Fuel Subsidies in India

[nrj]

I was talking about it just yesterday. At least somebody in Elite House is making sense ! :thumb:

What kind of country is this? SUVs using 20% of subsidised diesel: Jairam Ramesh

Jairam Ramesh attacks subsidy on diesel and LPG, wants its phased out

NEW DELHI: In the midst of uproar over hike in petrol prices, Rural Development Minister Jairam Ramesh today attacked the policy of subsidising diesel, kerosene and LPG and suggested that a roadmap be chalked out for phasing it out as the needy are not benefited.

"In our country if we combine diesel, Kerosene and LPG, Rs 1,90,000 crore is the amount of subsidy given. The budget of the entire Rural Development and Drinking Water ministries in comparison is Rs 99,000 crore," Ramesh told reporters here.

"What kind of country is this? For development of rural areas Rs 99,000 crore and such heavy subsidy for diesel SUVs. For defence we spend Rs 1,00,080 crore but give much more as subsidy," he added.

Ramesh, while responding to a question on Rs 7.5 hike in petrol price, said taxes had to be imposed on sale of petrol so that development work could be carried out in the country.

"Where does the tax go? Where does the money come for NREGA? Where does the money come for Prime Minister's Gramin Sadak Yojana? It comes from tax," he said.

At the same time, he said, subsidy should only be given to those families which are poor and for whom it is important. He added that there were many in the country who were getting subsidy benefits without really needing them.

"There are many lower and middle income families which use LPG, but there are many rich, including myself who get subsidy on LPG cylinders despite not needing it. There is a subsidy of Rs 503 on every LPG cylinder," Ramesh said.

"I don't say that subsidies should be immediately scrapped. No Government is that insensitive. But a roadmap for the next two three years should be formed, because in such conditions economic development is not possible," he said.

Ramesh also said that 20 per cent of the diesel sold in the country was used for running SUVs while 40 per cent kerosene was adulterated.

What kind of country is this? SUVs using 20% of subsidised diesel: Jairam Ramesh - The Times of India

 

[nrj]

Poll added, please participate.

 

[kickok1975]

I was talking about it just yesterday. At least somebody in Elite House is making sense ! :thumb:

What kind of country is this? SUVs using 20% of subsidised diesel: Jairam Ramesh

Jairam Ramesh attacks subsidy on diesel and LPG, wants its phased out

NEW DELHI: In the midst of uproar over hike in petrol prices, Rural Development Minister Jairam Ramesh today attacked the policy of subsidising diesel, kerosene and LPG and suggested that a roadmap be chalked out for phasing it out as the needy are not benefited.

"In our country if we combine diesel, Kerosene and LPG, Rs 1,90,000 crore is the amount of subsidy given. The budget of the entire Rural Development and Drinking Water ministries in comparison is Rs 99,000 crore," Ramesh told reporters here.

"What kind of country is this? For development of rural areas Rs 99,000 crore and such heavy subsidy for diesel SUVs. For defence we spend Rs 1,00,080 crore but give much more as subsidy," he added.

Ramesh, while responding to a question on Rs 7.5 hike in petrol price, said taxes had to be imposed on sale of petrol so that development work could be carried out in the country.

"Where does the tax go? Where does the money come for NREGA? Where does the money come for Prime Minister's Gramin Sadak Yojana? It comes from tax," he said.

At the same time, he said, subsidy should only be given to those families which are poor and for whom it is important. He added that there were many in the country who were getting subsidy benefits without really needing them.

"There are many lower and middle income families which use LPG, but there are many rich, including myself who get subsidy on LPG cylinders despite not needing it. There is a subsidy of Rs 503 on every LPG cylinder," Ramesh said.

"I don't say that subsidies should be immediately scrapped. No Government is that insensitive. But a roadmap for the next two three years should be formed, because in such conditions economic development is not possible," he said.

Ramesh also said that 20 per cent of the diesel sold in the country was used for running SUVs while 40 per cent kerosene was adulterated.

What kind of country is this? SUVs using 20% of subsidised diesel: Jairam Ramesh - The Times of India

Subsidising fuel is political correct and popular thing to do for a ruling party. Who cares rural development that will take years to see the effect.

