Petroleum Pricing Policy A Viable Alternative

Transcription

1 Petroleum Pricing Policy A Viable Alternative Dipankar Dasgupta, Tushar Kanti Chatterjee This article critically evaluates the government s pricing policy for petroleum products in India. It looks carefully at the notion of under-recoveries oil companies and attempts to compare it with their profits under an alternative pricing regime. It concludes that under the suggested pricing structure the surplus generated in the oil sector will be sufficiently large to wipe out the much advertised fiscal deficit sustained by the government on account of oil subsidies without raising the price of the essential oil products. The analysis is carried out with reference to data. The authors wish to gratefully acknowledge thought-provoking and helpful comments from an anonymous referee. Dipankar Dasgupta (d.dasgupta@gmail.com) is a former professor of economics at the Indian Statistical Institute, Kolkata and Tushar Kanti Chatterjee (tkchat@yahoo.com) is a management consultant Introduction Oil refineries, being multi-product firms in the classical sense, cannot employ a straightforward cost plus mark-up procedure for computing the prices of their final products. Different quantities of petrol, diesel, kerosene, liquefied petroleum gas (LPG), as well as other final products are simultaneously produced from a given volume of crude oil and it is not obvious what the crude input content of each product is. 1 Reading between the lines of the Rangarajan Committee and the Parikh Committee reports on oil pricing in India, it is obvious that both were clearly aware of this deep-rooted theoretical issue. The Parikh Committee s recommendation that international oil prices should ultimately guide price fixation in India may have been partly motivated by this factor, though it justified its re commendations instead with reference to the unsustainable fiscal deficit of the central government. The prices of petrol, diesel, kerosene and LPG, the four most sensitive of oil products in India, have mostly been administered by the government. Since these prices rarely sync with inter national prices, the administered prices of some of the products fall short of world market prices while those of others exceed them and, according to the government and public sector oil companies, these distortions lead to undesirable fiscal deficits. The manner in which the prices are administered, as reflected in the price build-up formulae published by Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL), raises major questions. The so-called desired Indian price of these products (except for petrol) are computed by adding to the internationally ruling cargo loading, or free on board (FOB), prices in Gulf countries (1) the import costs (viz, customs duties, ocean freight, insurance and port charges), (2) the inland freight-cumdelivery costs, and finally (3) the costs and profit margins of oil marketing companies (OMCs) run by IOC, HPCL and BPCL. The desired prices arrived at in the process turn out to be too high. Consequently, lower administered prices are fixed by the government, thereby gene rating a shortfall from the desired prices. This shortfall is described as an under-recovery for the OMCs, which is claimed to be the raison d être for oil sector subsidisation. The procedure adopted for computing the desired prices is, however, questionable since the final products so priced are mostly produced at home. The above referred costs associated with imports should therefore apply to the imported part of raw material (crude oil) and not to the final outputs produced with its help. The desired prices of petroproducts in India, therefore, tend to overvalue them. Besides, the subsidy-driven administered prices too subsequently rise through the imposition of excise duties, value-added tax (VAT), sales taxes, surcharges, etc. Subsidies are normally in order when the cost of production exceeds the price of the final product, but the idea of under-recovery does not concern itself with the cost of production issue at all. Consequently, it is important to try and understand what in fact the cost structure for the critical petroleum products is and then calculate its relationship with the revenue generation potential of a rational administered pricing scheme. Towards this end, we suggest below an elementary framework for pricing the four major petro-products. To keep the analysis as simple as possible, we ass ume further that there are no taxes on crude oil and end up with an estimate of the potential revenue surplus produced by the oil refineries and marketing corporations. The said surplus is then viewed as a possible source of tax revenue for the central and state governments. The proposals will also indicate how the subsidy burden of the central government may

