Fuel Price Regulation – Should be or should not be done ?

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This has been a raging debate for a while now – Just to give a perspective, in India prices for fuel (Petrol, Diesel, Kerosene, LPG etc) are regulated by the Government. In today’s scenario for example, the market prices for Petrol are cheaper to consumers by about Rs. 4.50/-.

The global fuel market is quite volatile and price fluctuations depend on global circumstances and demand. Now, what Indian Government does is, if the fuel prices are higher, they still keep it at lower rate by chipping in the difference and making up for it when the fuel prices are lower.

Fuel-price-regulation

In country like India, fuel prices are a very sensitive issue, and it can literally bring down a government. None of the earlier governments have taken decision on this precisely for this reason. However, Congress is currently enjoying a good majority in the parliament and probably can take this step without worrying too much.

Globally, in most countries like U.S & U.K, fuel prices are unregulated – In U.S for example, prices at gas stations change on daily basis depending in the Global market rate.

Now, the raging debate over past few months has been whether Indian Government should do away with fuel price regulation or not. The EGoM (Empowered group of ministers) are expected to take a decision on a proposal freeing fuel rates today.

If the regulation is removed, petrol & Diesel prices will go up by Rs. 4.50 & Rs. 2 respectively.

Here is my perspective on this – I have no doubt whatsoever, that in the longer run freeing up Petrol prices is the right way to go. Yes, it would be a burden on consumers but fuel price regulation is one of the sore points of Indian Economy and has to be dealt with.

Fiscal Deficit is very high currently and one of the primary reasons is – regulated fuel prices – which is expected to put a burden of 70,000 to 80,000 crore rupees in this fiscal alone.

Although, the left parties are sure to oppose freeing up of prices, it is important to be done from Macro economic perspective.

Government can also take a middle path, where Fuel prices can be freed up within certain band, and if prices tend to go beyond that (like 2 years back when it went beyond $150 per barrel ), government can take action.

So what are readers views on this – Would love to listen to your perspective.

  1. facebook_Ankur_Sharma.100000606126931 says

    My idea is slightly rational.Please do comment any sort out flaws:-

    i)Connect all the petrol pumps by a central server.The no. of petrol pumps all over country is 25000, not an impossible no.
    ii)Register all the people willing to use petrol & ask them to declare how much petrol they gonna use all the year.Like tax savings decl.
    iii)After registration, issue them a card just like ATM card.Card containg information about declared petrol usage over the yearand other details.
    iv)Apply different petrol rates according to amount of usage.Rs 60/L for 800L/year , Rs65/L for 1000L/year etc.
    v)If a person up downs at 40km/day the he will roughly travel 12000km per year.Assuming car mileage 12km/L he will use 1000L of petrol.So using 1000l
    is a genuine use and for 1000/L per day lower price should be attached to it.For even a lower usage lower price be used.
    vi) if a person uses more petrol than 1000L (or whatsoever quantity), more price should be attached.
    vii)It will encouage people to use public transport , car pools and most importatly it would discorage overusage and wastage of petrol by some wealty people
    whose hobby is to drive without a reason.OK driving is a good hobby but why other people should suffer due the this hobby and why govt pay subsidies for
    this.
    viii)So the loss govt is making in subsidies can be brought up by selling expensive petrol to high end users.
    ix) It will also encourage people to maintain their cars, buy only genuine parts.
    X)It will also push OEM’s or car manufacturers to improvise design and make better fuel efficient cars w9ithout any direct GOVT REGULATIONS!!!!!!!!!!.
    Xi)It will also encourage people to buy electric , hybrid cars.

    1. Narayan Behera says

      I agree with you, this is the real way, what other country follows to control the unnecessary usage of diesel and petrol. But all rich man will not allow to implement the rules because they need too much diesel and petrol and they don’t know how money comes, just pay at petrol pumps run here and there without any necessary works.

  2. Megan walsh says

    Does the Indian government also regulate the price if alternative energy– such as biogas? Does the regulation of fossil fuel prices cause alternatives to be uneconomical? What are your thought on biogas in india?

  3. There are always alternatives.

  4. vishy says

    Hello Arun,
    Great site this :)

    I am strongly against government interventionism in the free markets. Let the petrol market decide its own prices. Petrol price doesn’t affect the entire population but the fiscal deficit caused by the regulation affects everybody in the form of inflation. If petrol prices are too high for us, a new market for alternative fuels would open up because of the high demand.

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