May 24, 2012, 01.02 PM | Source: CNBC-TV18

Losses on diesel unsustainable; expect hike soon: RS Pandey

Former Oil Secretary RS Pandey tells CNBC-TV18 that a modest hike in diesel prices can be expected soon because the current losses on diesel are unsustainable.

RS Pandey, Former Oil Secretary
It's been over six months since the last hike in petrol prices and former Oil Secretary RS Pandey believes the government acted too late in this regard. In an interview to CNBC-TV18, Pandey said that the government had postponed this decision for too long, and that it should have moved in tandem with international crude prices.


With regards to the quantum of the hike, Pandey agrees that it is a substantial hike, but it is in line with rising crude prices. "The crude price is also at its highest ever, the devaluation is also at its highest ever, so there was no option," he said.

When it comes to diesel prices, Pandey expects a hike soon because the current losses on diesel are unsustainable . However, he doesn’t expect a significant hike because it will have a huge impact on consumers and manufacturing. "The under recovery is Rs 14-15 a litre on diesel and that much increase is just not possible because it will be counterproductive," he explained.

Also read: Possibility of petrol price rollback to arise in few weeks

He goes on to say that the government should adopt other measures so as to reduce the burden of oil subsides. He suggests moving away from ad valorem tax on fuel, because that only adds to the coffers of the government. "The central government did have a look at it in 2008, they rationalized the excise duty by converting from ad valorem to per litre basis and that should happen for sales tax also," he said.

He believes the rationalization in taxes will help alleviate the burden on petrol users, as well as remove the imbalance in diesel and petrol taxation.

Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: Do you think the government should have hiked petrol incremental shots and not waited for six months and then presented such a large quantum of increase to the market?

A: Yes. Since petrol was deregulated quite sometime back, in the fitness of things the prices should have gone up or down in tandem with the rising international prices or lowering international prices. So it should have happened earlier, but it could not be postponed any long; in fact they have waited for too long.

Q: Do you think this is the way things will move, where the government dithers on movements and not let the market decide for many weeks and months, and then when they cannot avoid doing it any longer they will have an increase? Do you think petrol will move in this direction?

A: Yes it has gone up by 10% at a time, by Rs 7.50 at a time, so the hike is quite substantial. But the crude price is also at its highest ever, the devaluation is also at its highest ever, so there was no option. You had to increase it.

It should have been done incrementally, but maybe there were political compulsions. Now the government has done it, it should go up or down in tandem with international prices henceforth.

Q: I am not disputing that it has to be done, I am asking whether it will continue to move in this ad hoc fashion. According to you, when will it start moving depending on the market and not by when politically the government can push it through?

A: Given the political compulsions operating in the country, I do not think it will move up and down according to market forces. The government will intervene, the political parties, the state governments will ensure that the government will intervenes. That is the way it has been working so far.

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