By Geetanjali Kedia

Chief Economic Advisor Mr. Raghuram Rajan has suggested decontrol of diesel prices, by saying that “The best policy is to move towards true cost of the fuel. The problem with diesel versus petrol is not the vehicles, but the fuel cost. If we can bring both to global prices or market prices, then people would make a choice.”

The above statement is quite ideal and pragmatic. But what’s new in it? If you ask any person taking a judicious and impartial call, he will say the same. So one can say, I know that…..

Strangely, we have seen rich and wealthy people buying diesel vehicles, which effectively puts an under-recovery burden of Rs. 6,000 per month on the exchequer. Also, all ruling Politicians (in power), Economists, Financial Experts will support this move, as under-recovery on diesel alone will cost close to Rs. 1,20,000 crore to the Govt. in FY13. But, Mr. Rajan must know that price of diesel hike is driven by the political forces and no economic sanity prevails upon.

Also, many State Govts. have been opposing diesel price hike, but they will not reduce VAT, levied by them, on diesel. On the contrary, rise in diesel price gives them higher VAT, as it is charged on an ad- valorem basis. In all fairness, atleast incremental revenue of VAT accrued to the State Govt. due to price hike should atleast be passed on, but they are not doing that. Difference between preaching and practice!

In 2000, even NDA Govt. had proposed dismantling of Administered Price Mechanism (APM) in petro products from 31-03-2002, but could not do it due to political pressure and lack of political will. Now, since NDA is in opposition, all its constituents are opposing diesel price hike. Ironical isn’t it?

If we seek the opinion on an individual basis from the Economists, Financial Analysts, even of the opposition, they will all out support this hike, in private, but having no courage to say so in public. We all know the names of such personalities, hence no point in stating them here.

Also, with improvement in the lifestyle and increase in per capita income of Indians, now the demand for milk, eggs, fruits, vegetables have also gone up, as major population is not restricted to Dal-Roti with Salt and Onion. However, matching increase in production of these items has not happened. Apart from this, we have wastage, ranging from 25% to 40% in these items, from point of its production to point of consumption. This wastage is also occurring due to lack of cold storage facilities, improper packaging facilities, poor logistics and distribution network, as these items are still sold in Mandis and Agriculture Produce Markets (APMs) only, which are not more that 4-5, even in the city like Mumbai.

Maybe, 51% FDI nod in Multi Brand Retail may see good investment being made in these infrastructures. Even if we reduce our wastage to half, prices of these products can fall by 10%, which is close to the inflation, we are seeing for these items. This is likely to happen with FDI investments flowing in.

Mr. Rajan has also said that if diesel prices can’t get moved to global levels, then one may resort to differential tax on Vehicles. However, it is best that the problem is tackled directly.

In our view, the best option is to implement AADHAR Card Scheme on pan-India basis, at the earliest, to overcome the leakages in these subsidies, as also to give fair advantage of these subsidies to those who need it most, to the truly below poverty line people alone.