India diesel price deregulation: Has its time come?
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India diesel price deregulation: Has its time come?

The Indian government may deregulate diesel prices like it did for petrol prices. There is a news item which is doing the rounds since yesterday but there isn’t much of a debate going on. The main reason could be government’s ploy to dilute the situation with the words “in principle”.

The matter might be subject to agreement by several parties involved. Without going any further, none of the parties involved will agree because most of India runs on diesel. Opposition parties like BJP and the left have already opposed such a move.

What’s interesting about this move is the words Indian government chose to use.

Government has, in principle, agreed to make the prices of diesel market determined. However, in order to insulate the common man from the impact of rise in international oil prices and the domestic inflationary conditions, the government continues to modulate the retail selling prices of diesel. (TOI)

It’s deregulation but not as you might think. That’s the message I’m getting.

There will be frequent diesel price hikes but the prices will be set by the government and not left to the oil companies. For simplicity sake, if there are 4 hikes of petrol prices, there might be 2 hikes for diesel prices. At least that’s my interpretation.

Government has left the cooking gas (LPG) prices untouched. Even cooking gas is a long-pending issue. The subsidies on the gas are very high and would go as high as 50%.

India’s auto industry, though seeing a lot of upsurge, is under some kind of pressure. First it was the budget which had pushed the car prices up. Now it’s diesel price deregulation. After the petrol prices were deregulated, the effect on the car sales wasn’t immediate. But there was an impact which was only evident in the first three months of 2012.

For the first time, the sale of diesel cars has outpaced the sale of petrol cars in the month of February 2012. Diesel cars cost more than their petrol counterparts. This was neutralized by the price differential between the fuels (diesel and petrol). Someone who is driving a diesel car would neutralize the extra price paid upfront by driving the car for 3-5 years. After which the running costs would come down. Or so they thought.

The strange thing about this news item is everybody who heard this was expecting a large scale strike. Some were counting on Mamata Banerjee. I’m expecting a rude shock. Maybe diesel price deregulation is an idea whose time has come.

PS : I drive a diesel car and am not happy with this prospect. Given the large scale impact, the fact of driving a diesel car is now a moot point.