Sensible or Stupid?

(Originally written for and published in “LeTra”, my Office Magazine)

A much debated topic in the economic policy think tanks is about the pros and cons of subsidies given to Diesel prices. One of the strongest opposition in increasing Diesel prices (de subsidizing) is that many commercial vehicles like auto rickshaws , taxis, buses and lorries use diesel as the fuel and increasing the diesel price will lead to inflation as all these vehicles run in service sector catering the needs of common man. The “problem” is that there are equal numbers of cars (or even more!) which run on diesel and owned by people who can afford any price tag for diesel. Our govt. is losing a substantial amount of money by giving subsidized diesel to car owners, which if recovered can be used for various transportation related developmental projects(like modernization of roads, development of footpaths/FOB across major cities so on).
An acceptable but still debated “solution to this problem” is implementing dual pricing for diesel. The vehicles which run in service sectors should get the diesel at the subsidized price but the car owners need to pay the full price. However the “problem with this solution” is that there aren’t any feasible ways by which we can carry out dual pricing. The petroleum companies say it’s not practical to have 2 pricing systems for diesel at the petrol bunks.

How about a “diesel tax” calculated by total distance traveled (and thus total diesel used) by the car??? The govt. was planning to carry out a special one-time diesel tax for cars (up to 2.5 lakhs!) a few years back, but the idea never took off. I also feel imposing such a huge amount on the customer will have a negative psychological effect on the customers towards the govt. Wouldn’t it be better to extract the same amount (in fact even more) at a controlled rate from diesel car owners thus recovering the subsidies? You pay for what you use; one of the best (and practical) ways to find the diesel usage by a car is to calculate the total distance traveled by the car, divide it by the “car company guaranteed mileage”. Now, every 3 or 6 months’ remit a diesel tax towards the govt. By multiplying the diesel used by a car with the subsidy amount, we can calculate the diesel tax.

For the mathematically minded,

Say you buy a new BMW-X3 with an avg. mileage of 12km/litre.

In 6 months say you drive 12000 km and thus the diesel you used will be around 1000 liters. You were paying 60Rs/liter for the diesel and the unsubsidized price is 80, which means you were enjoying a subsidy amount of 20 rupees per litre. Hence you will have to pay 20,000 rupees as diesel tax for the 6 months period. (Note that numbers used are just examples, not the correct price/mileage)

Just like the MVD checks Driver’s license, Vehicle registration, Pollution certificate and all, they should also start checking for diesel tax receipts. In this age of technology, where synchronization of data is a cake walk, it will be very easy to electronically categorize vehicles which have paid or not paid and take necessary actions. For instance by cross checking number plate we can figure out whether a vehicle has paid the tax or not, and this can be even achieved automatically using speed sensor cameras on the roads.

There will always be problems associated with any method and the same goes here. People can tamper with the odometer and reset the distance traveled. But I wonder how many “elite class” people will go to that extent to save money (BTW I am not implying anyone with a diesel car is an elite class or the other way!). Preventive measures can be taken to stop such actions (like recording the odometer readings at the test center so on). There will always be opposition for such “diesel taxes” but if the money goes back to the public as developmental projects then I firmly believe sooner or later our community will come to terms with such weird taxes (I always wonder why there is no “pollution tax” on Crackers [and for bikes without silencers!])

What is your take on this? A stupid idea or a sensible one? Or do you know whether such methods were discussed and discarded? Or is this implemented in any other country? What problems do you see? (Was lazy to do much more background research on this!!!!)

Do share your opinion and criticisms in the comments section!

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2 thoughts on “Sensible or Stupid?

  1. Its a good idea; but as the example was quoted… may be a small number of people (BMW’s and upright guys only) may follow. There is a thing called “jugaad” (in hindi), meaning cutting corners; people will find some mean to beat this system and procure diesel from the other sources who are enjoying the subsidy. Can you believe that a huge number of people are hooking up domestic LPG cylinders in their 4-wheeler.

    1. Yes. That’s the sad part. Irrespective of any good regulations by the govt, people will try to get over it by some way or another, and mostly it turns out to be illegal ways.

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