2 be eliminated altogether without resorting to excessively high oil price hikes, thereby seriously questioning the wisdom behind the recently promulgated pricing policy for diesel and LPG. In order to evaluate the annual financial impact of adopting our pricing scheme, we will need actual consumption and other data (such as refinery costs, dealer commissions, etc) to arrive at estimates of costs and revenues. Since data for the financial year is not yet available, we shall apply our price formulae to the data for the year and calculate possible gains that the government and oil companies could have made in that year. Once the figures for the year are published, it will be possible to carry out the same exercise for the current year. 2 The Pricing Scheme Our primary goal is to adopt a crosssubsidised administered pricing scheme for petrol, diesel, kerosene and dome stic LPG. The suggested prices and the motivations underlying them are described below. Petrol: Petrol is largely an item of final consumption. Its price has little impact on inflation through forward linkages. Also, it is mostly consumed by the relatively affluent sections and need not be subsidised. Thus, the price of petrol is fixed higher than the average international price (viz, Rs per litre) at Rs 60 per litre, which is still below the average petrol price of Rs in India. Diesel: According to the Parikh Committee Report (Chapter 4, Figure D1), the approximate consumption pattern of diesel in India was: railways (6%), trucks (37%), buses (12%), taxis (9%), agriculture (12%), industry (10%), power generation (8%), and private cars (6%). 2 Thus, the diesel consumption by railways, trucks, buses, taxies and agriculture accounts for about 76% of the total consumption, while that by industry, power and private cars constitutes the balance of 24%. In other words, 76% of the diesel consumed is critical in nature and needs to be subsidised. With this consideration in mind, we suggest a diesel price for critical use to be Rs 35 per litre. For the remaining 24% of diesel use, the price is chosen to be Rs 60 per litre, which matches the suggested price for petrol. (The Parikh Committee Report was submitted in February Consequently, the consumption pattern assumed here may have changed. In particular, it is almost certain that diesel use for privately-owned cars has shot up.) 3 A differential pricing formula for diesel may be implemented through the much discussed direct cash transfer procedure. Every truck, taxi, bus and tractor should have a unique number assig ned through radio frequency identification (RFID) chips of the sort assigned to current models of vehicles. The petrol pumps will scan the unique number for generating retail shop bills and sell diesel at the same price of Rs 60 per litre to all consumers. However, the drivers/owners of transport vehicles and tractors will receive a subsidy of Rs (60-35) = Rs 25 per litre per month against the deposit of original bills to designated authorities. Similarly, farmers may be allowed to use a maximum of 15 litres of diesel for each bigha watered by diesel pumps and receive a subsidy of Rs (60-35) = Rs 25 per litre per bigha. Kerosene: Estimates suggest that 35% or more of public distribution system (PDS) kerosene is diverted to take advantage of higher market prices. A single price in the market must therefore prevail as in the case of diesel. We suggest this price to be Rs 40 per litre. The subsidised price of PDS kerosene will be Rs per litre for 65% of total kerosene consumption. As with diesel, ration shops could sell it at a uniform price of Rs 40 per litre. The ration/bpl cardholders would need to open bank accounts in nationalised banks. Under PERSPECTIVES this arrangement, they would receive bank transfers of Rs ( ) = Rs per litre of kerosene purchased every month. In the absence of branches within a 3 km radius, the panchayat may be assigned the responsibility of distributing cash subsidy to the villagers and submit accounts to the concerned auth ority. This should reduce some, though not all, malpractice and lower PDS kerosene purchase to one-third of the observed levels. 3 LPG: The Parikh Committee observes that rural households use six to nine cylinders per year (since they also use wood as an alternate fuel), whereas urban and semiurban households use nine to 20 cylinders per year, with lower income groups using PDS kerosene as substitute fuel for cooking. There is a clear need to restrict the availability of subsidised LPG to households. However, the Parikh Committee figures suggest that average urban households consume around 14 cylinders annually, whereas many rural households consume nine cylinders per year. The supply of subsidised domestic LPG could therefore be rationed to one cylinder per month (i e, 30 days) for each household (instead of the six cylinders per year norm proposed by the government recently). We assume further that around 10% of the population will consume more than one cylinder per month (30 days). The unsubsidised domestic LPG could be priced at Rs 800 per cylinder (operative for a second cylinder purchased