Consequences of dieselisation

Here i come with first blog of mine. I wanted to write it from long back but everything is destined at some particular time. I had many things in mind for writting my first blog starting from any old happening of mine, my stay at IMT or many more. But why did i narrow down to this boring topic of dieselisation?... well, Even i dont know exactly Why? .. may be i was in mood of inaugurating my Blog and Diesel news was 'the lucky one' to be noticed by me at that time ! ;-)

We all have a clear picture of rising crude prices and how does it affect each one of us. Being an indian citizen we are not directly exposed to crude oil price with so called shelter of subsidy. But this subsidy is not that cheap as it looks like. It comes with many side-effects. First it increases our fiscal deficit which has become almost 8% of the GDP this year much more than expected 5%. Next all the Oil Companies are in big losses and half of these losses comes from the subsidy on diesel.

Do you know that increase of diesel is growing in india at around 11% this year, it made me analyze the reasons behind it and the conclusion that i got is. As we all know diesel is a kind of fuel that is used for farming , transportation and railways so it enjoys the larger chunk of subsidy on all fuels. Reduction of subsidy on diesel will have a strong direct and indirect impact on inflation which is already touching the mountains with the value around 12%. So no indian govt. is ready to disturb the diesel prices as we know in india rise in price of onions only can bring tears in the eyes of any political party. 

But if it would have been the case of just agriculture and food transport we could have ignored it. The thing with which i am most concerned is the increasing use of diesel in power generation, cars and stand-by-power. The cars with the diesel technology are more fuel efficient compare to gasoline(petrol). So with the low price of diesel,high subsidy and better fuel efficiency more and more number of diesel cars are coming in to the market. Data shows that in this year the 30% of new manufactured cars will be with diesel engines and this figure can go up to 50% in 2010. Similarly with the low availability of coal the use of diesel in power generation is increasing. One more factor that increases the use of diesel is uses in stand-by-power. Rising income whether for IT 'janta' or for bureaucrats with sixth pay commission has increased the use of varietis of electrical equipments at houses that too with uninterrupted power supply. This leads to use of diesel in gensets. These all factors of increasing dieselisation are making the situation worse.

Now what are the possible remedies for this concern of increasing dieselisation. One as we discussed could be removing the subsidy all together but we have already concluded the non-possibilty of this solution. Next comes the mechanism of DUAL PRICING which has been approved by our petrolium minister Murli Deoora,now what exactly is this methodology of dual pricing. It works on the logic of charging as per the size of pocket.According to this pricing for diesel industrial users and private vehicles pay more than transporters or farmers.It would require extraordinary administration to implement dual pricing in India. Since we don’t have strong governance, and therefore the ability to punish those who violate rules. Now one more possible solution that comes to my mind is charge the duty from same users of diesels in a different way and that is by increasing excise duty on all those products like in the case of cars. Higher excise duty will make the car expensive in turn govt. is indirectly decreasing its losses and discouraging the use of diesel. 

In the long run none of these solutions are feasible. We have to plan for our energy requirments. Nuclear deal which has been passed by US senate is a welcome step in that direction.