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Posts tagged ‘diesel subsidy’

Harish Salve & his recipe on Diesel subsidy!


The following is excerpted from Times of India dated 27/11/2012:-

Amicus curiae and senior advocate Harish Salve, who has been assisting the forest bench of the Supreme Court for nearly a decade, lamented that the benefits of switching the entire public transport system in Delhi to CNG was lost as more and more diesel cars were added every year because of the price differential between petrol and diesel.

“Delhi has already exhausted all soft options,” warned Salve before arguing before a bench of Justices Aftab Alam, K S Radhakrishnan and Swatanter Kumar that “the solution must be to restrain the growth of personal vehicle usage, particularly diesel vehicles, and this is only possible through a highly augmented transport system in Delhi and the region”.

Justifying harsher levy for diesel cars, Salve said in his application, “The market share of diesel cars is more than 50% of sales. This is because of the growing differential between petrol and diesel. The emission norms for diesel cars legally allow higher limits for NOx and particulate matters as compared to petrol cars.”

The former solicitor general, while advocating imposition of 25% of cost of all new diesel cars as green tax, suggested levy of an environmental compensation charge on existing personal vehicles — ranging from 2% (petrol) to 4% (diesel) of the vehicle’s cost every year.

For old cars, the levy would be collected annually by the insurance companies along with the premium amount, he suggested, and said the insurance companies must ensure that the vehicle had valid pollution under control certificate at the time of annual renewal of policy.

We in India have an uncanny ability to mix immiscible facts and make a concoction and purvey the same as the TRUTH for common consumption.

First and foremost, the issue on Diesel to be decided is whether the subsidy on Diesel, is being utilized by those who are not the targeted beneficiaries of the subsidy. If so, then how to quarter them and make them pay for the benefits so enjoyed by them.

Secondly, if Diesel is more polluting how to curb the usage of Diesel in cities, where pollution has become an ever increasing nuisance.

The first is related to the well entrenched SOCIALISM and the second is relatable to ENVIRONMENT.

To deal with the first issue, if the targeted segment of Diesel users are the Railways, road transport, DG sets, farm and earth moving equipments then surely the passenger car segments are to be taken out of the persons enjoying the benefits. Is it possible to take them out? And in any case, what is the percentage of the un-targeted segment? This un-targeted segment of diesel using passenger car owners constitute 0.6% to 16% (depending on the data source) of total consumption of Diesel in the country. The fears that this is growing and might skittle out the petrol cars is not an entirely unfounded fear. But, should we get into the shoes of HONDA CARS and help them out in limiting the purchase of diesel cars? HONDA stands out among all the names merely because they have the avowed principle that they produce only gasoline cars. No other car manufacturer falls in this segment.

So if there is an 8% of cars using the benefits unintended for them how do we recover the benefit from them? That should be the issue. I believe, if we frame the issue properly, we may have a fair chance of discovering a method to solve the issue. But if we start with a SOCIALISTIC bent, like assuming that a person who can make a higher capital cost would reap the benefit of this subsidy and save over a period of time, we are more likely to impose immediately impalpable costs and curb INVENTIONS on improvement of diesel passenger cars.

Democracy is for the people. But if we segment the people into those who can and those who can’t, then we cannot be ‘for’ the people. The people who decide for others are ‘by’ the people category. But these BY THE PEOPLE segment the people into those who can and those who can’t and in the name of socialism lay burdens on those who can, merely based on their notions of socialism. Instead, impartially decide on issues and make the undeserving pay- but do not make them pay more.

I travel a lot by road and use our National Highways. There are trucks which struggle to climb even a moderate slope, when i asked a person who was employed with Ashok Leyland, as to why you make such inefficient engines which struggle to carry the cargo, he said, “Boss, these trucks are designed to carry 12-15 Metric Tonnes and they are made to carry up to 25 tonnes, and that is the reason for all that struggle. ” I have more reason to believe him considering his domain  knowledge and incisive thinking.

My suggestion is that, there are umpteen NHAI toll collection centres, why not have a weighbridge be installed at every toll centre so that when the vehicle comes to a stop, all transport vehicles could be charged as per the weight and not by the axles and tyres of the vehicles. This will ensure that exploitation of diesel by the truckers are not resorted to.

