side.

But I guess UPA can take the decision this time as they will find it difficult to even get votes. (Not that opposition is strong. Another Hung parliament with coalition partners blackmailing the government).

If pricing of diesel is actually Hurting the economy in such a big move, then we probably need someone who can take a strong step.

[wanderernomad]

Why not deregulate and remove the taxes? The tax component is huge and merely reducing the same shall make the fuel more affordable. I dont agree we should subsidize our luxuries.

[Optimus7]

Subsidy really? Atleast 30% of the fuel prices go as revenue to the Government in the form of taxes. The government is in turn providing a subsidy, lower than the taxed amont. It is revenue for the government, the word subsidy is just a namesake. Can't the government try to increase its revenue in other areas (like fines for violation and so on) rather than relying on the revenue generated out of taxing an essential commodity.

[bharatbs]

S&P today has downgraded India to BBB rating, which is the LOWEST rating for an investment grade country.

India has a huge FISCAL DEFICIT which is not being managed well and the biggest contributor to the fiscal deficit is our FUEL SUBSIDY.

BOTTOM-LINE: UPA has no choice but to de-regulate diesel prices and bring it on par with international prices of diesel.

[Jignesh]

Originally Posted by bharatbs

SBOTTOM-LINE: UPA has no choice but to de-regulate diesel prices and bring it on par with international prices of diesel.

Hello Bharath,

I don't think that UPA government will dare to touch Diesel Prices before 2014 Elections.

Whatever be the Fiscal Deficit, but I seriously believe that Indian Goverment (any political party) will not think of increasing Diesel Prices. They will happily push up the Petrol Prices & other taxes but something that is essential commodity will not be touched.

Also the UPA will face mamoth task to convince Regional Parties (on which UPA is dependent) to even increase Diesel Prices by Rs. 5. Leave the thought of deregulating it like Petrol.

Thanks,

[punto_]

I would agree for removal of subsidy provided the taxes are reduced. Even after so many taxes, we do not have quality roads (and no roads at all in many places).
Improving the infrastructure will definitely decrease fuel consumption. Give us better public transport and good roads, I would not complain paying oil prices on market value.

[bharatbs]

Originally Posted by Jignesh

Whatever be the Fiscal Deficit, but I seriously believe that Indian Goverment (any political party) will not think of increasing Diesel Prices. They will happily push up the Petrol Prices & other taxes but something that is essential commodity will not be touched.

I don't think I explained the magnitude of this. Indian economy is slowing
down, our growth rate has come down from 9% to 7%. The current fiscal deficit is 5.9% of GDP. The ideal target is 1.5% of GDP.

The fiscal deficit has grown to such an extent that taxes on petrol alone is not going to reduce fiscal deficit. Besides if India is consuming more Diesel than Petrol, can you continue to tax petrol and expect things to stabilize?

If we don't control fiscal deficit, India will be further down graded to NON-INVESTMENT GRADE country, there will be no FIIs and our country is expected to slow down to 5% growth.

That's why I believe there is no choice but to do this. Besides UPA is not going to survive till 2014 period!

[xenxer]

I think its almost decided

Diesel prices could be deregulated

[wildsdi5530]

@optimus7: where did you arrive at 30% tax? Is it for petrol or diesel? I thought that Petrol was taxed about 120%. Or are you talking about some specific part of the tax?