These days, almost everyone discusses Gas prices, energy problem, and alternative sources of energy everyday. After some time, people will begin the talk with gas prices than with weather. Recently, Prasad, Sunil and I exchanged conversations on oil subsidies. An article in Economic Times became background of these conversations.
Here flows our discussion:
Prasad: interesting article. Oil is subsidized, but we seem to have the highest cost for petrol..... Wonder why? ;D
Sunil: assume you mean India by "we" and not Karnataka. The Govt. of India imposes a Central Excise Duty on refined petrol and diesel (apart from the import duty on crude oil) of the order of ~6%. Apart from this, each state imposes its own State Excise Duty and State Sales Tax. I believe these also run into high single digit percentages. Retailed oil still does not come under VAT for taxation purposes, which is the reason most states impose high duties. That effectively negates the subsidies I guess.
Myself: If new innovations for alternate energy don't happen then this issue is going to cause a global turmoil. Adding to Sunil’s point, one more reason behind Petrol being costliest in India is cross subsidization of diesel and kerosene with Petrol. Diesel runs tractors and tube wells in farms, so it has to be cheaper than Petrol. Kerosene is poor man's fuel, so it has to cheaper than Petrol and Diesel. And whole nation faces the consequences of this mad policy. People adulterate petrol with kerosene since kerosene is cheaper than petrol and India is probably the only country where every car manufacturer tries to launch a diesel version of car as soon as he enters in the market.
Sunil: I would disagree with "mad policy". Cross-subsidization is effectively the only way to provide a cheap source of power to farmers and the BPL population. Even after taking this into account, the petrol prices in India are not the highest in the world especially given that we are not a "net" oil producing nation. If I remember right, until a few years ago the oil prices were entirely controlled by the government and they had built up an "oil pool deficit account" of the order of many thousand cores (which was finally liquidated by former petroleum minister Ram Naik). The nation has done better without that additional burden. Adulteration of petrol is not so rampant nowadays. Most new vehicles will bust their catalytic converters if the gasoline is spurious. Auto drivers adding kerosene to petrol is an entirely different matter. Coming to manufacturers rolling out diesel flavors of vehicles, this again has to do with the price differential between petrol and diesel and is specific to India (and maybe some other emerging countries). Diesel vehicles obviously have lower maintenance costs in terms of fuel over a period of time. I'll put my environment-conscious-guy cap and say that diesel engines are also much more efficient than petrol engines.Again, if I remember correctly retailed petrol in India has a 5% ethanol blend. Countries like Brazil have already moved to a 25% ethanol blend. India is still struggling to get the Bureau of Indian Standards' (BIS) to accept the 10% ethanol blend standard (this was a while ago, not sure what the situation is now). I'll sign off a-la NDTV - "It remains to be seen if there is enough political will to implement cleaner fuel promoting policies"
Prasad:btw, new age diesel engines generate more power for the same amt of fuel, more efficient and cleaner (see wikipedia -Diesel engines are more efficient than gasoline (petrol) engines of the same power, resulting in lower fuel consumption. A common margin is 40% more miles per gallon for an efficient turbo diesel.)... unfortunately, we would probably have older diesel mixes which combined with older engines generates SO2 & particulate emissions. Noise is the other issue which is being tacked too in the modern engines....Blends are still iffy... they have a much lower calorific value and tend to clog the engines since they are thicker. Moreover, with the current food crisis, there are schools of thought against redirecting food generating land to fuel generation. The only plus in my opinion is that it is regeneratable (though at a high cost per some of the current research)
Sunil: Fuel from blend - ethanol can also be generated from molasses, which is the way it is done in India. And sugar-cane doesn't figure on anyone's list of staple foods :) And then there's Jatropha and bio-diesel.....
Sunil: India’s Warped Economic Policy - by Sunita Narain She stole my words! ;)http://www.rediff.com/money/2008/jun/06guest.htm
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