Sunday, March 18, 2012

Petroleum Subsidy, Cause is wrong Priority

The 61st budget presented by the Finance Minister Pranab Mukharjee and later communication by the prime minister on national television same day has given clear indication of steep hike in prices of petroleum products this year.

Is this Our Priority ?
The government has budgeted a petroleum subsidy of only Rs 43,580 crore for the next fiscal against  Rs 68,481 crore provided in the revised estimates. With crude already hovering well above the $115 a barrel average last year, the subsidy provision looks inadequate. The crude price already touched  $125 a barrel in the March.

There is  a great contradiction in the policy making and the analysts dealing with petroleum products. There is a lot of hue and  cry for the subsidy being extended to kerosene and LPG two main fuels used in Indian kitchens.  As per the government data oil marketing companies ( OMC's)  incur a loss of Rs 13.55 per litre of diesel, Rs 439 per LPG cylinder, Rs 29.97 per litre of kerosene and Rs 6 per litre of petrol. All of this totals up to a daily loss of Rs 465 crore for the OMCs.

We except these numbers as they are without dissecting the duty and tax structure on these commodities. It looks foolish to levy heavy burden of taxes and then subsidise the same.  Why can not the union and state governments be rational on the amount of taxes and get rid of subsidies automatically.Oil companies and the governments never tell us the break up of gross subsidy given product wise. This number is important as the total amount of diesel subsidy is many times higher than the subsidy on LPG.

There is no doubt that our petroleum import bill has increased considerably in last one decade.  This is not because of the prosperity but because of false priorities. If the  amount paid on subsidy to OMC was properly spent in developing the public transport system, middle and lower class of India would have been benefited most.  That would also have led to cleaner environment and less load on the parking lots.

Crude oil basket has steadily risen since January 1999 from $20 to $125 a barrel or by 6.25 times. During the same period we have gradually increased its consumption as is evident by increase in oil import bill from Rs. 27,000 crore  in FY 99 to about Rs. 600,000 crore. It’s a  massive 22 times hike eating away 7.61 % of GDP.

The question arises whether should we allow the high paced growth of luxury automobile segment? Specially the diesel cars  which takes away the diesel subsidy’s  bigger chunk. The government has never shown willingness to put a break on this segment. In 2012 year budget also, even when Automobile Industry was anticipating some deteriorating step announcements for luxury diesel cars, no such threat from FM gave them high relief.

The prices of petrol were deregulated in the year 2010, but the diesel prices are still under government control.  The price difference between Diesel and Petrol is in the range of Rs 30 to 35 per litre.  This has increased the demand of diesel vehicles many folds. With no negative measures announced by the government Hyundai and  M&M  will go ahead for expansion in this segment.

The government later will put all blame on LPG and kerosene subsidy  to levy more burden on the underprivileged sector of the society because today’s politicians remember them only once in five year. They are not bothered about their kitchen but are more concerned to have a few more powerful diesel cars in the parking lot of the farm house.

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