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Should diesel prices be hiked?

Last updated on: December 22, 2010 16:34 IST

Should diesel prices be hiked?

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The increase in prices will impact prices of food and other essential commodities, but it is important if the oil marketing companies are to progress so that the country can meet its ever-growing energy needs.

D Raja
CPI, Member of Parliament

The government has not made any sincere attempt at accelerating the exploration of oil and natural gas in the country to augment domestic supply to control the price rise.

The Union government has become insensitive towards rising prices and rampant corruption in the country and the people will teach it a lesson when the next general elections come around.

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Image: Activists from Socialist Unity Centre of India (SUCI) hold placards during a protest.
Photographs: Parth Sanyal/Reuters.
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Should diesel prices be hiked?

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The country is facing huge losses on account of the price at which 2G spectrum was sold to private operators and from questionable contracts for the Commonwealth Games.

But the government seems to be more concerned about increasing the prices of petrol and other commodities. After the government decided to raise the price of petrol by Rs 3 a litre, the price of diesel is certain to be increased any moment.

There have been several such increases since the United Progressive Alliance government came to power.

The recent price rise would also have a cascading effect on the common people because increasing the prices of petrol and diesel would impact the prices of food and other essential commodities. In the past six months, the price of petrol has gone up by Rs 8.41.

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Image: Gudia, an oil scavenger, collects engine oil at an auto workshop in Jammu.
Photographs: Amit Gupta/Reuters.
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Should diesel prices be hiked?

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Interestingly, a substantial part of the duties imposed by the government on petrol and diesel goes to the government. I would like to know why the Union and state governments can't cut their share of taxes on these products.

The Left parties have been raising these issues, both inside and outside Parliament, and we will continue to ask the government this question.

If prices continue to rise in the same manner, how will the common people in this country pay for essentials? Latest reports show that 77 per cent of the people earn barely Rs 20 or less per day.

How will they buy food items if prices continue to rise? Poverty is a big problem in India and half the population is not even earning half-a-dollar a day.

To make things worse for them, the government is not even considering raising minimum wages. I want to know how people will buy vegetables and other essential food items with the same income. The government must explain this.

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Image: Activists from Bharatiya Janata Party (BJP) use a horse to pull their car during a protest rally.
Photographs: Ajay Verma/Reuters.
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Should diesel prices be hiked?

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On the issue of oil price decontrol, ever since the Union government gave oil companies the autonomy to selectively determine product prices, the prices of petrol and diesel have only increased.

I don't remember a day when the oil companies actually reduced the prices of petrol and diesel. It seems the autonomy was given only to the oil companies to raise prices and burden the people. The government is not clear about what it is doing by increasing these prices.

Oil producers might argue that the price rise is a function of demand and supply. But it is also true that the government has not made any sincere attempt at accelerating the exploration of oil and natural gas in the country to augment domestic supply.

It has not made serious efforts to carry out exploration work near Bombay High and Krishna Basin to find new reserves of oil and natural gas within the country to control the oil price rise.

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Image: An employee fills petrol at a pump in Kolkata..
Photographs: Jayanta Shaw/Reuters.
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Should diesel prices be hiked?

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The Supreme Court has also said natural gas is a national asset. I want to know how the government is using these national assets for the welfare of the common people.

The government has to come out with short-term and long-term perspectives for energy security.

Earlier, the government was talking about Iran-Pakistan-India (IPI) pipeline and now, it has suddenly started discussing a Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline.

If the IPI pipeline is not feasible how can the government even consider TAPI viable? The government doesn't consider discussing these issues either inside or outside Parliament.

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Image: An employee fills up containers with petrol at a pump station.
Photographs: Jayanta Shaw/Reuters.
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Should diesel prices be hiked?

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The government has so far maintained that rich people can afford to pay higher prices for petrol. I want to know what steps the government is taking to improve the public transport system in different cities.

Will the government increase taxes on luxury cars? The entire process of increasing petrol and diesel prices smacks of profiteering.

It has become the mindset of this government to generate revenue by increasing prices of petrol and diesel. The government should generate revenue for exploration and to augment resources but it should not be done at the cost of the common people.