within 30 days of the last purchase). The subsidised price is fixed at Rs 400 per cylinder. Also, as decided by the government recently, a common database of subscribers would locate families with multiple LPG connections and their extra connections will then be locked. Table 1: Alternative Prices and Revenue ( ) Essential Petro-Products Unit Average Proposed Cross Litres of Petrol, Diesel, Total Revenue International Subsidised Kerosene and Cylinders Generated from Price at Arab Gulf Rationing of LPG Consumption New Pricing ( ) Pricing Scheme ( ) Scheme (Rs Crore) Unsubsidised petrol (100%) Rs/litre ,83,15,96,499 1,24,990 Subsidised diesel (76%) Rs/litre ,13,94,18,269 2,06,988 Unsubsidised diesel (24%) Rs/litre ,67,56,05,769 1,12,054 Subsidised kerosene (65%) Rs/litre ,54,54,99,602 8,967 Unsubsidised kerosene (35%) Rs/litre ,52,44,99,786 14,098 Subsidised LPG (90%) Rs/cylinder ,46,42,958 38,986 Unsubsidised LPG (10%) Rs/cylinder ,82,93,662 8,663 Total revenue (Rs crore) 5,14,746 Source for consumption pattern: Petroleum Planning and Analysis Cell. Economic & Political Weekly EPW NOVEMBER 17, 2012 vol xlvii no 46 47

3 The consumption pattern of these four essential petroleum products for the year , their actual internationally prevailing prices, the suggested rationed prices and the total revenue the latter would generate assuming unchanged consumption rates are presented in Table 1 (p 47). As Table 1 shows, the total revenue that the four essential products would generate in under the suggested price scheme and unchanged consumption equals Rs 5,14,746 crore. 3 Costs The total crude oil cost of production of petrol, diesel, kerosene and LPG needs to be calculated prior to other costs of production. The total crude oil consumed by Indian refineries in was million tonnes (mt). This broke up into mt of imported crude and mt of domestically extracted crude oil. The total production of petro-products by Indian refineries was mt. Around 50.66% of this total output, or mt, consisted of petrol, diesel, kerosene and LPG for Indian consumption. Technology suggests that the same percentage of the total (imported plus domestically produced) Indian mix of crude, or mt (or 77,88,42,358 barrels), was needed to produce the petrol, diesel, kerosene and LPG for Indian consumption. The aggregate quantity of domestic crude produced (38.01 mt) turns out to be 35.78% of the above calculated total crude need. This leaves a balance of mt minus mt = mt of imports to bridge the shortfall of crude required for the four essential products. The latter equals 66.22% of the total Indian mix of crude used up. The calculations are captured by Table 2. Thus, the average price of a barrel of the Indian mix of crude should be calculated by attaching a weight of 64.22% to the import price and 35.78% to the indigenous price. This calculation is presented in Table 3. Given that the quantity of the Indian mix of crude used to satisfy the domestic need for the four products was mt or 77,88,42,358 barrels, the nominal value of this crude, using the price 48 computed in Table 3, was Rs 3,91,101 crore. The balance amount of imported crude, i e ( ) mt = mt was used to produce items other than the four major products for domestic consum ption considered so far. These consisted of naphtha, aviation turbine fuel, light diesel oil, lubes, furnace oil, low sulphur heavy stock, bitumen, asphalt, and other exported petro-products. 4 Surplus Generated by Suggested Pricing Scheme Under the adopted pricing scheme, the gross surplus realised from producing the four essential products is then Rs 5,14,746 crore Rs 3,91,101 crore = Rs 1,23,645 crore. This gross surplus would need to cover refinery expenses and margins, dealer commissions, VAT as well as central taxes. As per the information available from the websites of the oil companies, these figures for were as follows: Refinery Expenses: The total expenses of the refineries were Rs 48,520 crore. (These included power and fuel cost, employee cost, other manufacturing ex pen ses, selling and administrative expen ses and miscellaneous expenses.) Their interest and depreciation charges amounted to Rs 11,369 crore. Assuming as before that 50.66% of the expenditure was incur red in producing the four sensitive products, their total production cost amounted to Rs 30,340 crore (approx). Refinery Margin: The total margin of all three refineries was Rs 6,177 crore. Once again, applying the 50.66% argument, the profit derived from the four products should have been Rs 3,129 crore (approx). Dealer Margin: Based on dealers margin for the four products prevailing in the very recent past, the total margin turns out to be Rs 14,141 crore. VAT: In lieu of VAT, we suggest a consumption-based tax structure for unsubsidised petrol, diesel and LPG. More precisely, we propose a cess of Rs 10 per litre of petrol consumed, Rs 10 per litre for unsubsidised diesel consumed and Rs 50 per cylinder of unsubsidised LPG. The motivation