It’s every committee’s call – the only way for fuel subsidies in India is the way out; can the Indian government bite the bullet at the risk of losing voters and Parliamentary support?
The Egyptian government paid fuel subsidy worth a staggering $11.21 billion in 2007. And subsidy is causing a damage of around $19 billion every year to the Mexican government.
Although justified in part, subsidies are self defeating in India for many reasons. The large-scale misuse of fuel subsidies on petroleum products amounting to over Rs.1.03 trillion as per the Parikh committee is too big for the country to bear. Moreover, highly subsidized LPG is illegally exploited in non-domestic use (running cars) by the affluent class. A whopping Rs.52,000 crore subsidy on diesel in 2008-09 only helps the luxury car owners, cinema halls, shopping malls, luxury hospitals and telecom towers. Similarly, over Rs.5,200 crore subsidy on petrol every year is only helping the top bracket. With respect to kerosene and LPG, holes in the system need to be plugged. A scrutiny reveals that while the current market price of kerosene should be at Rs 26.37 a litre, it is sold at around Rs.9 a litre (cheaper than mineral water). This has led to a fuel mafia and replaced diesel with kerosene, which not only reduces the efficiency of engines but also creates heavy pollution. A NCAER study revealed that 40-50% kerosene sold under PDS is diverted and sold in the black market and the poor people buy kerosene at over Rs.22. It further causes smuggling of kerosene to Bangladesh and Nepal. This hurts public sector oil companies too, who had to bear over Rs.30,000 crore as burden for 2009.
In spite of the repeated recommendations made by the all three Committees including the Kirith Parikh, C.Rangarajan and Chaturvedi, the government is still reluctant to go the whole hog. Even if kerosene and LPG subsidies are retained (due to BPL concerns), diesel and petrol should be left free for the markets. If the communist China can hike fuel price by five times in 2009, it’s high time India does too. The current budget has taken some steps. One more please!
Although justified in part, subsidies are self defeating in India for many reasons. The large-scale misuse of fuel subsidies on petroleum products amounting to over Rs.1.03 trillion as per the Parikh committee is too big for the country to bear. Moreover, highly subsidized LPG is illegally exploited in non-domestic use (running cars) by the affluent class. A whopping Rs.52,000 crore subsidy on diesel in 2008-09 only helps the luxury car owners, cinema halls, shopping malls, luxury hospitals and telecom towers. Similarly, over Rs.5,200 crore subsidy on petrol every year is only helping the top bracket. With respect to kerosene and LPG, holes in the system need to be plugged. A scrutiny reveals that while the current market price of kerosene should be at Rs 26.37 a litre, it is sold at around Rs.9 a litre (cheaper than mineral water). This has led to a fuel mafia and replaced diesel with kerosene, which not only reduces the efficiency of engines but also creates heavy pollution. A NCAER study revealed that 40-50% kerosene sold under PDS is diverted and sold in the black market and the poor people buy kerosene at over Rs.22. It further causes smuggling of kerosene to Bangladesh and Nepal. This hurts public sector oil companies too, who had to bear over Rs.30,000 crore as burden for 2009.
In spite of the repeated recommendations made by the all three Committees including the Kirith Parikh, C.Rangarajan and Chaturvedi, the government is still reluctant to go the whole hog. Even if kerosene and LPG subsidies are retained (due to BPL concerns), diesel and petrol should be left free for the markets. If the communist China can hike fuel price by five times in 2009, it’s high time India does too. The current budget has taken some steps. One more please!
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
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IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
