The Indian Government has recently carried out a partial decontrol of Diesel pricing. This involves raising the price paid by so called "bulk consumers" by Rs. 9 per liter to raise it to market price and thus eliminate the subsidy to these buyers. It has also allowed prices charged to other diesel consumers to be raised by about 50paise (1/2 Rs) per month. Several News paper editorials and comments have criticized the introduction of a "dual price system' that will lead to leakages and corruption. This criticism would indeed be valid if the difference between the two sets of prices remains large and permanent. This can however only happen if the government develops cold feet about the partial decontrol and again stops oil companies from raising the diesel price by 50 paise per month. If the system continues to function as announced, the gap between the two sets of prices will close by Rs 1 every two months and be eliminated in about 18 months.
Thus the system is more like a two speed decontrol than a dual price system, and to the extent that government implements it without back tracking, it will indeed bring prices fully up to market prices. After two years consumers and the media will barely notice when prices are adjusted up of down by 50 paise, in an economy in which prices of individual vegetables and fruits can fluctuate up to 50% between good and bad harvests. This system will provide an incentive to all users to economize on the use of this largely imported fuel, and for entrepreneurs to develop and propogate fuel saving devices and systems.
In fact the government should consider introducing a similar system for two types of Kerosene users. One set that has access to (subsidized) electricity or LPG and those that do not. The prices of the former should be allowed to rise by Rs. 1 per month and the latter by 50 paise per month. In addition all those falling in the latter group should be provided with free solar lantern and solar cooker it they agree to switch to the former group, as this would be the equivalent of having electricity for lighting and LPG for cooking.
With phased decontrol of the prices of all petroleum products we could see a technological revolution in oil use and a "sea change" in the Current account within three years.
Thus the system is more like a two speed decontrol than a dual price system, and to the extent that government implements it without back tracking, it will indeed bring prices fully up to market prices. After two years consumers and the media will barely notice when prices are adjusted up of down by 50 paise, in an economy in which prices of individual vegetables and fruits can fluctuate up to 50% between good and bad harvests. This system will provide an incentive to all users to economize on the use of this largely imported fuel, and for entrepreneurs to develop and propogate fuel saving devices and systems.
In fact the government should consider introducing a similar system for two types of Kerosene users. One set that has access to (subsidized) electricity or LPG and those that do not. The prices of the former should be allowed to rise by Rs. 1 per month and the latter by 50 paise per month. In addition all those falling in the latter group should be provided with free solar lantern and solar cooker it they agree to switch to the former group, as this would be the equivalent of having electricity for lighting and LPG for cooking.
With phased decontrol of the prices of all petroleum products we could see a technological revolution in oil use and a "sea change" in the Current account within three years.
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