(As told to Gyan Verma)

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Image: School children watch a train transporting petrol in Jammu.
Photographs: Amit Gupta/Reuters.
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Should diesel prices be hiked?

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B M Bansal Chairman, Indian Oil

The deregulation of diesel has the potential to unlock the value of the oil firms. Today subsidies affect both oil marketing companies and upstream companies.

It is normally assumed that regulation is beneficial and the only prudent approach in a nation as complex as it is poor is to have a policy that benefits the underprivileged. But some regulations are often rendered obsolete owing to dynamic shifts in the business.

And soon, the realities of the market start impinging on even the best of good intentions! Diesel has long been seen as a sensitive fuel along with kerosene and LPG.

It was thought that kerosene and LPG impacted the aam aadmi and the price of diesel was linked to inflation. It is correct that diesel prices have an implication for the economy with the "trickle down" effect on the freight and goods sector.

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Image: A worker arranges cooking gas cylinders in a truck outside a shop in Mumbai.
Photographs: Punit Paranjpe/Reuters.
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Should diesel prices be hiked?

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The flip side is that over a period of time with the cost of diesel kept artificially low in comparison to alternatives, passenger transport tends to get "dieselised".

You only have to look at the number of diesel passenger cars and sports utility vehicles (SUVs) being sold, especially in the luxury segment.

The question is: are we subsidising an SUV culture? Should the relatively low-income earning two-wheeler owner pay for free-market petrol while owners of high-end luxury cars and SUVs get a subsidy from the government?

We need a mass rapid transit infrastructure policy under which the transportation of people and goods should not depend on roads alone. The potential of the railways should be fully tapped.

The diesel subsidies can actually be invested in big-ticket mass transportation systems that will wean people off the addiction to diesel-based transport.

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Image: A woman carries a cooking gas cylinder as men pull a string tied to a motorbike during a protest.
Photographs: Amit Dave/Reuters.
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Should diesel prices be hiked?

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The central government has already rationalised customs and excise duties to alleviate the impact of volatile international prices on retail selling prices.

But the state governments have chosen to keep the sales tax at fairly high rates in view of the revenue-earning potential of diesel.

This apart, private oil companies have closed their retail outlets despite making quite a lot of investment in them, a move that has meant a shift in sales to public sector oil marketing companies' outlets, which has resulted in an additional burden.

Investments made by the private sector in the hydrocarbon value chain, especially the retail network, have been rendered useless.

Deregulating diesel has the potential to unlock the value of the oil companies. Today subsidies affect both oil marketing companies and upstream companies.

Valuable resources being spent by the government could actually go into ensuring oil security. Today, we have excellent examples of companies that have been rewarded by investors who are even willing to pay a premium.

Ultimately, the beneficiary is the nation because these companies are owned by the people of India.

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Image: A petrol kiosk worker puts up a sign at a pump in Chandigarh.
Photographs: Ajay Verma/Reuters.
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Should diesel prices be hiked?

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The price of crude is a much speculated issue and it is commonly accepted that the days of cheap crude oil are long gone.

And countries that are dependent on foreign sources for the energy needs are scouting for and investing in oil equity assets.

These efforts are being led by national oil companies backed by Sovereign Wealth Funds. The best example is China, which is building a "Great Wall" of energy assets that will fuel its needs into the distant future.

The way forward for India is for our national oil companies to get into the act to build a truly international portfolio of oil and gas assets.

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Image: A bullock cart transports kerosene.
Photographs: Arko Datta/Reuters.
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Should diesel prices be hiked?

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The government has been supporting the efforts of the national oil companies by empowering them through the Maharatna status.

 But, investing for the future should obviously come from the present. And by paying the right price for energy products and services we generate the revenues for investing for the next generation.

Beyond urban India, which has benefited from the rapid growth of the last decade, is the real India, where there are millions of our people struggling to make ends meet.

When the oil marketing companies moved to the rural market, opening up retail outlets and appointing LPG distributors, we so a tremendous difference to livelihoods. All this will take long-term, sustained investments for the real "aam aadmi".

And the sooner we define the "real aam aadmi" the better, for we need to tackle the real and imperative task of delivering energy assurance to over a billion Indians into the next decades as well.


Image: Diesel prices to rise.
Photographs: Reuters.
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