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.


  1. 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.

  2. 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.

  3. 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?

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