Subsidy on Crude (Economic Times perspective)

Just one day after I wrote my blog...economists time point of view seem to be gelling with mine... Go Subsidy Go ! ! !

With international crude prices crossing $135/barrel and the indian crude basket following closely at $125/barrel, the under-recovery or the subsidy on petroleum products is likely to touch Rs 180,000 crore in 2008-09. At a consumption poverty level of 27.5%, this amount is sufficient to provide every person below the poverty line an annual income support of about Rs 6,000.
More relevant from a long-term perspective, a single year’s subsidy on petroleum products can cover the entire funds requirement of the rural roads (Rs 43,200 crore) component of the government’s ambitious Bharat Nirman, meet the Rs 65,000 crore needed for the electrification of 125,000 unelectrified villages under the Rajiv Gandhi Gramin Vidyutikaran Yojana, and still leave enough to bring about eight million additional hectares under irrigation. Needless to say, all these investments would directly or indirectly benefit the relatively deprived sections in India, namely the rural masses. In contrast, look at the beneficiaries of the subsidy. The subsidy on petrol, about 10% of the total, goes mostly to car and two-wheeler owners, together about 30% of all households. The relatively poor 70% households have no stake in petrol subsidy. Nearly 40% of the subsidy on cooking gas, according to a TERI paper, goes to the top 6.75% of the population. As for kerosene, 40% of it goes into adulteration, benefiting relatively better-off dealers. Diesel, which accounts for the bulk of under-recoveries, could be benefiting the relatively deprived only inasmuch as it is used in public transport. But a large portion of it is likely going into captive power generation or private transport, again the undeserving. This is the state of affairs even as the government does not tire of talking about the poor; when it survives on the support of the Left, which again claims to represent the deprived. The government has frittered away in just about a year the fiscal health built over many years. It is leaving a huge burden for coming governments in the form of off-budget liabilities such as fertiliser and oil bonds. And in its desperate fight against inflation it has reversed the clock on many reforms. The least it can do now is to stop pampering the relatively better-off and raise petroleum product prices, at least that of petrol and LPG.