 

[nrj]

Subsiding fuel is political correct and popular thing to do for a ruling party. Who cares rural development that will take years to see the effect.

We have wasted years, rather decades. Current economic conditions can not withstand with subsidy burden that Govt has allowed to be enjoyed by citizens who clearly have earning capacity.

This is a wake up call unless Govt is determined to give up its wealth reserves for political correctness in their policy.

 

[drkrn]

actually a person who can buy a personal car should not look into cost of fuel.at least the personal cars need to be exempted from subsidized fuel..

 

[nrj]

This guy Ramesh predicted the upcoming problem in 2011 itself

Fuel subsidies are perverse: Jairam Ramesh

Warning that the problem will intensify if petrol prices are hiked without touching diesel, he said Rs 67,000 crore is the diesel subsidy which is more than the amount government spends on its flagship programmes like MNREGA and PMGSY.

Favouring a change in government policy on the issue of fuel subsidy, Ramesh, who has been a vocal critic of fuel subsidies, however, admitted that no government could implement such a policy overnight in a country where millions of farmers depend on diesel engines to pump water for their crops.

"I believe that fuel subsidies are perverse subsidies. We spend today roughly Rs 1,10,000 crores on subsidy on diesel, kerosene and LPG which is more than what we spend on rural development programmes," Ramesh told reporters on the sidelines of a function here.

"And the more you increase petrol prices without touching diesel prices, you are going to have a problem," he said.

He also said car owners and captive power generators are the two major beneficiaries of Government's subsidy on diesel.

"Diesel subsidy of course today... 15 per cent of diesel consumption is in cars and 8 per cent of diesel consumption is in captive power generation. I mean 23 per cent of diesel in going into areas where diesel should not be used and that is a direct consequence of pricing," Ramesh said.

"The use of diesel in power is a reflection of collapse of our power system and the 15 per cent share of diesel consumption in cars is a direct result of the pricing policy we have adopted," the Minister said.

Ramesh also revealed that there is a proposal to have a more "rational approach" to LPG subsidy.

"There will always be some element of subsidy in kerosene. There is a proposal now to have a more rational approach to LPG where average family uses about eight cylinders a year... four cylinders come at market price, four cylinders you will get at subsidised price. That is a very rationale solution," he said.

Fuel subsidies are perverse: Jairam Ramesh - Indian Express

 

[nrj]

India Promises $7 Billion More Fuel Subsidy

NEW DELHI – India's finance ministry has agreed to pay 385 billion rupees ($7 billion) in additional cash subsidies to state-run fuel retailers for selling fuel below cost last financial year, a senior government official said Monday, in a step that is set to further strain New Delhi's weak finances and cast doubts over its resolve to trim expenses.

The move, however, should provide Indian Oil Corp., Bharat Petroleum Corp., and Hindustan Petroleum Corp. some relief before the fuel retailers report financial results, starting this week.

The companies had demanded 498.70 billion rupees for the January-March quarter to offset their losses from selling diesel and cooking fuels at state-set prices to help the government check inflation. The finance ministry has already paid 450 billion rupees for the April-December period.

"The finance ministry has confirmed the release of [another] 385 billion rupees," the oil ministry official said.

Finance ministry officials couldn't be contacted for comments.

Fuel retailers claim their revenue loss due to the discounts increased 77% to 1.38 trillion rupees last fiscal year. On May 8, Junior Oil Minister R.P.N. Singh said in Parliament that the three companies posted a combined net loss of 150.88 billion rupees in April-December.

While the oil companies stand to gain from the payout, the decision could revive worries that the government may miss its target to cut subsidies to 2.0% of gross domestic product this fiscal year from 2.4% last year.

The subsidies – usually on food, fuels and fertilizers -- were part of the reason the government's fiscal gap widened to 5.9% of GDP last fiscal year, exceeding its 4.6% target and raising concerns about the country's fiscal health.

In April, Standard & Poor's changed India's long-term rating outlook to negative and warned a downgrade could follow if conditions didn't improve.

The central bank has also been demanding a fuel price increase to improve India's finances as well as discourage imports.

India imports more than three-quarters of the crude oil it requires. High global oil prices and a weak rupee -- the local currency fell to a record low against the U.S. dollar last week -- are pushing up the cost of oil for the country.