underlying the suggested tax structure is to leave the prices of the products unaffected and uniform across the country. As opposed to this, taxes (such as VAT) charged as a percentage of the price paid will raise prices above the norms we have adopted. Using the consumption figures in Table 1 then, the total revenue generated by the cess will be Rs 40,049 crore. After taking account of these three deductions from the gross surplus of Rs 1,23,645 crore, we are left with a net saving of Rs 35,986 crore (Table 4, p 49). This sum is available in its entirety to the central government. Since our approach is based on cross-subsidisation of products alone, the central government s subsidy outgo on oil account is not a part of the calculation. This means that the Table 2: Estimated Break-up of Crude Oil Used for Domestic Consumption Break-up of Crude Oil and Petro Output ( ) Quantity (a) Total crude used by Indian refineries mt (b) Total crude imported by Indian refineries mt (c) Total indigenous crude production mt (d) Total output of petro-products mt (e) Petrol, diesel, kerosene, LPG for domestic consumption = approx 50.66% of total output mt (f) Total crude required for production of petrol, mt or crude, diesel, LPG for domestic consumption, 77,88,42,358 barrels assuming 50.66% of total crude in (a) is (1 metric tonne = required for the purpose 7.33 barrels) (g) Imported crude for producing domestic petrol, minus diesel, kerosene, LPG, etc, (f) minus (c) mt = mt (h) Imported crude (g) as per cent of (f) 64.22% (i) Percentage of domestic crude required for producing domestic petrol, diesel, kerosene, LPG, etc, (c) expressed as per cent of (f) 35.78% Source for production and consumption pattern: Petroleum Planning and Analysis Cell. Table 3: Average Price of Crude Oil Used to Meet Domestic Consumption Year ( ) Unit Cost (a) Average FOB Arab Gulf $/barrel (b) Ocean freight, insurance and port charges 2.5% of FOB $/barrel 2.80 (c) Landed price of imported crude at refinery gate $/barrel (d) Landed price of Indian crude at refinery gate $/barrel (e) Average Re/$ exchange rate Rs /$ Average Indian mix of crude price used to produce the four essential petro-products for domestic consumption 64.22% of (c) plus and 35.78% of (d) Rs/barrel 5,022

4 central government is relieved of its subsidy burden of Rs 1,41,802 crore for (refer Table 8, p 50), arising out of the so-called under-recoveries. In addition, it will earn an extra revenue of Rs 35,986 crore from the petroleum sector. This means that instead of sustaining a fiscal loss, the government could have actually Table 4: Estimate of Surpluses in Alternative Pricing Regime ( ) Sl No Item Unit Amount/Value ( ) 1 Crude consumed in production of four petro-products for domestic consumption Barrel 77,88,42,358 2 Unit cost of mix crude at refinery gate (ref Table 1) Rs/barrel 5,022 3 Total value of crude used in producing the four petro-products for domestic consumption Rs crore 3,91,101 4 Total revenue generated from selling the four products (ref Table 2) Rs crore 5,14,746 5 Gross surplus available from selling four products (4-3) Rs crore 1,23,645 Less: 6 Three PSU refineries expenses and profit (50.66% of total values) (a) Expenses Rs crore 24,580 (b) Interest and depreciation Rs crore 5,759 (c) Profit given to refineries Rs crore 3,129 Total receivables of refineries (a + b + c) 33,469 7 Dealer Commission (for all four products at prevailing rates) Rs crore 14,141 8 Total VAT distributed to all states Rs crore 40,049 (Petrol and 24% diesel Rs 10/litre; 10% LPG Rs 50/cylinder) 9 Net surplus (could be viewed as central taxes) ( ) Rs crore 35,986 Table 5: Current Trade Account for Finished Products, Including Unit Import and Export Prices Import Export Net Export Import Export Net Export Import Export Import Export FOB Arab (Average) (MT) (MT) (MT) (Rs crore) (Rs crore) (Rs crore) (Rs/MT) (Rs/MT) (Rs/Litre/ (Rs/Litre/ Gulf (Rs/ Rs/ Rs/ Litre/ Rs/ Cylinder) Cylinder) Cylinder) LPG 50,84,000 1,74,000-49,10,000 22, ,903 44,945 54, Petrol 6,54,000 1,45,24,000 1,38,70,000 3,311 73,982 70,671 50,627 50, Diesel 10,51,000 2,04,07,000 19,56,000 4,935 1,04,572 99,637 46,955 51, Kerosene 5,64,000 34,000-5,30,000 2, ,519 48,050 56, Total 73,53,000 3,51,39,000 2,77,86,000 33,806 1,79,692 1,45,886 In all the cases reported in Table 5, export prices were higher than FOB Arab Gulf prices. Table 6: Adjustment of Inland Freight and Delivery Charges, Marketing Cost and Margin to OMCs Element Petrol Diesel Kerosene Domestic LPG (Rs/Litre) (Rs/Litre) (Rs/Litre) (Rs/Cylinder) 1 Premium recovered for BS-IV grade Inland freight, delivery charges, etc Marketing cost of OMCs Marketing margin of OMCs Total impact ( ) Production ( ), litre/cylinder 20,83,15,96,499 77,81,50,24,038 10,06,99,99,388 1,08,29,36,620 7 Value in Rs crore 0 17,820 1,561 6,337 8 Total value in Rs crore 25,718 Rs 25,718 crore then is actually a profit item for the PSU Refineries, since the costs in Table 6 are already reflected in the marketing and miscellaneous expenses of refineries. PERSPECTIVES gained a sum of Rs (35, ,41,802) crore = Rs 1,77,788 crore, reducing significantly thereby its fiscal deficit. The above cost calculations have been presented in a tabular form in Table 4. 