Sunday, August 07, 2011

Hidden, ugly truth: It's the petrol buyers in India who are subsidizing the price of diesel!

I'm strongly against sale of diesel cars in India. Diesel has been subsidized in India for agricultural use and for use in trucks, etc., and not for use by wealthy owners of Audi, BMW, VW and other cars.

In India, we're repeatedly told that the government subsidizes diesel (and kerosene, etc.) for welfare reasons. Yet we see the super-wealthy segment misusing this subsidy by buying diesel versions of cars (next time carefully look at every Mercedes and Skoda that passes by, you'll notice that a majority of them are diesel-powered).

The ugly truth Indians are not told is that diesel is not subsidized by the Indian government.

It's subsidized by the petrol buyers!

It's the petrol earnings that subsidize the price of diesel. And who pays for petrol? Those with bikes, scooters, Maruti 800s and the scores of other petrol-powered vehicles. While someone driving a Toyota Corolla can easily afford petrol, someone driving an 800 or an Alto or a Nano probably finds it difficult to buy the ever-more-expensive petrol. And yet, this individual finds himself in the uncomfortable and unacceptable situation of subsidizing the fuel costs of a BMW owner, who clearly has enough money to pay for petrol.

Automobile companies in India are clearly trying to profit from the rate difference between petrol and diesel.

Solution: I believe that taking all of the following steps will play a significant cumulative role in ensuring that car-owners cannot and do not misuse the subsidy on diesel available in India:
  1. Ban the introduction of new diesel cars (let existing ones sell - read more below).
  2. Allow car companies who have already invested in diesel cars to continue selling these for the next 5 years. This will ensure that these companies are not at a disadvantage, after having already invested.
  3. Make it mandatory for all fuel stations to sell diesel to cars at a higher price compared to the price charged to tractors, trucks, etc. While there are some obvious holes in this step, it'll help at least partially.
  4. Increase the costs of owning and operating diesel cars (by increasing insurance costs, pollution certificate fee, taxes, etc.). This will recoup the subsidy that diesel car owners have misused over the years.

24 comments:

  1. Check this out
    Under "Focus on mobility: A step forward"

    Though above link is not about the concern in this post but I read that article sometime ago in the paper & was reminded today of it, on reading your post. You too may find it interesting.

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  2. @Namita

    I read the article. Indeed, we're witnessing a steep rise in the number of vehicles on our roads. We all know how Ludhiana has been literally crawling for many months now.

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  3. I basically found the suggested steps (particularly by giving the measures in other countries) portion very strong. And so on reading your post I was reminded of it.And I think that if we switch on to public transport then it may reduce strain on fuel prices too along with increasing mobility. Possible,No?

    I hope the steps suggested here on post & there in the article get acted upon & bring desirable results in regards of their respective concerns.

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  4. I don't think "switching" to public transport is as easy as flipping a switch. Most vehicle-owners won't want to use public transport because of its obvious (current) limitations.

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  5. "current" limitations.
    That's the point this issue of "developing public transport" & making it worth an option even for the private vehicle holders,followed by the check on the number of private vehicle ownership of the individual, should be added to the agenda of the government.

    Building good roads, standard public transport etc should be the better option for the government than to cut the sorry figure all the time, for its incapability in controlling the fuel prices thereby making traveling an expensive choice for the common man.

    Wahi safedi, Wahi jhaag, kam daam mein mile toh koi ye kyun le, vo na le! :D

    Same way, if same good standards then people (most of them) will prefer public transport to the private vehicles. :)

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  6. Ya, it's not as simple as flipping the switch.
    Agree on that.

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  7. While I agree that an improvement in public transport systems is desirable, a few practical issues come to mind:

    1) Would public transport be able to provide point-to-point connections? Most affluent people aren't going to adopt public transport if they've to switch vehicles. As I understand, almost all public transport today runs within a few "hubs".

    2) A check on the number of private vehicles? Stopping someone who has the money from buying any number of cars he wants to?

