DIESEL PRICES IN INDIA

INDIA'S DIESEL PRICE DILEMMA - MAKING THE RICH PAY MORE

Rajesh Kumar Singh and Jo Winterbottom

Reuters, August 16, 2012

NEW DELHI, Aug 16 (Reuters) - Expect a popular backlash if India's government raises diesel prices to halt the subsidy drain on its finances - not only from the millions of poor who need cheap fuel but from increasing numbers of the well-off and businesses who don't.

Faced with the risk that its sovereign credit rating could be cut to junk if it fails to rein in its fiscal deficit, the government is under pressure to cut runaway spending on fuel subsidies.

But, already on a backfoot over corruption, slowing economic growth and the caprices of coalition allies, Prime Minister Manmohan Singh has held back. Like LPG cooking gas and kerosene, diesel is seen as a poor man's fuel and so the government fears it would be forced by popular outrage into a u-turn if it cut subsidies, just as it was when petrol prices were raised in May. )

It should fear less the wrath of the common man, however, than the hostility of big businesses and middle-class voters, who have become big users of diesel because it is so cheap and because regular power supplies are so unreliable.

When the north of the country was hit by massive power blackouts on two consecutive days earlier this month, the lights stayed on in offices, five-star hotels and swanky residential areas across New Delhi as thousands of diesel generators purred into action.

With petrol costing on average 42 percent more than diesel, there has been a jump in the share of cars powered by the subsidised fuel, while in the countryside only wealthy farmers who can afford a tractor or water pump benefit from the government's largesse.

"The economy is being dieselised," said a senior Finance Ministry official, who asked not to be named due to the sensitive nature of the matter. "People are using it to run their private generators, telecom towers, cars. It is no longer the poor man's fuel."

Diesel subsidies cost New Delhi about 411 billion rupees ($7.39 billion) in 2011/12, or 0.7 pct of GDP, making the fuel much cheaper than petrol and costing state-run retailers about 11.25 rupees for every litre sold.

Government data shows diesel accounts for nearly 44 percent of fuel consumption in Asia's third-largest oil importer compared with 35 percent nine years ago.

(...) [artículo aquí]