Differences in govt over diesel subsidy come to the fore

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

Addressing the annual convention of the Society of Indian Automobile Manufacturers (SIAM) here today, 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 as we have a social obligation..."

The minister also said policy planners and the government need to review their definition of diesel as a dirty fuel.

"There has been question over the environmental sustainability of diesel technology... But if we look in Europe or other developed world, the technology has developed so much and proved to be even better than the petrol technology," Patel said.

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% 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 freed from government control and is priced at market rates, diesel continues to be sold at government-dictated rates.

Petrol prices have risen by 21% since they were freed from government control in June last year. The price of petrol in Delhi was Rs 51.43 a litre when the government decontrolled the fuel on June 26, 2010. Today, it costs Rs 63.70 a litre.