Fuel economics

Market-friendly policy best bet for clean air

Today, when the Union Cabinet deliberates upon the R A Mashelkar committee’s interim report on India’s auto fuel policy, it must keep in mind that the panel has got it right. Specifying vehicle technology or fuel — in an attempt to control vehicular pollution — not only carries with it the danger of a costly technology lock-in but also amounts to taking a uni-dimensional approach to a wider problem. For, air quality is not merely a function of the type of fuel/technology used but also of fuel quality, traffic congestion, vintage of vehicles, and other factors. On the other hand, vehicular emission norms and corresponding fuel specifications, which the panel advocates, bring with them welcome flexibility. Not only do these leave industry free to innovate and utilise any technology as long as prescribed norms are adhered to, they also give the user public a vital choice of vehicle type and fuel. One need go back only to the recent CNG conversion chaos to appreciate the usefulness of this recommendation.

Moreover, this approach has been proven quite successful in the developed world. For its part, the finance ministry should put in place a fiscal regime which eliminates distorted fuel pricing. This would help in curbing pollution caused due to use of subsidised fuel adulterants.
Thankfully, the committee has pinned the onus of tackling vehicular pollution firmly upon the oil and auto sector, instead of consumers. Doubtless, customs and excise duty concessions for the oil and auto industry for technology upgradation and soft loans for modernisation projects will provide incentives to manufacturers to improve upon technology. But these sops are not enough. The biggest incentive of all is unhindered competition. The government would do well to consider further liberalisation of the auto sector, doing away with the prevailing non-tariff barriers and easing imports. By the same logic, the Cabinet must junk the protectionist recommendation that “tariff differentials be created to enable the domestic industry to compete with imports”. Most importantly, if India is to become Euro II-compliant by 2005 and Euro III-compliant by 2010, it is imperative to strengthen institutional capacity (for instance, provide for a sufficient number of modern emission testing facilities) and linkages. Finally, transport management and a pricing regime which lowers the opportunity cost attached to aging, polluting vehicles need attention too.