Fuel Subsidies in India

Discussion in 'Economy & Infrastructure' started by nrj, May 25, 2012.

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Should Fuel Subsidies be scarpped ?

  1. Yes

    12 vote(s)
    60.0%
  2. No

    4 vote(s)
    20.0%
  3. Subsidies should be given only to BPL families

    4 vote(s)
    20.0%
  1. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

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    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
     
    Last edited: May 25, 2012
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  3. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

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    Poll added, please participate.
     
  4. kickok1975

    kickok1975 Stars and Ambassadors Stars and Ambassadors

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    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.
     
  5. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

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    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.
     
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  6. drkrn

    drkrn Senior Member Senior Member

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    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..
     
  7. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

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    This guy Ramesh predicted the upcoming problem in 2011 itself

    Fuel subsidies are perverse: Jairam Ramesh

    Fuel subsidies are perverse: Jairam Ramesh - Indian Express
     
  8. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

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    India Promises $7 Billion More Fuel Subsidy

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

    warriorextreme Senior Member Senior Member

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

    trackwhack Tihar Jail Banned

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    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.
     
  11. sob

    sob Moderator Moderator

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    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.
     
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  12. Bangalorean

    Bangalorean Stars and Ambassadors Stars and Ambassadors

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    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.
     
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  13. Bangalorean

    Bangalorean Stars and Ambassadors Stars and Ambassadors

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    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.
     
  14. Yusuf

    Yusuf GUARDIAN Administrator

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    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.
     
  15. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

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

    Every April we are told to wait till next April !
     
    Last edited: May 25, 2012
  16. trackwhack

    trackwhack Tihar Jail Banned

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    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.
     
  17. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

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    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.
     
  18. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

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    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.

    [​IMG]

    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
     
  19. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

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    [​IMG]

    [​IMG]

    [​IMG]

    Courtesy: BusinessLine
     
    Last edited: May 25, 2012
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  20. trackwhack

    trackwhack Tihar Jail Banned

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    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.
     
  21. The Messiah

    The Messiah Bow Before Me! Elite Member

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    I am undecided on this.
     

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