High-end car users too enjoy the subsidy on diesel, one of the most polluting fuels

In a few days, world leaders get together for the Rio +20 to carry forward the unfinished work of the Earth Summit which proclaimed the need to ensure sustainable development universally. Hence, the focus is once again shifting to the elusive goal of multilateralism and broad-based consensus on development without endangering environment. The United Nations (UN) spearheads this sustainable development paradigm with its three pillars—economic growth, human development and environmental protection—and seeks parallel progress. The third is the most important component particularly for emerging economies with density of population and diversity of clime like India which can ill-afford the folly of reckless energy consumption without due thought for the lasting damage it would wreak in the foreseeable future.

In order to make the task of development without a concomitant deterioration in environment pragmatically feasible, the concept of green growth or decarbonisation pattern of development has become a compulsive option not only for affluent nations but also for developing ones like ours. The case is indubitable for India where human existence is complicated by pollution of all sorts—smoke, noise and air with a lamentable lack of adequate sewerage and waste disposal mechanism even in urban areas. The UN's focus on the concept of a green economy signifies a serious bid to get over the ravaging obsession with GDP as a measure of progress and instead to plump for “equitable improvement in living standards without eroding environmental assets”.

But any tectonic shift to the green growth entails enormous upfront investment in renewable energy, efficient use of natural resources including fossil fuels and innovative technologies that are indigenously evolved. With a binding constraint on investment, both public and private and a high cost economy to hobble, marshalling massive resources for renewable energies or fostering indigenous energy technology is easier said than done. Only through conservation and saving energy by pricing it at least to recover the cost, there is hope for efficiency in energy use.

But in the crucial domain like husbanding energy resources in general and fossil fuel like hydrocarbons in particular, India's track record has been but dismal. With the country being dependent on imported crude oil for 80 per cent of its consumption, the prolonged inaction to address swelling subsidies on petrol, diesel and cooking gas (liquefied natural gas) over the past several years when global crude prices galloped is but a manifest lack of nerve and verve on the part of the ruling coalition.

Though the administered pricing mechanism (APM) was dismantled in 2002 by the erstwhile NDA government led by Mr. Vajpayee, this was seldom put into practice. Instead the oil marketing companies (OMCs) were directed to modulate prices with the government taking the tab on subsidies which shot up from Rs 2699 crore in 2006-07 to a humongous Rs 68,481 crore in 2011-12. In the meanwhile, it took another six years for the UPA that came to power in 2004 to announce formal deregulation of petrol prices in June 2010. But even after that, the OMCs effected price hike of petrol only once in November 2011, leaving diesel price untouched. This is when the nation's crude import climbed from 95.86 million tonne in 2004-05 to 172.11 million tonnes in 2011-12.

As the under-recovery of OMCs became too unbearable, the government gathered the mettle, after assembly polls to five states were over and the passage of the General Budget 2012-13, to announce the steepest hike in the price of petrol on May 22 by Rs 6.28 a litre—net of taxes translating into hike of as high as Rs 8.36 in some States. This has raised widespread protests but the government appears to be adamant in not rolling back for once.

But, the difference between the prices of petrol and diesel has widened hugely by one felt swoop on petrol price, making diesel a preferred fuel and penalising petrol-users including two-wheelers and small cars. As diesel is widely used by trucks (37 per cent), passenger cars (15 per cent), buses (12 per cent), agriculture (12 per cent), industry (10 per cent), power generation (8 per cent) and rail (6 per cent), it is time a differential pricing policy is announced for this most pollutant of fuels. There is a perverse subsidy for high-end car users powered by diesel.

Development economists rail against the government for dieselization of the economy by not only drastically pruning the subsidy on it to undeserved categories but also not addressing the perilous ecological effects which such a patently erroneous consumption pattern supervenes. As India's health budget is pathetically low, its continued buttressing of diesel subsidy with all its health hazards is but an avoidable twin tragedy.