    3) Will people "want" to travel using public transport, even if it can, hypothetically, provide point-to-point connections? What about the flaunt value that comes from driving your own Skoda? Comfort and privacy of your own car? We can surely move at least some people to public transport by improving it, but not too many perhaps.

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  8. hmm..

    1) at least the short journeys or the ones which are point to point, for them the situation will change, in availability of good alternative.

    2) About it, it was there in the article, that if price of certificate for the entitlement of the second car is made more than the car itself then probably the control can be taken.
    At least in not so very rich cases.

    3) Of course they won't be denied of flaunting, they'll just have to pay more for it! :)


    Of course it's not the sole solution of tackling the problem of high fuel prices but it I think it should be taken as one of the options.

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  9. 1) Barring autos, taxis and rickshaws, no mode of public transport currently reaches one's home. Expecting affluent people to abandon their own vehicles and instead travel in these vehicles (even if these are improved) doesn't look practical to me.

    2) So why are we putting those with the money to a disadvantage? This doesn't look fair (at least at the first glance). Remember, these people have earned their money.

    3) Again, continuing from above, why do we want to charge the rich people more than they deserve?

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  10. Obviously, that 'Anonymous' is me. Some technical glitch doesn't allow me to comment on my own damn blog at this moment.

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  11. @Anonymous :P

    1) okay

    2) ok

    3) k

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  12. I don't think that completes the discussion. You should rather defend your points.

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  13. I thought, you are right from your point of view.

    But, I'll put forward my view further.
    So,
    1) It's not that affluent people will be asked to "abandon" their vehicles.
    It's about check in owning the "new" ones (something like your second suggestion).
    More precisely,it's about not to exceed the particular no. of vehicles (on fuel).

    Okay, Let's try make it more practical.
    It should not be each one have one (car in particular), but certain fixed no. based on
    a) justifiable necessity of the individual/family.
    b) reverence to the "affluence", by giving, 1 or at most 2 extra credits (for Skoda & the like).
    c) etc.

    2. If taxes doesn't mean putting money to disadvantage (as it's,more income more tax) then even this should not be taken as putting money to some "disadvantage". Even there (in taxes) rich people have "earned" their money.

    3) It's not about charging more than they "deserve". It's about charging for owning more than their "basic needs" (of course "basic" as per "affluence"). Though as I wrote in 1st point, some extra credits may be given to the "affluent" ones for "flaunting".
    (Okay, we can make the price of licence for exceeded no. of cars to be justifiable.Not equal to the cost of car itself. Less than than that, but still considerable.)

    It can be taken as one more way to bring on the overall equality... by taking out some(or more than some) extra money from rich, & ideally using it for needs of poor or average class people...Thereby, for needs of nation at large.


    Mobility, fuel cost, inequality -> all worked on together.

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  14. 1) Why should we put some kind of "check" on wealthy people owning more number of cars than they "need"? How do we decide how many cars someone "needs"? Is there a "fair" method (or can such a method be devised) that can accurately calculate the number of cars that a family needs? I'm not opposing (or supporting) a check on owning vehicles, but I'm trying to see if this is fair, and if it can be implemented without being unfair. The a), b), c), points, how does one say that "1 or at most 2 extra" is a fair number? Can this be done individually for the millions of families in India?

    2) We obviously understand that these taxes are a disadvantage. They're not helping any one of us. I don't think that's debatable. Whose bank accounts these taxes go into, we all know well.

    3) How does one say what the "basic needs" of someone are? Of course, walking and swimming allow you to reach any point on the planet. Even a cycle isn't required. For one person "basic" might mean one car, for someone else, it might mean two, so who gets to decide this?

    I don't think this whole idea of "taking out" money from the rich and "ideally using it for the needs of poor or average class people" makes sense. The rich people have earned their money and they own it. Why should their money be "taken out" to help those who haven't earned it?

    You know what, an ideal world in which everyone is at the same economic level, most people don't want it - who will clean our utensils and our bathrooms and who will sweep the roads and the drains then? It might sound offensive at first, but it's only the poor who want this kind of ideal world. Those in the upper part of the pyramid don't want this.