5 Other Surpluses Besides item 6(c) in Table 4, the oil companies have been earning surpluses from other sources too. These earnings are captured below. (1) Profits from selling products (other than the four considered in the pricing scheme) at market-driven prices to domestic market. (2) Profits from exports of products listed under 1. (3) Reasonable profits arising out of net exports of Rs 1,45,886 crore of the four products, given that their export prices were higher than FOB Arab Gulf prices (Table 5). Thus, the aggregate of 6(c) through 10 in Table 4 provide a minimum bound at best for the profits of the oil companies, dealer commissions and union government tax realisations. Quite apart from the surplus computed in Table 4 then, the sums captured by the last three items will also be available for financing the investment programmes of the oil companies. On the other hand, under our suggested pricing scheme, some of the existing sources of unjustified extra revenues will be eliminated and help to reduce prices charged. These are listed below: (1) Earning of Rs 25,718 crore from adjustments of inland freight, delivery charges, bottling charges, marketing cost and margin on diesel, kerosene and LPG for OMCs, due to which the under-recovery value was proportionately increased (Table 6). Table 7: Earnings Generated through Ocean Freight and Import Charges Item Crude Petrol Diesel Kerosene LPG FOB Price in Arab Gulf $/bbl $/bbl $/bbl $/bbl $/MT Average FOB price in Ocean freight from Arab Gulf to Indian ports CIF price ($) Rs/bbl Rs/litre Rs/litre Rs/litre Rs/cylinder CIF price (as published by refineries) Import charges (insurance/ocean loss/lc charge/port dues) Consumption in ( ), barrels, litre/cylinder 50,01,99,200 20,83,15,96,499 77,81,50,24,038 10,06,99,99,388 1,08,29,36,620 Import cost (Rs crore) A B C D E Ocean freight 4, , , , Import charges 1, , , Total (Rs crore) 6, , , , , Earning from ocean freight and port charges (Rs crore) (B+C+D+E-A) 9, The PSU Refineries earned an extra Rs 9, crore on account of valuing the four products at import parity prices to derive a desired price figure. Economic & Political Weekly EPW NOVEMBER 17, 2012 vol xlvii no 46 49

5 (2) Net earnings of Rs 9, crore from ocean freight and port charges due to which the under-recovery component was further increased (Table 7, p 49). (3) In addition, their earnings included a subsidy (Rs 3,261 crore) and underrecovery (Rs 1,38,541 crore) generated income, since these are not adjusted against any debts (Table 8). The analysis indicates then that there is ample scope for generating surplus revenue through a suitable cross-subsidisation scheme. It is doubtful therefore that the only way of reducing the government s fiscal deficit is through the recently adopted policy of removal of subsidies for the underprivileged masses. The matter calls for serious debate amongst policymakers, technologists and economists. Avoiding such discussions can only increase the currently raging confusion surrounding the public s understanding of problems afflicting the oil sector, add to inflation and reduce our growth rate. 6 Conclusions As far as cost-saving policies are concerned, it is important to note that a merger of the three PSU refineries will lead to a minimum extra saving of Rs 10,000 crore by cutting down on excess manpower, particularly at the executive level (to wit, IOC maintains a highly uncompetitive executive to workmen ratio of 1:1.35), as well as operating, capital and overhead expenditures. We expect another 5-10% reduction in prices of the four products through this channel. Further, a merger of the refineries with the marketing companies will reduce costs even further. The analysis presented is not entirely foolproof, of course. First, it is based on a number of assumptions regarding the relationship between total costs and revenues. More research is required to verify these relationships and assumptions. Also, the exercise needs to be repeated as more data is available for the current financial year. The surplus figures could change in the process, calling thereby for finetuning of prices. To protect the poor, such price changes should be acco mmodated through upward revisions in the price of petrol, unsubsidised diesel (24%) and unsubsidised LPG (10%) as far as possible. Every 15 days these values should be Table 8: Under-Recoveries and Subsidies Product Consumption ( ) Total Under-Recovery Unit Subsidy Total Subsidy Total Under-Recovery and Subsidy Litre/Cylinder (Rs/Crore) Rs/Litre Rs/Cylinder (Rs/Crore) (Rs/Crore) Petrol 20,83,15,96, Diesel 77,81,50,24,038 81, ,192 PDS kerosene 10,06,99,99,388 27, ,168 Domestic LPG 1,08,29,36,620 29, ,445 32,442 Total 1,38, ,261 1,41,802 