The government hasn't increased prices of diesel and cooking fuels since June 2011, fearing a political backlash and an outcry from the public, which is already upset about the sharp rise in prices over the past couple of years.

India Promises $7 Billion More Fuel Subsidy - WSJ.com

 

[warriorextreme]

all these years wasted when we could have used our barren lands for bio-fuel production and other alternative fuels...

 

[trackwhack]

Remove taxes. The state does not have any right to tax a resource that does not belong to them to start with. Petroleum should be sold at cost, then there is no need for subsidies. Remove both subsidies and tax = problem solved.

 

[sob]

These figures being totted out by successive Govts are all bumkus and highly fudged.

How does Mr.Ramesh come to a figure of 20% Diesel for SUVs. the biggest diesel guzzler is the Indian Railways, which accounts for almost 65% of the Diesel consumptions. Second on the list comes the Transport Trucks and other LCVs. Third would be the captive power plants ranging from 1 KW in homes to ! Mw or bigger in Industries.

Does the minister even know how many Diesel Gensets are sold in india every year. He should visit Agra, Indore and Rajkot to get a figure. Lakhs of these inefficient gensets are sold every year. In rural UP and in small town which get electricity for a couple of hours a day, these Diesel Gensets are a big boon.

Coming to the loses incurred by the OIL companies, if these were the figures why would the stocks be traded at such premium. If these were the results then how come for the Quarter ended 31st December 2011, IOC has declared a profit of Rs. 2488.84 Crores with an EPS of Rs. 10.25.
Link :http://iocl.com/download/Q3_Financial_Result_130212.pdf

Even if we assume that the oil companies are losing money, the Central and State Govt. are raking in huge revenue, which is growing by leaps and bounds every year.It is just a matter of accounting, in which dept. you want to have the profit and in which dept you want to have the loss. At the cost of the common man you cannot expect to have a bumper profit all around.

It is high time that the common citizen of India realises the truth and stop being fooled by the Govt.of the day.

 

[Bangalorean]

Jairam Ramesh is right. The need of the hour is rapid implementation of UID project, and massive computerization of the entire supply chain involved in government development works.

Hydrocarbons should be taxed in India, and the Diesel subsidy should go. People who really need subsidy (e.g. truck operators and Kerosene for poor families) should have it provided directly via UID-linked implementation mechanism.

We cannot simply whine about taking the tax away, since "anyway the government does not do anything with it". The solution is to fix the government distribution system, not simply ask for taking the tax away.

 

[Bangalorean]

Remove taxes. The state does not have any right to tax a resource that does not belong to them to start with. Petroleum should be sold at cost, then there is no need for subsidies. Remove both subsidies and tax = problem solved.

Taxes are essential for an economy to function. A similar argument can be made to abolish income tax and sales tax. The truth is that the government needs money. We are not blessed like the West Asian nations like Saudi, who get cash bubbling out of the ground 24/7, taxes are a necessary feature in any nation, India included.

And removal of subsidies and tax will not solve the problem - tomorrow, if the US invades Iran, we will see a replay of what happened during the 1991 oil crisis. Oil prices will go through the roof the moment that happens.The government will be forced to subsidize it then.

In the short term, the only option is to develop industry and infra domestically, and improve export competitiveness, and reduce imports. In the long term, the only option is alternative energy.

 

[Yusuf]

One way to tackle the diesel subsidy is as someone said with differential pricing but with a differences. Open diesel gas stations for commercial transport purpose and let the normal stations sell fuel at actual unsubsidized cost. This will reduce the instance of corruption if one station only is selling both subsidized and unsubsidized fuel. Also these commercial transport stations should not be in the city limit.

LPG as Kerosene has to be deregulated too but in stages with reduction in taxes which will be compensated from the subsidy that has been withdrawn. Status quo can be maintained.

 

[nrj]

As far as commodities like diesel goes, urgent need is to rationalize tax structure.

Every April we are told to wait till next April !

 

[trackwhack]

Taxes are essential for an economy to function. A similar argument can be made to abolish income tax and sales tax. The truth is that the government needs money. We are not blessed like the West Asian nations like Saudi, who get cash bubbling out of the ground 24/7, taxes are a necessary feature in any nation, India included.

