Partial deregulation has its perils, sometimes causing worse distortions than in a regulated regime. There is no better illustration of this than fuels and fertilisers. Currently, the petrol price is deregulated and it has, since April 2010, risen from Rs 47.93 to Rs 66.84 a litre in Delhi (including last week's revision by oil companies). But the diesel price, being controlled by the Government, has gone up just from Rs 38.1 to Rs 41.29 over this period. The result: Today, 100 litres of petrol cost about Rs 6,700 and, with this, one can travel 1,500 km in a car giving 15 km-to-a-litre. Present-generation diesel cars typically give 3-4 km extra mileage. The same Rs 6,700 could, then, buy some 162 litres of diesel, enough to fuel an equivalent-capacity car for twice the distance! It is not surprising, therefore, to read reports that diesel cars now account for up to three-fourths of the sales of all models offering the diesel option. There can not be a more powerful argument for manufacturers to add a diesel variant in every model if they want to remain relevant in the market place. In 2008-09, passenger cars had an estimated 15 per cent share in the total diesel consumed in India (next only to trucks, at 37 per cent, and more than the 12 per cent each for agriculture and buses). That proportion would since have only gone up, raising questions on who is increasingly benefiting from a subsidy originally intended for farmers, truckers and public transport utilities.
The same applies to fertilisers, where the Government continues to administer prices of urea, even after lifting controls in all other nutrients from April 2010. Since then, companies have raised retail prices of di-ammonium phosphate (DAP) and muriate of potash (MOP) by 65 per cent and 91 per cent respectively, whereas the revision in urea has been limited to 11 per cent. The effect of this can be seen in sales. They have been higher by 11 per cent during April-August over the corresponding year-ago period, while plunging by 21.6 per cent and 58.5 per cent for DAP and MOP. The nutrient balance in Indian soils is already excessively tilted in favour of nitrogen. The nutrient-based subsidy regime, in conjunction with de-regulation of fertiliser prices, was supposed to address the nutrient imbalance in Indian soils. But keeping out nitrogen-intensive urea — the most widely used fertiliser — has probably worsened the imbalance, a la diesel. The conclusion is clear: Partial deregulation does not work, unless there is parallel action on the ‘regulated' front. The trick here is to undertake frequent price revisions in homeopathic doses that do not hurt. That, indeed, used to happen till around 2002-03 at least in the case of diesel, when prices were changed 15 timesas against 3-4 times now — something, that is neither economically nor politically sensible.