[rameshnanda]

Oil minister rules out deregulation of Diesel prices.
More news - http://economictimes.indiatimes.com/...w/11885563.cms

[Aroy]

Originally Posted by avira_tk

I hope you have never used a cellphone on a highway, those remote towers gobble up a lot subsidised diesel. The subsidy exists because that is one way we can avoid hyperinflation, transport costs with unsubsidised diesel will put food out of reach for a good chunk of the population. There is no revolt against the system, just some armchair warriors whining about the status quo. I doubt the "India" that you refer to has faithfully paid taxes that matter, rural India can't depend on government for anything, thats why the exemption from taxes.

If I am not wrong, few posts ago the percentage of costs of basic commodity attributed to fuel was in the range of 2-3%. Now even if the price doubles, the actual effect will be hardly 3% more.

Unfortunately any hike in fuel prices, is taken up by the transport operators as an opportunity to hike prices disproportionate to the rise in fuel prices. As an example, taxi drivers wanted the per kilometer rate to go up as much as the fuel hike, even though we know that
- taxi does at least 10km/l
- fuel is less than half the cost. The major ones are finance, maintenance and operator

Thus for a Rs.10 hike in fuel, the per extra kilometer charges would be Rs.0.5 at the most and not Rs.5-Rs10 demanded. Even the bus operators jumped on the band wagon and wanted a hefty rise.

Thus though the premise that fuel price hike will create "Hyperinflation" is faulty, a marginal inflationary pressure will be there, but no where near what dooms day pundits predict.

A major advantage of fuel price hike is that it coaxes the owners of fuel guzzlers; in commercial transport; to replace the vehicles with more efficient engines which will result in not only a lower oil import bill but at the same time lessen the pollution burden.

[zenx]

Originally Posted by Aroy

A major advantage of fuel price hike is that it coaxes the owners of fuel guzzlers; in commercial transport; to replace the vehicles with more efficient engines which will result in not only a lower oil import bill but at the same time lessen the pollution burden.

Very true. Oftentimes the hyperinflation is the bogie raised to justify random increases in prices by those not even necessarily impacted by the price increase.

I'd in fact say the price increase be large enough to not just handle current "cost" but a certain amount of (inevitable) fluctuation in prices forecast over an 18-24 month period. We'll have more responsible driving, efficient vehicles and less volatility in the medium term.

[wildsdi5530]

But Deregulation of diesel prices will have a lasting effect eventually culminating in transparency. That is in principle against the Indian way. So even if the hyperinflation occurs, which will be corrected automatically over time, it will open up the economy with the common man asking for details which the govt. would prefer to keep under wraps.
So it is better to make the minority (0.6%) suffer guilt and persecution (being called cheats) than to give a long term solution.


If there were no offenders, the police lose its value.

[govigov]

With the amount of diesel going into lorries and trucks, the food prices and commodity prices will be off the roof. inflation will be at an all time high if diesel prices were to go up. the tractors and the diesel gensets used in farms also use diesel as a primary source of fuel.

the next thing for auto / taxi walla's to increase their prices would be saying that commodity prices have increased and they cannot meet ends and hence the auto/bus prices will be hiked further more.

[vineethvazhayil]

Originally Posted by govigov

With the amount of diesel going into lorries and trucks, the food prices and commodity prices will be off the roof. inflation will be at an all time high if diesel prices were to go up. the tractors and the diesel gensets used in farms also use diesel as a primary source of fuel.

the next thing for auto / taxi walla's to increase their prices would be saying that commodity prices have increased and they cannot meet ends and hence the auto/bus prices will be hiked further more.

I wonder if we ever will be able to see the cost breakdown for trucks/autos/taxis etc. and understand how the charges and per unit fare is calculated. The autos in Chennai seem to ask a fare that would beat even the cost input of my 2.3 liter petrol engined car.

[vanam]

Two other large consumers of diesel are The Indian Railways (for its diesel engines) and telecom companies (as cell towers have large diesel gensets powering them). While there is likely to anyway be a cost rationalization on mobile tariffs as most cell cos are under charging, increasing the diesel prices dramatically would create chaos on train freight charges (most passenger trains are electric locos).

Edit - Also, am not sure whether the Army gets diesel and petrol at market rates or concessional rates. Am sure that they are fairly significant consumers of diesel for the trucks as well as the rest of military equipment and vehicles.

[mjothi]

Originally Posted by vineethvazhayil

I wonder if we ever will be able to see the cost breakdown for trucks/autos/taxis etc. and understand how the charges and per unit fare is calculated. The autos in Chennai seem to ask a fare that would beat even the cost input of my 2.3 liter petrol engined car.

I bet.

Its not just about these daily commutes. But also those branded stuffs, foods etc.

I also always wonder how they fix a common rate card for all types of autos - Petrol, gas & diesel too. Does it meant to off-set the cost price?

Also there are other areas where the subsidiary is misused. Take an tractor, the spares and cost of it are subsidized, kept lower to help farming sector. But I see more tractor as a water distributing body than the farming use. Can't the RTO cross check these in cities? Its running everywhere.

[sgiitk]

Originally Posted by rameshnanda

Oil minister rules out deregulation of Diesel prices.
More news - Oil Minister S Jaipal Reddy rules out deregulation of diesel prices - The Economic Times

I think he is totally at variance with the FM.