And removal of subsidies and tax will not solve the problem - tomorrow, if the US invades Iran, we will see a replay of what happened during the 1991 oil crisis. Oil prices will go through the roof the moment that happens.The government will be forced to subsidize it then.

In the short term, the only option is to develop industry and infra domestically, and improve export competitiveness, and reduce imports. In the long term, the only option is alternative energy.

I disagree, when oil price goes up, tax as well as subsidies go up. In the end taxes and subsidies work against each other. Subsidies should not be based on a blanket system. If you want to subsidize and be a welfare state, then do it for a targeted population.

When I buy a litre of fuel, I am paying taxes on the commodity that I have already paid for to subsidize through taxes that I have paid when earning the money that I am using to buy the fuel. So why should I pay a tax on a commodity that I have already paid the government to subsidize? Just do away with both and retain the difference.

So if as of now there the net difference is 3% of fuel bill between subsidies and taxes, them remove subsidies and tax the commodity at 3% instead of the nearly 60% tax that we pay right now.

 

[nrj]

One way to tackle the diesel subsidy is as someone said with differential pricing but with a differences. Open diesel gas stations for commercial transport purpose and let the normal stations sell fuel at actual unsubsidized cost. This will reduce the instance of corruption if one station only is selling both subsidized and unsubsidized fuel. Also these commercial transport stations should not be in the city limit.

That is actually a good idea if we are pretty confident that its going to take a long time to restructure society according to their earning capacity. That means acceptance that implementation of UID/NPR is unrealistic at the moment. Commercial transport system does not need subsidy unless we are being threatened that there will be monumental increase in price of dependent commodity reaching end consumer. I am afraid many such blackmail tactics will follow in retaliation. However, it can be carried out on experimental basis.

Also the diesel use for power requirement is completely ridiculous. Energy put in monitoring such use should be rather supplemented to strengthen conventional/unconventional power generation capacity.

 

[nrj]

Diesel subsidy is way too high in India

In the name of shielding the economy from fuel price volatility, the government is exposing future generations to tougher times.

In the wake of the recent increase in petrol prices and India's looming fiscal deficit situation, it is important to understand why diesel prices should also be revised upwards.

For several decades, India has been subsidising the price of diesel. But in recent years, both the global environment and the Indian economic scene have undergone substantial changes.

Despite this, many economic policies, such as the heavy subsidy on diesel prices, have remained unaltered over the period; this needs serious reconsideration.

For instance, in the last six years, the average growth rate of crude oil prices (based on the Indian basket) has been at 13.5 per cent.

During the same period, however, the average value of diesel under-recoveries, as a percentage of fiscal deficit, stood at 14.6 per cent!

Similarly, between 2009 and 2010, when global oil prices fell by more than 21 percentage points, diesel under-recoveries as a percentage of fiscal deficit fell only by 13 percentage points.

What is wrong in subsidising diesel?

It is vital to understand that subsidies are associated with two important (negative) economic fallouts, besides many others.

WHY IT IS WRONG

First, a subsidy of any kind involves a disincentive to use the subsidised good or service efficiently as they have been obtained cheap.

Second, the government can finance a subsidy only by expanding its fiscal deficits. In the process, scarce resources are transferred from a private party (tax-payers) to the government.

It is well documented that owing to the absence of a profit motive in government spending, such resource transfers leads to decreased productivity.

ACKNOWLEDGING THE REALITY

Revision in diesel prices, no doubt, would entail temporary displeasure, and resistance from the pubic and political parties. But it would only help the country's cause to keep political interest aside, and focus on the economic benefits.

In the name of shielding the economy from fuel price volatility, the government is exposing future generations to tougher times. It is time people realise this fact.

The Government may also want to look back at the heavily resisted policy shifts in the 1990s that has created a slew of positive changes in the Indian economy.

Business Line : Industry & Economy News : Diesel subsidy is way too high in India

 

[nrj]

Courtesy: BusinessLine

 

[trackwhack]

Growth in tax and growth in subsidies are not even. Soon subsidies will overtake tax looking at the above chart. It may already have this year. Just tax the difference and provide subsidy welfare directly to BPL families through the UID scheme.

 

[The Messiah]

I am undecided on this.