Why subsidise the problem

The central government’s consideration of the recommendations made by the B.K. Chaturvedi committee to charge state transport units (STUs) market rates for diesel has been met with an uproar. Their argument - while these loss making STUs (STUs made total losses of over Rs2,150 crore in 2006-07) are not allowed to raise fares to counter rising fuel costs, their annual fuel bill would rise from Rs 8,345 crore to Rs 13,608 crores with the implementation of this policy. Their angst well felt, channelising of the funds hence saved by the government to subsiding CNG or electric vehicle fleets for STUs may hold a long-term answer to the inevitable energy crisis.

Price differential between petrol and diesel has also resulted in creating a price incentive for motorists to opt for the latter. Industry forecasts point to diesel vehicles cornering about 50 per cent of the entire passenger vehicles segment in India by 2010. To address this situation the Union Petroleum and Natural Gas Ministry is now formulating a proposal for imposing 25-30 per cent cess on luxurious diesel cars.

This leaves the growing mid-size category with undue advantage. Despite diesel mid-size cars being priced, on an average, 15.5 per cent more than the petrol variant, 70 per cent of the 1,79,493 mid-size passenger cars sold in the domestic markets between April 2007 and March 2008 were diesel models, as the premium paid by the consumer is easily recovered in 3-4 years. A deterrent to high consumption of more polluting and more expensive means -- the losses per litre of petrol, due to under recovery, is Rs 16.33, for diesel it is as high as Rs 28.12 -- of mid-sized transport requires implementation.

This period of energy emergency maybe the time to recognise that subsidising the solutions makes more sense than subsidising the problems.