Ridiculous fuel pricing

Buses queuing up outside a retail outlet in Bangalore. 

In June 2008, i had written a letter to the Hindu Business line on the issue of rising fuel prices. Back then, the diesel price was around 35 rupees a liter in the city of Bangalore. In that letter, i had suggested dual pricing of diesel. A subsidized price for public goods carriers and other bulk consumers and a market determined price for retail consumers. This would keep a check on inflation in the short term. 

Almost five years since, the government has implemented the dual pricing of diesel. But instead of subsidizing diesel for bulk consumers like railways, the government has given diesel subsidy to retail consumers like diesel car owners . The price of diesel for bulk consumers in Karanataka has gone up by rupees 10 a liter and that for the retail consumer by 50 paise a liter. The latter will be 50 paise dearer every month. 

Within a week of this policy coming into force, there has been a swift upward movement in some essential commodities. Rice sold in retail shops has increased by rupees 5 a kilogram. Prices of many other commodities are shooting up. There is already a talk of price of milk going up by rupees 4 a liter. It is going to happen sooner than later. 

Thankfully, the Karanataka state run public transport corporations have not revised the passenger price. Though the transport corporation is one of the biggest (bulk) consumers of diesel in the state, the minister in-charge has promised not to increase the passenger fare. 

BMTC buses tanking up at retail outlets. 

How will the state run transport corporation manage with this steep increase in price (almost 10 rupees a liter)?. It will bleed their business. But they seem to have found an answer.The BMTC (Bangalore   metropolitan transport corporatism) has resorted to buying diesel in retail outlets. Since the diesel at the retail outlets is almost 10 rupees cheaper, the buses are tanking up diesel in the retail outlets much to the merry of the retail seller. Huge queue of buses are often seen outside the retail fuel station. The retailer is going out of stock in no time. Not only this is creating a traffic chaos around, it is seriously hampering the supply-demand balance and economics of diesel in the city. 

If other state transport corporations and other bulk consumers follow suite, then we will have a serious crisis in hand. Barring railways, every other bulk consumer can easily switch to buying in retail. This will defeat the whole purpose of "Partial de-regulation" of diesel. It will not only bleed the OMCs further but create a chaos on the roads. 

All over the world, the bulk consumers are given incentives and discounts for normal goods. But in India, we choose to do the opposite. We, in India are still among the poorest in the world. We have more than 50 crore population living with less than a dollar a day. Prices of many essential commodities like food, milk and cement are sensitive to diesel price. Transporters of these essential commodities are invariably bulk consumers. So, this sudden steep increase in bulk price of diesel is going to hurt millions across the country. 

No rational explanation has come from the ministry of petroleum on this irrational pricing of diesel. No doubt, the de-regulation of diesel is necessary. But subsidizing the retail consumer (cars) is really an irrational move by the government. The government must immediately withdraw or reverse this dual pricing of diesel. The country cannot cope up with this high inflation. 

It is high time that the government comes out with a white paper on fuel pricing giving out the formula of fuel pricing vis-a-vis international crude prices.