Diesel deregulation: Boon or Bane

A couple of days back, UPA government decided to bite the hardest bullet when it decided to deregulate the diesel in phased wise manner based on the recommendations of Kelkar committee report which recommended reducing the subsidy burden gradually for sustained economic growth.

Criticised for long for being deterrent to take important policy decisions, some recent announcements such as direct cash transfer scheme, FDI in multibrand retail and to name a few,  have tarnished the government’s ‘not doer’ image to a large extent. Few of them have even forced people to roads to protest against. Capping the subsidized cylinder to just six a year per household (though recently increased to nine per household) was one step which has met with objections from all the factions of society, NGOs and political parties etc.

Going further, in its bid to reduce the subsidy burden and succumbing to the continuous pressure from oil marketing companies which were facing under recoveries for long, Government has finally decided to let OMCs raise the price of diesel as and when they find it appropriate. Till now except LPG, Kerosene and Diesel all other petroleum products were priced under import parity pricing mechanism and hence were deregulated.

Deregulation of diesel: Boon or bane?

Diesel, an important fuel, is also considered backbone of the economy. In its wide ranging usages diesel is consumed for both commercial and domestic purposes. How increasing diesel prices and eventually deregulation will help economy?

• To give a fillip to agricultural production and in absence of irrigation facilities government decided to subsidize diesel as it was the only fuel used by farmers to run their pump sets which in turn irrigated their parched lands. Being universally subsidized it benefited both rich and marginalised farmers. Phasing out subsidies on diesel will decrease the subsidy burden of the government. Though the marginalised farmers will have to pay more for buying the diesel, they would be compensated through direct cash transfer to their bank accounts for the same.  
• Rationalizing subsidies mean more disposable income with the government which it can invest for human capital formation through its social sector programmes such as NRHM and RTE etc. which in turn, will benefit the economy.
• Other flagship programmes for social welfare such as MNREGA, Rajiv Awas Yojna, and Indira Awas Yojna etc. can be financed by the government in better way once its subsidy burden is reduced.
• After deregulating petrol, sale of diesel cars soured up sharply. Diesel being dirtier fuel, its large scale consumption would have further compounded to the global warming problem. As diesel and petrol will eventually cost more or less same people will again turn to petrol driven cars and thus reducing the threat to the environment which means less damage due to environmental disturbances like cyclones and tsunamis.  

It is true that raising the diesel prices will eventually lead to the benefits for the government; however, it is common people who will have to face the repercussions, if any, due to the government’s such action. Let us see, how?

• In India, transportation and railway freight is run by diesel mostly. Increasing diesel prices will affect the transport services adversely whose effects will be visible in form of increased prices of commodities i.e. inflation. As Indian economy is already witnessing sustained and persistent inflation for last few months, another blow in form of hike in diesel prices would have been the last thing it had imagined for.
• Though government is terming its direct cash transfer scheme a ‘game-changer’ where govt will transfer the subsidies and other benefits directly to the beneficiaries’ Aadhaar enabled bank accounts, poor distribution of Aadhaar cards might be a hurdle in implementation of the scheme. The marginalised farmers, who will have to pay more for consuming diesel, will be worst affected due to increase in diesel prices because they would be deprived of the subsidies and due to not owning an Aadhaar card might not be entitled to the benefits of the direct cash transfer scheme simultaneously subjecting them to the economic stress.
• There had been incidents galore where people used subsidized kerosene to adulterate with diesel and run their vehicles. Problem of adulteration will be further looming large over the consumers owing to the increased prices of the diesel.    

For any nation, regular reforms are needed. Recent initiatives of government were much needed reforms per se.  Any scheme of any law will not be effective until its implementation is taken care of diligently. Schemes as such are not good or bad, it’s their implementation which makes people suffer or enjoy its benefits. If the loopholes are assiduously breached and enforcement is taken care of mindfully, direct cash transfer would definitely be true game changer and increasing diesel prices or for that matter any such scheme would certainly help India emerge as the economy which is resilient, progressive and sustaining.