Car Fuel Subsidised

One of my danish colleagues had remarked that our country, instead of helping the poor & taxing the rich, was subsidising the car users with lower fuel costs since all oil imports were being sold at lesser price than what they actually cost in India.

I had explained to him that the fuel being consumed by cars were actually leakages from the subsidy that was meant to help keep transportation costs of basic & essential commodities low to help the poor.

He then asked why a system could not be evolved where car fuel was made expensive & goods transportation costs kept low to remove subsidy entirely. I did not have any satisfactory answer for this since there really was'nt one - The real truth is that this would generate yet another venue for corruption, but I chose not to venture out for a discussion in that territory.

Any ideas on how this could be done without any corruption ?