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  15. Okay...Lets try devising a method.
    As you agree, walking & swimming can do it all (being the most basic ways of travel).
    So Let's keep "Each one have "just" one for the "basic/actual" cost"
    But for the subsequent buying of cars (in particular), their should be a method/rule applicable to one & all.

    -> For every next car, there should be the extra payment of 5% (of the cost of the car).
    Like for Rs. 5 lakh car, additional cost is Rs. 25000.
    Now if just 1000 families in a country buy second car of Rs. 5 lakh each, The outcome is Rs. 2,50,00000. Now this money should be used "ONLY" to "reduce fuel prices". (It's only a small example!)
    This collected money should be deposited by each automobile seller company to one new "special" account of govt. under RBI . As the govt. will be accountable for justifying this bonus from the "responsible" citizens who are paying this, the price of fuel is expected to be controlled well.
    The benefit of reduced & stable fuel price is to be enjoyed even by the one paying extra money, in the long run, (for his/her 1st car as well!)

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  16. People will start buying cars in the names of their friends and relatives to evade this so-called rule of just one car per person (or was it per family?).

    Besides, this doesn't answer the key question - why at all should there be an additional burden on the purchase of an additional car? You have the money, you buy as many as you want to. I don't see any fair reason for this. Also, I don't see how valid this assumption is, that one car is enough for a person. I might want to drive a premium hatchback on busy roads, but would prefer a SUV when on a holiday, and a luxury saloon when on a highway. Why should I pay extra for my second and third cars when I "genuinely" need all three of these? This is just one example, some people might "genuinely" need four or five cars too.

    Regarding 5%, who gets to decide that this number "5%" is fair? Someone will say it should be 1%, somebody else will say 20%, how do we say that your number "5%" is fair? Again, this is assuming that this whole idea of making people pay extra for additional cars is fair (something I don't see as fair, for now at least).

    Regarding the "special" account, RBI, etc., all government accounts are already "special". What happens in those accounts, we know well. I say again, all government accounts are already "special". They are not ordinary.

    Finally, only a thousand families have paid this "extra" money. Why should others have the fruit of the money spent by these 1,000 families? It was and is their money, so why should others keep their eyes on this money?

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  17. In general, by Equality in society (practically not ideally) it doesn't mean, every citizen has 1000 bucks (say) each. It in broader terms should refer to, everyone above poverty line.
    Of course, somebody has to sweep the roads & drains, but it doesn't mean, they should be earning just 50 bucks as compared to 1000.
    In 900 bucks too, the rich can fulfill his splendid needs, & if he is asked to give out extra 100 bucks from his pocket (as an additional charge) for common good (including him too). This may result to 150 bucks to one poor in total.
    Rich won't be at a big loss but poor will be in better circumstances. In other words poor has "moved" towards equality. That's it.

    Everyone at one economic level is just a "hypothetical" situation. It's not practical & it's not advantageous, It's offensive, but I agree it's "The Truth".
    But certain minimum standard of living, should be tried, to be made available to all.

    I agree it's easy to say, but hard to take out your hard earned money for "undeserved" charges. But it's actually good for us too.

    Increased pay of the sweeper (say), should come along with the strictness in work ethics:
    -> higher standards
    -> Regularity in work
    -> For better results lets call them "employees" of cleanliness department. With I cards, uniforms. etc.
    So that, by increase in pay, they should not start disliking their work.

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  18. Drive! Who's stopping!! Just pay an additional cost for it! Have not 3 but 9 cars...just pay the "extra" amount & road is yours!
    Extra cost because our "extra" car needs "extra" fuel. Increase in demand more than that is basic!
    I we are having 3 tanks filled with fuel at the same cost, at that time too the one with the single car is paying the "increased" cost of fuel because like us, thousands of others have 3/4/5...tanks filled with the fuel. They need the cars just for their choice of the day/or the event. But fact is they have unintentionally "increased" the demand of fuel!!
    So at that point, why should average people be paying (more)for it!!