Further,  DG sets are used by the various gated communities and high end tenements, why not charge them for such usage and say that anyone who BUYS DIESEL IN CANS WOULD NOT BE GIVEN THE SUBSIDY BENEFITS? This will also ensure that the earth moving equipments and excavators do not use subsidized diesel, as most of the times, they need to buy diesel as these excavators cannot travel by roads.

Another suggestion is that, when diesel bunks are allotted to fleet owners for diesel, if the vehicles used are for earth moving equipments, why not charge them for diesel at unsubsidized rates?

This is to take care of the enjoyers of unintended subsidy.

As regards the environmental issues , there was a time when sulphur emission was sought to be reduced and at the instance of  Government, the oil refining companies went on a overdrive and ensured that the Diesel supplies to the country was reduced in its sulphur content. So why not we ask PCRA and CSIR (there is an institute called Indian Institute of Petroleum which eats up Rs 18 crores per year on allocations by the GoI and sits on 257 Acres of land allotted by the Government for it) to conduct original research instead of aping and pilfering innovations from the West?

Instead, Mr Harish Salve gets into TAXATION benefits for the exchequer and suggests GREEN TAX of 25% on all new Diesel cars! How preposterous! The actual cost of producing a diesel car is not any higher than that of a petrol car. In any case, if the production of more diesel cars are encouraged, then the price of the diesel cars would come down, but when the Government reads Socialism into the current account benefits enjoyed by the diesel car owners, then some in the Government tend to accept these opinions as God given Truths and impose unwanted Taxes on Diesel cars.

The Polluter Pays principle is one of the binding principles of the Environmental Law, but why do we Indians have to make an 8% user pay for the sins of the whole community, which enjoys the benefits of low freights, railways, farm equipments, earth moving equipments etc.? Sheer OPINION which is being sanctified in the altar of Environmental Laws!

Finally here is an excerpt of an article from THE ECONOMIC TIMES (25/08/2012):-

Although the government tries to keep diesel prices artificially low, there is no mechanism to ensure the benefits go to the desired purposes. “A good portion of the diesel subsidy is used by sectors where it is not intended to be spent. Nearly Rs 8000 crore subsidy is consumed by power generating sets in malls and big buildings, while around Rs 3000 crore of subsidy is spent in powering telecom towers,” said Debasish Mishra, Senior Director, Deloitte India.

According to the government the first round of field survey of All India Study on Sectoral Demand of diesel and petrol revealed that nearly 16 per cent of diesel is consumed by passenger vehicles, 4.6 per cent by gensets and 2 per cent by mobile towers. This is wastage of an estimated Rs 23,000 crore of subsidy for full FY13. However, PPAC maintains its study will take one year to finish, when it will be able to put definite numbers to the consumption pattern.

Here is another link of a news item which pegs passenger car consumption of diesel at less than 1%: http://timesofindia.indiatimes.com/business/india-business/Personal-cars-account-for-0-6-of-Indias-diesel-consumption/articleshow/11249656.cms. So, if one goes by Kirit Parikh’s report at 15% for passenger cars, the total diesel subsidy would be Rs. 15, 000 crores (on a total diesel subsidy of Rs. 1,00,000 crores) but if one were to go by the least suggesting data, then the subsidy is only Rs 600 crores. So let us firstly decide the quantum of unintended subsidy enjoyers and find out the FACT of the problem before suggesting the remedies to the Supreme Court of India.

Otherwise, the diesel passenger car owners would become the whipping boys in the hands of the ever eager taxation proponents and collect money disproportionate to what they enjoy. If at all the diesel car owners enjoy, it is because Diesel gives more mileage per litre of diesel than petrol. Our legislators are not likely to review any of the measures relating to taxation once imposed. Further our budgeting mechanism assumes the tax collection based on the last year’s tax accruals and adds the growth of consumers in that sector and calculates the taxes for the coming fiscal.

Let us be rational and encourage rationalizing our taxation and not let harebrained opinions, like GREEN TAX, rule the roost!

THE SOLUTION:

Firstly impose a condition on all diesel engine/car manufacturers that the engines ought to be made compliant as per the latest standards fixed by the European countries, which have imposed stringent emission norms. That only such diesel vehicles are to be sold from a particular cut-off date.

Secondly, impose  conditions on Petroleum refining companies in India to manufacture Diesel which could be used only by those passenger car engines which are  compliant of European emission norms.

