How To Solve The Great Indian Petroleum Subsidy Puzzle

Indians on an average consume around 7.25 million MT of kerosene, 12.88 million MT of LPG, 15 million MT of petrol and 72 million MT of diesel per year. In 2011-12  nearly 76%  petroleum products were imported.

The subsidy provided by the government is Rs 32 per litre on kerosene, Rs 13 per litre of diesel and Rs 503 per LPG cylinder.(Figurs can vary slightly but not significantly).It is estimated that ,at prevailing prices, the oil companies are loosing a whooping Rs 512 crore per day, due to under recoveries on sales of kerosene, diesel and LPG.This shortfall is made up

by the central government.

In 2011-12, the total subsidy on these products was Rs1,38,541 crore.Of this the government provided Rs 83,000 crore from its budget and balance Rs 55,000 crore was provided by govt.owned companies like ONGC,GAIL and Oil India. In the fiscal 2012-13, the govt. has estimated the total subsidy to rise to Rs 1,90,000 crore. It has provided for a budgetory subsidy of only Rs 43,580 crore and the balance will have to be provided by itself and the three oil companies, as usual.

Last year govt. picked up the subsidy bill to the tune of 70% and if it does so this year also it will have to plan for an additional Rs 70,000 crore, which it can only do by borrowing from the markets.Thus it is likely to end subsidising to the tune of Rs 1,13,000 crore in 2012-13, nearly Rs 30,000 crore more than 2011-12.

The subsidised kerosene is reportedly selling at a price less than it sells even in oil rich S Arabia. With the result, it is smuggled to neighbouring countries and used for adultrration of other oil products and auto ricksaws are run on it. The artificially cheap diesel is reported to be selling cheaper than furnace oil and thus is used for burning purposes. Its significantly lower price has resulted in customers switching over to diesel vehicles and thus increasing diesel demand and also increasing the atmospheric pollution, because diesel pollutes more than petrol. Incidentally diesel

constitutes 40% of India's petroleum products consumption.The subsidy provided on LPG is almost laughable. It is estimated that around 85% of LPG users can afford to pay the actual price of LPG cylinder and do not need to be subsidised. 

Then why is the government, hell bent on providing subsidies, when they do not reach the poor, in the volumes they are projected. Why is the govt., year after year, keen on increasing both its fiscal  and trade deficits, leading to high interest rates and increased depreciation of the rupee vs  dollar, both of which create a need for more subsidies to be provided. 

Why do the politicians think ,that the people of this country, are so poor and needy that they need to be subsidised. After all,the amounts of these subsidies are collected from the very population to whom the subsidies are sought to be provided. Is'nt it the great subsidy paradox, which the govt finds itself now unable to solve, because it fears loosing power.Is'nt this a case of  indirect bribingof  the voters for their support. Does the ruling party think, that with these half hearted measures, the voters will vote them back to power. Perhaps the voters have already made up their minds  right when the Rs 1,76,000 crore scam broke. 

The least the govt. can do is to remove subsidy from LPG, raise the price of diesel in two or three steps to say a few rupees higher than petrol, to reflect its true price and gradually reduce subsidy on kerosene . The subsidy amount can be given as relief to the consumers in form of lower taxes and duties, thus putting more money in their hands, to enable them, to pay for the now rightly priced, kersene,LPG and diesel.It will work wonders for the economy.Will it ever happen?






Article Written By vks1000

Am a retired professional who is now into education of International Business and management topics. I enjoy writing and like reading on politics,economics,management and films. I take life as it comes and try to keep myself busy with a variety of activities.

Last updated on 12-05-2016 291 0

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