Given how the government is so reluctant to hike diesel prices, a solution being increasingly favoured is hiking excise duties on diesel cars to ensure the ‘rich’ who buy diesel cars and SUVs don’t get to partake in the R81,192 crore under-recoveries on this fuel in FY12, for instance. While that sounds like great politics, it will do little to cut under-recoveries, apart from the fact that with a lot more diesel cars sold than petrol ones it is not true that just the ‘rich’ are buying diesel cars. And with just 15% of all diesel consumption in the country accounted for by the car/SUV segment, it's not surprising the excise duty hike will fetch peanuts. An 8% hike in excise duties on such vehicles, for instance, will mean around R5,000 crore more for the exchequer. Apart from being a small fraction of the R81,192 crore diesel subsidy, even a one rupee hike in diesel prices will fetch more—at 65 million tonnes in FY12, this would get R6,500 crore of additional resources. And, unlike in the case of excise duties, 32.7% of this doesn’t have to be shared with the states.
While the government’s reluctance to go in for a big-bang diesel decontrol is understandable—the under-recovery on diesel is R12.53 per litre right now—given what this will mean in terms of its inflationary impact, much of the problem is due to the government’s refusal to act in time. In September 2011, for instance, the under-recovery on diesel was a lower R6.81 per litre. Which, in fact, has been the burden of the Kirit Parikh report—if the government froze the per litre subsidy on a particular date (R6.81 per litre in September 2011, for instance), just allowing regular hikes to take into account what’s happening on crude prices would be good enough. The NDA, for instance, changed prices of petroleum products 33 times, but since the hikes were regular, and small, the protest was that much more muted.