Also, all those basking in the so called subsidised Diesel, just remember given the efficiency of our system, for every rupee of subsidy you probably pay three in taxes.

[simplyself]

Excerpts from Kirit Parikh Report
(Page nos. 16, 17, 18)

B DIESEL
4.7 The consumption of diesel by different users in 2008-09 has been shown below :

Trucks : 37 %
Buses : 12 %
Passenger Cars : 15 %
Power Generators : 8 %
Agriculture : 12 %
Railways : 6 %
Industry : 10 %

Source: PPAC

4.8 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.
4.9 Trucks and LCVs consume around 40% of diesel. It is reported that with industrial
revival and higher economic growth, the 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.
4.10 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.
4.11 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.
4.12 Thus the Group recommends that the price of diesel should also be market determined
both at the refinery gate and retail levels.
4.13 With deregulated oil prices, once households and firms clearly see that international
factors drive domestic petroleum product prices, and when monetary policy is seen to emphasize
price stability, households and firms would be relatively relaxed. When there is a temporary
shock to oil prices, they would be much less likely to react to short-term fluctuations in prices
through wage hikes or increases in product prices. Thus, in OECD countries, from 1979
onwards, where central banks have shifted into de facto or de jure ‘inflation targeting’, the great
commodity inflation from 2002 onwards did not pass through into broad-based inflation in the
2002-2008 period.
4.14 Petrol and diesel used in cars, including SUVs, are for final consumption. The higher
excise duty on petrol compared to diesel encourages use of diesel cars. While greater fuel
efficiency of a diesel vehicle should not be penalized, a way needs to be found to collect the
same level of tax that petrol car users pay from those who use a diesel vehicle for passenger
transport. An additional excise duty on a diesel vehicle corresponding to the differential tax on
the petrol should be levied. At the present excise rates, the additional excise duty paid by a
petrol vehicle owner who on an average drives 8000KM/year and gets an average mileage of
13.5 KM/litre is around Rs.10000 per year. The present discounted value at 10% discount rate
over the 10-year life of a vehicle would be around Rs. 67,500, and at 5% discount rate it would
be Rs. 81,000. An appropriate discount rate would be the rate on Government bonds. An
additional excise duty calculation based on the following model, adjusted for the existing
differential, if any, in excise duty between petrol-driven cars, and diesel-driven cars, should be
levied on diesel car owners.
Additional Excise = (Rate of Excise on petrol – Rate of Excise on Diesel) x (Petrol
consumption per year by an average petrol car user) x [{(1+r)/r]} x {1-(1/(1+r)10 }]
where ‘r’ is discount rate and 10 years is assumed lifetime.

At the present rates and a discount rate of 5 per cent, an additional excise duty of Rs. 80,000
should be levied on diesel driven vehicles. Some persons may still opt for a diesel vehicle if they
expect to drive much more than an average petrol vehicle owner does. That should not be
discouraged.

I am not aware of a similar post. If there is one such, Mods, please delete this one or do the needful

[Vishal.R]

According to news reports, Govt. told Rajya sabha that decision has been taken to de-regularize diesel.

Govt to deregulate diesel prices: FinMin

Agreed to diesel price deregulation, not LPG: Govt tells RS | Firstpost


Govt agrees in-principle to free diesel prices, no such proposal for LPG - The Times of India

But this is still "In-Principal" agreement, implementation may take time. Also Its not clear (to me ) what other UPA partners (specially TMC) think about this move.

[scuderiamania]

Originally Posted by Vishal.R

According to news reports, Govt. told Rajya sabha that decision has been taken to de-regularize diesel.

Govt to deregulate diesel prices: FinMin

Agreed to diesel price deregulation, not LPG: Govt tells RS | Firstpost


Govt agrees in-principle to free diesel prices, no such proposal for LPG - The Times of India

But this is still "In-Principal" agreement, implementation may take time. Also Its not clear (to me ) what other UPA partners (specially TMC) think about this move.

This is indeed very good news for the economy. But none of the 3 articles mention estimation of when this could come into effect. One thing is for certain. If there is going to be any elections in the next 12 months then there is almost no chance of this proposal to come through.

[romeomidhun]

Originally Posted by scuderiamania

But none of the 3 articles mention estimation of when this could come into effect. One thing is for certain. If there is going to be any elections in the next 12 months then there is almost no chance of this proposal to come through.

Read in an article yesterday that UPA is planning some serious economic reforms in the next 6 months, including partial Diesel price deregulation.

[vnabhi]

Originally Posted by romeomidhun

Read in an article yesterday that UPA is planning some serious economic reforms in the next 6 months, including partial Diesel price deregulation.

All this talk of increasing diesel prices is hogwash, and only to placate 2-wheeler users, who are most hit when petrol prices increase.

If at all they do so, it may be by 2 rupees or so per litre. But the real thing to watch out for is that they will hike petrol prices by Rs 10 at the same time. Let us wait and watch.

[gkrishn]

Originally Posted by romeomidhun

Read in an article yesterday that UPA is planning some serious economic reforms in the next 6 months, including partial Diesel price deregulation.

can you provide the link? I need to know. my zdi booking, might become a zxi, if there is even half truth in this.

Personally, want to see the deregulation to happen. But as that economic adviser blurted out, i dont see this govt can enforce any policy as long as they are in power. not sure what is the point of being in power.

they were not even able to increase the railway ticket by 2 paisa.