Distortions have an uncanny ability to feed on themselves. It began with the Government introducing dual pricing in diesel, with higher rates for bulk consumers and retail consumers being let off with a lighter burden. What that did was to impose a disproportionate burden on the Railways and state transport undertakings (STUs) catering to the transportation needs of the masses, as opposed to the rich driving diesel-powered luxury sedans. The Budget proposal to hike the excise duty on SUVs from 27 to 30 per cent has created a distortion of its own. The stated rationale is that vehicles with engine capacity above 1.5 litres, length exceeding 4 metres, and ground clearance of over 170 mm “occupy greater road and parking space” and therefore deserving a higher excise duty. But to the extent these vehicles, with their rugged features and fuel efficiency from recent advancements in diesel engine technology, operate in rough hinterland terrains where roads are often conspicuous by their absence and parking space is not an issue, the proffered rationale falls flat on its face. In contrast, by singling out SUVs, the Government has actually spared many premium sedan models that have escaped a higher levy because they fail the ‘ground clearance’ test (less than 170 mm), despite being predominantly used in urban areas and hence occupying “greater road and parking space”.
The whole idea of taxing SUVs at a higher rate would, indeed, not have come about, but for their running on subsidised diesel sold through retail fuel outlets. Now, with the industry making a case for distinguishing between ‘mass’ and ‘premium’ SUVs, there is talk of charging the 30 per cent excise only on vehicles costing more than Rs 10 lakh. The Budget has, in any case, exempted SUVs registered as taxis from the higher duty, presumably for catering to public transport requirements. This, even as the Railways and STUs will still pay the market price for diesel, sans any subsidy!
The only way to end all these policy-engineered distortions is to do away with dual pricing of diesel. Since its introduction on January 16, the price of diesel for retail consumers has risen by just over Re one a litre, even as the corresponding ‘under-recovery’ for oil companies, in relation to the realisable market rate, has gone up from Rs 9.60 to Rs 11.26 a litre. On the other hand, while the under-recovery on sales to bulk consumers has been eliminated, their share in diesel consumption has dropped, with STUs increasingly shifting their purchases to retail outlets. This is clearly unsustainable. The current strategy of ‘allowing’ oil companies to raise retail price by 45-50 paise every month is simply not enough, just as asking the Railways or STUs to fork out an extra Rs 10-11/litre at one go has amounted to imposing an unfair burden on public transport. The Government must go back to a unified pricing regime along with steeper monthly hikes, paving the way for full decontrol in the next one year or so.