India: Government Division on Diesel Subsidy

The differences within the government over pricing of diesel came to the surface last week with the Planning Commission favouring decontrol of the fuel, while Heavy Industries Minister Praful Patel wanting subsidies to continue to meet the government's "social obligation".

Addressing the annual convention of the Society of Indian Automobile Manufacturers (SIAM), Ahluwalia said India needs to adjust its policy to the "energy reality", as the world is entering an era of high energy costs.
"The present distortion of diesel and petrol prices should be corrected first," Ahluwalia said. While the government had in June last year freed petrol prices, diesel continues to be sold at a subsidised rates. He also said subsidised fuel is not sustainable in the long-term and "we need to have rationalisation of energy security".

However, reacting to Ahluwalia's remarks, Patel said: "Diesel and petrol price disparity will stay. It will not go away."  The minister also said policy planners and the government need to review their definition of diesel as a dirty fuel. Patel also rejected the possibility of diesel being freed from government control in the near-term, stating, "At the moment, there is no move in the government to bring any change in the pricing."

While petrol in Delhi costs Rs 63.70 a litre, diesel is priced at Rs 41.29 per litre. Over 40 per cent of the Rs 63.70 a litre price of petrol in Delhi is made up of taxes -- a Rs 0.69 customs duty, Rs 14.78 in excise and Rs 10.62 in state VAT.

However, in the case of diesel, the total taxes account for only Rs 7.64 out the retail price of Rs 33.65 in Delhi. The taxes include Rs 0.74 in customs duty, Rs 2.06 in excise duty and Rs 4.84 state VAT. While petrol has been deregulated from government control and is priced at market rates, diesel continues to be sold at government-dictated rates. Diesel also represents the biggest share of the fuel product market in India.

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