Once these two conditions are met, then the Diesel passenger cars in India, would have to buy that Diesel meant only for passenger cars and price this Diesel WITHOUT SUBSIDY. This would ensure that the Diesel passenger car owners do not enjoy the benefits unintended for them. Even this charge that Diesel passenger car owners are living off the subsidy would be over.

Further, when the latest technology is brought in norms relating to emission standards, Environmental concerns would also stand addressed.

So what do we do with the existing Diesel cars? Simple, like the phat-phats of Delhi, they would be phased out after serving 15 years , when an FC becomes essential.

INSTEAD OF FOLLOWING A SANE SOLUTION, IF WE GO BY HAREBRAINED SUGGESTIONS THE FUNDAMENTALS OF DEMOCRACY WOULD BE SHAKEN AS THERE WOULD BE NO RATIONALE FOR OUR DECISION MAKING AND DEMOCRACY WOULD PETER INTO OLIGARCHIC DEMOCRACY!

Diesel Vs. Petrol – the subsidy story!


To have an overview of the cost and process of refining of crude oil, the following links may be of some use. So before proceeding further, it would be better for lay persons to acquaint themselves with the process of REFINING and the COSTS involved to have a vague idea of the cost of petrol and diesel at the pump.

http://business.whatitcosts.com/refine-oil.htm

http://business.whatitcosts.com/refine-oil-pg2.htm

http://business.whatitcosts.com/refine-oil-pg3.htm

Everything would look simple, if the refining is done by a REFINING COMPANY, fixes its cost of the crude adds the refining cost and includes its margin on each product and sells the various products to the DISTRIBUTORS at a particular price and the distributor in turn sells it to a MARKETING COMPANIES and each in the process, adds its own margins and sells the various products such as petrol, diesel, kerosene, bitumen etc. etc. in retail to the consumers.

But that is not the case in India. The process is so CONVOLUTED that there is something called the ADMINISTERED PRICES and SUBSIDIES which intervene and make the whole process TRANSLUCENT- it is neither transparent nor opaque. The whole process is like a Gordian knot, all rolled up into a knot so that while  each ministry  works on one knot, unwittingly  creates another knot somewhere else in another Ministry.

The various knots include the DIESEL required for transport, Diesel used for passenger cars, Kerosene supplied through the public distribution system at subsidised rates and the other products. The most favoured whipping child is the use of DIESEL FOR PASSENGER CARS! In a democracy, people’s opinion is THE ONLY THING. Especially, a mass opinion which might have an impact at the hustings.

The question which is put in favour of not allowing the passenger cars using Diesel is that, when a person  uses petrol, he  spends Rs 7.50 per kilometre (Rs 75 per liter divided by 10 kms). So why should a diesel car owner be allowed in a SOCIALISTIC STATE to run his car  by spending only Rs 2.5 per kilometer( Rs 45 per liter divided by 18kms)?

The answer is that a diesel car costs more and he had coughed up a higher capital cost on acquisition of his car. The difference between a petrol and a diesel car is atleast 1.5 lakhs on road. So a diesel car owner had paid higher Road Tax and other Taxes and seeing the cost benefits of running the car, the Government and the car companies have already skimmed out their share, which on interest terms is already Rs 27, 000/- per year calculated at the cost of 18% PA on Rs. 1, 50, 000/-.

Further the passenger car segment usage of diesel is only 8% of the total consumption of diesel in India. So why target the passenger car segment? Because the RECURRING BENEFITS of diesel car usage IRRITATES the EYES of the petrol car owner. They turn SOCIALISTIC and say that the diesel passenger car owners are enjoying the SUBSIDIES provided by the government to the TRUCKS for keeping the transport cost low!

Can anyone work out the  cost benefit to the banks which have lent MORE money for purchase of Diesel cars?

Will anyone talk of the higher revenues earned by the  Government by charging Ad valorem Road Tax on diesel passenger cars for 15 years in advance?

NO ONE WILL.

EVERYONE WILL TALK OF THE RECURRENT SUBSIDIES, BUT NOT THE CAPITAL SKIMMING DONE AT THE TIME OF THE SALE OF A DIESEL CAR.

Let us get RATIONAL.

Further let us give Indians a chance to see the whole of India with their families at a cost of Rs. 2.5/- per kilometre. And not get into an 8% segment which is insignificant compared to the notional losses incurred by the Government on a recurrent basis.

