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Sambhar Mafia - Cooked To Kill!

Tuesday, November 29, 2005

Oil Policy reforms are the need of the hour

In its continuing coverage of the Manjunath murder case, Ila Patnaik writes in The Indian Express that subsidizing kerosene is the root cause for all problems. Couldn’t agree more

The responsibility for the murder of IOC officer S. Manjunath lies with economic policy. The murder is a wake-up call for the government to change policies in the petroleum sector. The government’s decision to continue with the policy of subsidising kerosene, despite knowing fully well that kerosene is being used for widespread adulteration of diesel, is irresponsible and callous.

It is well understood that the structure of economic incentives is a far stronger force than policing. It is easy to blame the law and order situation for the murder. But the real blame lies with the petroleum price policy that created incentives for adulteration. When diesel costs Rs 35 per litre and kerosene is available in PDS shops for Rs 11 per litre, there is a very powerful incentive for petrol pump owners to adulterate diesel with kerosene. If a mafia has arisen, it is a creation of government policy. In the same way that the smuggler gangs of the 70s were the inevitable consequence of restrictions on imports, the mafia that murdered S. Manjunath is the by-product of the pricing distortions in the petroleum sector.

The policy of providing subsidy to kerosene is supposed to be about helping poor people. But for a long time, there has been ample evidence that a tiny percentage of the subsidy on kerosene reaches the poor.

2 Comments:

  • I read this article yesterday, and found the logic to be questionable.
    According to the author, adulteration will exist as long as kerosene is cheaper than diesel. This price difference is not a result of govt policy. It is only worsened by the govt subsidies. In the absence of this subsidy, adulteration would exist as long as the price differential persists.

    By Blogger eV, at 9:16 AM  

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