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Fuel Subsidies, Road user fee - Common sense prevails, At Last

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Some positive developments - long overdue, though not very comforting for the car-dependent public in bangalore. Following are excerpts from an on-line headline news portal :

A) Planning Commission Deputy Chairman Montek Singh Ahluwalia on Wednesday said the government should end the oil subsidy to offset the additional subsidy burden arising out of the new Food Security Bill.

"We have supported the Food Security Bill which will involve an extra cost of about Rs 21,000 crore annually. I think there are many wasteful expenditures. At the Planning Commission, our view is that it is not the food subsidy that should be reduced, but the petroleum subsidy which is dysfunctional and distorted, that could be reduced," Ahluwalia told reporters in Mumbai.

On Sunday, the government cleared a new Food Security Bill that seeks to provide highly subsidised food to as much as 62.5% of the population, entailing an additional cash outgo of Rs 27,663 crore taking the overall food subsidy bill to nearly Rs 95,000 crore.

Similar sentiments have been echoed by PM's Economic Advisory panel Chairman, C Rangarajan as well : 

B) Replying to a query, Rangarajan said decontrol of diesel is a natural corollary to decontrol of petrol. "You cannot decontrol one petroleum product and not the other," he said.

So, diesel subsidy may now finally be on it's way out - & diesel cars including the high-priced Mercs & BMWs, not to mention the tens of thousands of private diesel cars & taxis that took away part of the subsidy designed for the poor may have to kiss subsidy good bye.

For those that believe fuel is too expensive in India than elsewhere :

c) Petrol is cheaper in Delhi than the UK, where it is sold at Rs 108.47 per litre, and France, where it costs Rs 103.14 a litre. The taxes on petrol in the UK and France add up to Rs 65.10 and Rs 59.26 per litre, respectively.

The rates here are also lower than the price of Rs 104.31 per litre in Germany, Rs 110.07 per litre in Italy, Rs 90.04 per litre in Spain and Rs 88.09 a litre in Japan. Minister of State for Petroleum and Natural Gas R P N Singh said on Tuesday  that the price of diesel in Delhi, at Rs 40.91 per litre, is cheaper than the rate of Rs 53.23 a litre in the US, Rs 95.18 a litre in the UK and Rs 79.85 per litre in France.

However, petrol costs more in India than the US because of higher taxes, but diesel is priced lower than the US. Petrol in Delhi costs Rs 65.64 per litre, as against the retail price of just Rs 45.45 a litre in the US, he said in a written reply to a question in Rajya Sabha. This is because taxes constitute Rs 26.44 out of the price of petrol in Delhi, while they amount to just Rs 5.54 in a litre in the US.

Thus, apart from US, petrol is cheaper in India.

Today's DH also reports following : (Road use may come at a price)

Use of certain roads during peak hours in Bangalore city, important State and district ways, piped and sub-surface water and all road-related taxes and fees in the State will become dearer if the Expenditure Reforms Commission (ERC) has its way.

The ERC, in its report over four volumes, has recommended that the State government should immediately explore the possibility of introducing  a “congestion pricing policy,” which exists in London, Singapore and Hong Kong, in Bangalore city which is facing severe traffic congestion problems."

And :

The ERC also wants the government to revisit rates of all road-related taxes like vehicle registration fee and licence fee. The total revenue generated from these sources should be enough to incur the cost of building and maintenance of roads in the State.

The revenue collected from road taxes, parking fee and congestion charges should be used for providing subsidy for those who use urban transport services, the ERC stated.

So, finally the wheels of the regulating machinery may begin to turn to bite & put an end to the senseless growth in traffic & push people on to trains & buses.


kbsyed61's picture

2 Different issues!

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You have brought out 2 important issues very nicely. I am not sure if the 2 can be clubbed for discussion in the context.

I am with all those voices who are for doing away with the universal subsidy on Petroleum products. At the same time, I am all for providing the targeted subsidy for petroleum products - For Public Transport Services, cooking needs of poor and deserving.

I think it is all about delivery model -

  • How do we subsidized the cost of petroleum products for public transport services?
  • How do we subsidized the LPG/Energy needs of the poor and economical weaker sections?

I am sure subsidizing for PT corporations is easy - It can be done claims via tax returns or govt reimbursements.

Tricky part is how to pass on the subsidy for individual private owners who also provide PT services? - Autorikshaw, Taxi, Private Buses. One solution would be to bring in proper regulation and balance it with provision for Health, Life and social security benefits. Subsidy can be either pre-sale via the route of monthly coupons/permit or post sale reimbursements via tax filings.

Most difficult part would be subsidy to poor and EWS. Looks like Bihar's model of cash transfer could be the way forward.

One thing is clear, it is time for eliminating subsidy where it is not needed. comment guidelines

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