It’s every committee’s call – the only way for fuel subsidies in India is the way out; can the Indian government bite the bullet at the risk of losing voters and Parliamentary support?
In the Union Budget for 2010-11, Finance Minister Pranab Mukherjee has shown some gumption in tackling the issue of subsidies. Much to the chagrin of oil companies, the minister has reiterated his government’s support for cash subsidy to these companies as opposed to use of oil bonds. Consequent to restoration of basic duty of 5% on crude petroleum; 7.5% on diesel and petrol and 10% on other refined products, prices of fuels are back on the upward path. Predictably, opposition members protested their hearts out.
Politicians logically want to keep telling people the version of the truth that they want to hear. Most of us perhaps know, but rarely appreciate the fact that fuel subsidy is a slow killer hurting the Indian economy internally. As they lead to gigantic losses, government shares it with state-run PSUs from its budget, which otherwise could have been utilized in developmental projects. And as the subsidies grow bigger, the government continues to commit more and more funds from developmental projects towards the subsidies. The Financial Times estimated the fuel subsidy touching a huge $57.8 billion in the 2008 fiscal year. The budget allocation for public infrastructure in the last year was merely $4.43 billion (Rs. 20,450 crore). Imagine if the same subsidy amount was invested in revamping the public transport, people would automatically switch towards alternative modes of transport like trains, buses, et al, which would invariably reduce traffic jams, pollutions and accidents. More importantly, India would have achieved world class public transport system.
Globally, while developing countries keep fuel prices low for consumers, developed countries primarily give markets the freedom to decide prices. Fuel subsidy costs Malaysia around $14.74 billion a year, a third of the government expenditure. Likewise, it costs Indonesia a whopping $4.89 billion a year.
Politicians logically want to keep telling people the version of the truth that they want to hear. Most of us perhaps know, but rarely appreciate the fact that fuel subsidy is a slow killer hurting the Indian economy internally. As they lead to gigantic losses, government shares it with state-run PSUs from its budget, which otherwise could have been utilized in developmental projects. And as the subsidies grow bigger, the government continues to commit more and more funds from developmental projects towards the subsidies. The Financial Times estimated the fuel subsidy touching a huge $57.8 billion in the 2008 fiscal year. The budget allocation for public infrastructure in the last year was merely $4.43 billion (Rs. 20,450 crore). Imagine if the same subsidy amount was invested in revamping the public transport, people would automatically switch towards alternative modes of transport like trains, buses, et al, which would invariably reduce traffic jams, pollutions and accidents. More importantly, India would have achieved world class public transport system.
Globally, while developing countries keep fuel prices low for consumers, developed countries primarily give markets the freedom to decide prices. Fuel subsidy costs Malaysia around $14.74 billion a year, a third of the government expenditure. Likewise, it costs Indonesia a whopping $4.89 billion a year.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