    5% is just an example here. Who fixes the income tax rates? Similar authority in negotiation with automobile industry experts can fix it.

    Regarding, what govt. does & does not is a separate issue. But here in particular, if we are up with such a volunteer plan, to which raw results will be calculated by the experts before the plan is realized. Govt. will be answerable. (of course only if the plan is practical! I know.)

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  19. I had written "Besides, this doesn't answer the key question - why at all should there be an additional burden on the purchase of an additional car?". I think you have mistaken it for "drive", instead of "purchase".

    Secondly, extra cars don't mean extra fuel usage. A human can drive only one car at a time. He can't spend fuel on two or more cars at a time. I don't see how owning extra cars means extra fuel is used.

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  20. By your logic, let's start charging the wealthy people "extra" for more ACs, more bricks, more cement, larger homes, larger refrigerator, more clothes, more shoes, more watches, even more electricity used and more telephone calls made, because they're increasing demand and thus causing the prices to go up (the logic you've given applies not just to fuel, but also to metals and other resources). Isn't it?

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  21. I differ from you in your assumption that it's a simple thing to take 100 rupees from a rich person (leaving him with 900) and give it to a poor person. I smell "forced charity" in this. Charity is supposed to be voluntary, not compulsory.

    Also, I believe it isn't this simple. Rich people aren't overflowing with money. Their expenses are as large as their incomes ("In 900 bucks too, the rich can fulfill his splendid needs"). And who are we to stop them from staying in an even better hotel (with 1000 rupees) than settling for a lesser hotel (with only 900 rupees)? Obviously, even those with 5 cars can't afford the world's best hotel - so any money we take from these rich people will force them to stay in a lesser hotel. "Hotel" is just an example to say that the rich people have their limits too, and taking money from them reduces their lifestyle too. Who are we to deny them their dreams, that too forcibly?

    "Rich won't be at a big loss but poor will be in better circumstances. In other words poor has "moved" towards equality. That's it.". Again, this smells like "forced charity". What is the rich doesn't care about the poor? Why should he be forced to care and donate?

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  22. More number of cars has got link with more usage of fuel or not? I think the result of it should be statistical. We can't be sure of either of the results. It's not about one person, it's about one family. If we have two ACs in house, & we are ready to pay more of electricity bill which is costing same to everyone in the country (/unit), then we'll not think of trying to use one AC at a time. It may lead to, as many members that many ACs individually, all used at the same time. Same thing can be interpreted in terms of cars.


    Preparing more cement, bricks, utilizing more space, having more clothes, shoes, more no. of telephone calls etc is not something which can be compared as to utilizing more fuel.We are facing the problem of fuel shortage/excessive fuel price rise...And that's the reason for extra charge from those who use it more.
    Everything else you referred , we can say, comes under more income tax (in a way)rich pay.
    More no. of ACs, ya that may be charged more! But I am not sure, if we have in case of electricity, different rates for different limits of usage (more usage beyond one limit, rate increases). If that's the case, more no. of ACs (& the like) case can be excused, coz we are already paying according to our rates. And if not, then this case of ACs should also be considered along with the fuel. (Again, after knowing the statistical results.)

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  23. When something becomes rule/law, it no more appears as "charity".
    Think of the world without taxes or to be more practical, equal tax from all. We can enjoy the benefit of all/more of our income. It will be such a relief for us. But we do pay more taxes according to our income, Why? There also the more income tax should be regarded as "forced charity" for the "nation".

    It's the rule/law which we go by, & it has got it's justification, it's fairness, when we think of that we don't just represent our own professions, our own achievements & failures, but knowing that our country's achievements & failures are tagged on to us too.

    Rules & laws are always "forced". But yes the question here is that whether this particular idea if made rule, is fair or not. And the results should be statistical as I mentioned in my last comment.

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  24. And, regarding "special" account in RBI, I meant "only for fuel" so special in that regards.

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