Should petroleum subsidies go away?

Should petroleum subsidies go away?

Subsidies have stayed an integral part of the Indian System. They are a tool used to achieve economic, social and environmental objectives. The petroleum prices are subsidized to counter the international price volatility and provide affordable energy access to the citizens, especially the poor. There are many people who want subsidy policy to be assessed as they are puzzled with questions like is it really serving its cause and providing the benefits to the poorer section or is it another way to fulfill the private interest. So what is your say? Should petroleum subsidies go away?

Yes

• Subsidies whether it is food or petroleum, together form a big percentage of GDP in India. They impede with market forces resulting an imbalance in the economics of the product. And, therefore day by day India is seeing a mounting fiscal deficit.

• The OMC’s are eligible for the under-recoveries which are again paid by the government from the allocated fiscal budget.

• Apart from the cash spent in the under-recoveries government issues cash and oil bonds to the OMCs. The interest burden comes on government. Moreover, at the time of repayment, it results in a huge expenditure.

• Subsidies are responsible for the wrong utilization of selected petroleum products. It results in an increased demand of the petroleum products which had to be met through imports.

• The mounting fiscal deficit arising due to the subsidies is obstructing the major investments in oil exploration and refining industry. The industry is facing a continuous pressure to lure the private capital.

• The subsidy system is ham-fisted due to the presence of corrupt people at every level. It is manipulated by the people in their favor.

• Food, health and education are the sectors where subsidy can be considered as a requirement. But subsidizing oil is optional and not the requirement. The majority of the share is consumed by the economically well-off urban part of country.

No

• If petroleum subsidies are removed it can result in an uptick in fuel prices which, in turn, will have an impact on the budgets of all households.

• It has an indirect impact on the goods and services. Any kind of subsidies withdrawal will have a negative impact on inflation rate.

• Check out the percentage of India’s population living below the poverty line. Increase in the fuel prices and removal of subsidies is bound to affect these households adversely.

• Subsidies are considered as a part of reforms to help the poor section of society. Any attempt to reduce them can be politically hazardous.

• Try to take away the petroleum subsidies and face the public backlash. To remove the subsidies the government has to bring in the compensatory policies to protect the poor. And it is never going to be quick and easy.

• Removal of petroleum subsidies will directly open the gateways for international players to dictate the fuel prices.

Conclusion

Subsidy system is nothing but a good tool which is now in the corrupt hands of system. The idea is right but the implementation is wrong. Although many fuel subsidies help the rich more than the poor, but still there is a larger section which will be affected drastically if the petroleum subsidies are removed from the system.