Diesel fumes are carcinogenic!


Socialism has many manifestations, and the underlying principle is that if anyone is benefiting too much from the existing policies of the state, then the state should be compelled to legislate or make rules so that those beneficiaries are penalized and a perceived part of those gains should be recouped to the state SOMEHOW.

Recently there has been a lot of debate about whether passenger Diesel car owners should be allowed to have the benefit of the subsidy granted to Diesel.  A subsidy is a payment made by the State to the producer of the goods so as to sell the goods at a concessional rate to the public. In the case of Diesel, the refining companies are all State owned companies and therefore there is no specific allocation of funds for the losses incurred by the refining companies, instead the refining companies are showing their shortfall as UNDER RECOVERIES.

So what is the percentage consumption of such “subsidized” diesel by the passenger car segment? It is 15% of the total sale of such subsidized diesel. So if the passenger car owners are to bear the subsidy which causes the under recoveries, then the diesel car owners should be made to bear only 15% of the under recoveries. But the proposal seems to be to exact more from the diesel passenger car owners, as they CAN AFFORD TO PAY! This is the second LIE of SOCIALISM.

Socialism is nowhere defined in the constitution, yet the word has been inserted in the Preamble to our constitution without any debate. This word, SOCIALISM has assumed different meanings in the hands of different legislative interpretations. While this AMORPHOUSNESS is allowed to continue in the interpretation of SOCIALISM, various measures are being taken in its name which is beyond logic and reason.

The first point to be noted is what is the difference between the Central excise duty on Diesel engines for cars and Petrol engines? If there is an existing difference, what is the reason for such difference? I am sure the Excise on Diesel cars would be definitely higher as the cost of Diesel cars are higher. Consequently, at the time of registration, the State government collects more money from such diesel cars as the Road Tax leviable by most states, are Ad valorem. So the principle of SOCIALISM starts right from the production of Diesel engines.

Why is that so? Because, diesel is cheaper to produce (as the impurities are more compared to petrol) and diesel engines give a better mileage. So penalize people who buy diesel cars. That is the SKIMMING which takes place at the time of purchase of the car. This is CAPITAL ACCOUNT SKIMMING. Then comes the CURRENT ACCOUNT SKIMMING, after all the diesel vehicles need diesel to run, so take more money for a litre of diesel under the head of  excise on diesel and the various levies which go towards it.

Leave the state, what do the garages of diesel engines do? They charge you more for the labour component which is the same for both petrol and diesel cars. The components are already over-priced as the excise is not on par with petrol engine components. The garage fellow (including volkswagen, skoda, maruti,  mahindra & mahindras etc.) indexes the cost benefit of your owning a diesel car and he does his own fleecing!

How is all this justified? Because in the name of the omnibus SOCIALISM, everyone is having a field day!

Now let us look at who suffers the most because of dieselization of the Indian economy- as some prefer to call it? HONDA car company, as they produce no diesel cars in India. So i am sure HONDA must have taken the maximum hit, especially because of the hike in petrol prices. They do not have a mechanism to off-set the losses for falling sales of petrol cars, unlike Maruti, Volkawagen, Skoda etc..

And why should today’s TIMES OF INDIA (dt. 14/06/2012 Bangalore edition) suddenly bring a report of  WHO and  say that Diesel causes cancer? Have they done a comparative study study among the different fuels and arrived at it? I suppose not. It must be like one of those skewed surveys conducted by AC-Nielsen which went on to publish that WOMEN PREFER CLEAN  SHAVEN MEN, for GILLETTE!

Marketing techniques have entered policy domain.

Democracy is all about doing the greater good to the greater number of people. If the diesel prices are kept low, then an average Indian family would be able to take the car out and travel the length and breadth of the country and get better integrated as a nation. Look at the states like Maharashtra, Gujarat, Tamil Nadu where there is a greater movement of people within the state. This is because of the subsidization of public transport, in the long run people should meet and interact so that their LIBERTY transforms into some profitable activity and development takes place in the long run.

As Margaret Thatcher once said, “THE PROBLEM WITH SOCIALISM IS THAT SOONER OR LATER THE OTHER PERSON RUNS OUT OF HIS MONEY!” We as a nation cannot find excuses for others to pay for our IDLENESS!

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