Under-recovery plus subsidies added up to Rs 1,41,802 crore of extra earnings. This sum is being saved now and a part of it could be used to support the oil companies investment programmes, including oil exploration. monitored and the price of petrol, unsubsidised diesel and LPG ought to be adjusted. In other words, the prices suggested should not be treated as rigid. Depending on the frequently chan ging international scenario, our own prices will have to change too. However, as we have indicated, our own price adjustments do not call for the sort of anti-common man policy the government has adopted. Second, while we have changed the prices to compute the gains, we assumed that the consumption of the products remained unchanged. According to the law of demand, consumption should have been affected by prices and, to that extent, our revenue figures might need to be reconsidered. We do not expect a major change in the figures derived however, since their demands are expected to be price inelastic in nature. Third, our rationing scheme depends on the success of the direct cash subsidy proposals. So far, the rate of success of these cash transfer schemes is not clear. But the central government appears to be firmly committed to introduce cash transfer schemes as early as possible. Consequently, our cash subsidy pro posals may not be totally unpractical in nature. Finally, our choice of the differential between diesel and kerosene prices appears somewhat large and need not be able to prevent malpractices surrounding contamination of the fuels. This problem exists for the actual price scheme ruling currently in the currently. A great deal of work then remains to be done, but our approach clearly points out that the government had not looked into enough alternatives before announ cing the latest policies. The least one should expect is a white paper from the government clarifying the details of the cost of production for petro-products in India. Notes 1 In an unpublished paper, Chatterjee (2012) has suggested a way of resolving the problem by adopting an energy balance approach surrounding the refineries distillation columns and arriving at the cost of production of individual products after deducting selling prices of all other products and by-products. The paper is available from the author on request. 2 The break-up of 15% of total diesel consumption by passenger cars into 9% by taxis and SUVs and 6% by private cars is based on discussions with Automobile Associations. However, others have estimated the private car share to be larger, given the manner in which their demand is rising. 3 One might argue for a different price structure for diesel use, involving say a subsidised price for industry and the power sector. This can be easily accommodated in our framework. Its only impact will be a reduction in the final surplus generated. However, once we enter into this detail, it might be necessary to differentiate between luxury production in industry and power consumption by affluent consumers. 4 Implementation of the direct cash transfer schemes involves easily understandable problems. Pilot projects suggest a degree of success in certain areas. An important obstacle lies in the inadequate availability of banking services. This is an area that the nationalised banks need to concentrate on and the mindless privatisation drive of the present government will not help. Also, cash in the hands of the subsidised group is important to consider. For, example, purchasing diesel or kerosene by paying higher than the subsidised price may involve teething problems. Once the process is regularised though, the cash requirement can be met from cash transfers received earlier. It is best to recognise that some of these problems will need time to overcome. It is not clear either if alternative procedures can be designed to address the corruption problem. In the case of diesel, the government has been speaking of alternative pricing schemes too, such as the imposition of Rs 1.70 lakh additional duty on small diesel cars and Rs 2.55 lakh on medium and large cars. It is not clear what impact such policies will have on the demand and production of diesel cars. Besides, even if it could be a way of avoiding the direct cash subsidy pro blem for diesel, kerosene will still need to be tackled. References Bharat Petroleum Corporation Ltd (viewed on 11 October 2012): Chatterjee, Tushar K (2012): Proposal for Rationalising Petroleum Product Pricing Together with a Subsidies Abolition Strategy (unpublished manuscript). Hindustan Petroleum Corporation Ltd (viewed on 11 October 2012): Indian Oil Corporation (viewed on 11 October 2012): Petroleum Planning & Analysis Cell, New Delhi (viewed on 11 October 2012): Report of the Rangarajan Committee on Pricing and Taxation of Petroleum Products, February 2006, Government of India. Report of Expert Group on a Viable and Sustainable System of Pricing of Petroleum Products, February 2010, Government of India. 50