Market prices for fuel (or diesel cess for cars ) in India is a load of bull

For a while now, there has been talk of introducing market prices for fuel in India. And now there are rumors that implementing duel pricing for diesel is being considered as dual pricing at the pump is impractical.

Our government which we elected and sent to power about four years back has been crapping for sometime that we should all pay market prices for auto fuel. This implies that we undeserving rich jerks are siphoning off subsidies meant for the poor and using them to tank up our SUVs.

This is bullshit. First, the concept of market price in India is warped. Technically, the concept of administered prices came to an end with the end of the command economy and whatever it implied. However India’s Soviet-style governments, despite the official dismantling of the administered pricing mechanism years back, kept control of the fuel prices across years. Why? Prices of fuel like kerosene and LPG, which are used in major vote catchment areas, could change only at the cost of sacrificing votes. So, in its attempts to stay on in power — they never did — our rulers of all colors have held on to the fuel price control mechanisms, never letting fuel prices climbing beyond their liking.

So what happened? Administered fuel prices remained unchanged, or changed only moderately along the way, to suit the political climate. Government-owned fuel retailers  like Indian Oil, HPCL and BPCL kept the prices unchanged. However, they had to buy crude oil at higher prices, refine it and sell petrol and diesel below cost to the public. There were two results: One, these public sector oil companies ran short of money and now survive on government mercy in the form of oil bonds. (Remember, bailout oil bonds don’t fall from the skies – someone has to pick up the tab. And that is us – the ‘rich’ taxpayers.) So called Navratnas and Fortune 500 companies (Pah!) now teeter on the verge of bankruptcy.

Second, price control drove private enterprise — which had ventured into fuel retailing at the dawn of decontrol — out of the market. They could afford to sell fuel at higher prices, but who would go to a Reliance outlet selling expensive fuel if IOC was selling cheaper? Naturally, they wound up. And once they wound up, it put additional strain on the public sector oil companies, since buyers queueued up before Indian Oil and HPCL, bleeding them further. And now, the government blames us because we are cheating subsidies from the poor deserving classes. Fact is, price control, which was a political tool from the beginning, hampered the development of a genuine fuel market and destroyed the fuel retailers. We are not responsible. The government is.

Which brings us to the first question: Why the Eff don’t you pay market prices for fuel once and for all? Are we paying “market prices” for fuel?

The truth is, we are not paying market prices for fuel. We are paying more for it.

In the US, there is this major hungama that gasoline prices have touched $4. The US government doesnt blame car buyers for the state of fuel prices or the refining companies. The companies and the users are doing well, thank you.

How much is $4 a gallon?

When you pay $4 for gas in America, you get a gallon. That is 3.7 litres. In India, when you pay $4, (or the equivalent – Rs 176) you get less  – 3.14 litres.

Who pays more to tank up, Indians or Americans? Obviously, we idiots!

How come it is that we Indians, apparently beneficiaries of subsidies (remember, we bastard SUV owners cheat the poor too) pay more to tank up while prices in America, where there is NO subsidy, are cheaper?

The reason, again, is the distorted, high-handed, extortionist duties we are subjected to. A big chunk of the prices we pay at the pump does not go to the refiners. This is siphoned off by the government in the form of excise duty, sale tax and octroi. (For readers outside Bombay, Octroi doesnt matter. In Bombay, it does. Octroi does not exist anymore in the world except in rural backwaters like Bombay. So much for our cosmopolitan slum.) The fuel price which IOC, HPCL and BPCL actually earn from you and me, which should go to the producer companies to pay for their crude bills and refining charges, go to the government.

And what does the government do with these humungous revenes we bring it? It blows up Rs 72,000 crore of these reveues in a farm loan waiver bonanza, an elaborate scheme to enable people who haven’t paid their loans for whatever reason to apply for further loans and perhaps, help the ruling party through the upcoming general elections. It also uses up these funds to pay out bulky salary hikes to central government employess: Another election year ploy. While the RBI struggles to reduce liquidity in the system (which fuels inflation), the government counteracts by pumping more money into the system. Besides, by writing off farm loans, the government actively disincentivises repayment of loans, and frustrates the genuine good souls who struggled to repay the loans they had taken for agriculture. But Im digressing.

The question is, why NOT market prices for fuel? Listen, there is no need to introduce market prices for fuel. Cut the fuel duties, surcharges and taxes to sensible levels, and then bring in the market. Let the private sector compete with the public then. Once the duties are reduced to the rates in developed nations like the US, we will be ready to pay market prices, non-subsidised prices for fuel. What is the logic to have market prices for fuel when there is no market economy in fuel pricing?

And about the PSU oil companies: The government-, which by its own definition is there to protect the poor does not need to bother too much about Navratna status and Fortune 500 ranking of its own companies. It can continue to finance these companies as if they are its own departments. It doesn’t matter if they collapse — the sovereign has enough funds to prop them up. Don’t shed tears for them. Their very existence is to protect the people from price shocks. Not to make profits. If the government was really bothered about the financial health of these companies, they would be with private enterprise long time back. It doesnt care.

Now, we bastard SUV owners must own up for the sins of the Soviet-style, command-control government. It still hasnt woken up to the news that Soviet Union is no more. Cmon, guys!